Luxembourg #luxleaks highlight scale of global tax dodging

Oxfam strongly welcomes today’s leaked documents on Luxembourg’s tax haven operations revealed by the International Consortium of Investigative Journalists (ICIJ), showing that Luxembourg granted favorable tax treatment to many multinational corporations in order for them to dodge taxes by routing their profits through the country.

Catherine Olier, Oxfam tax expert, said:

"Today's leaks underline the scale of the problem of tax dodging. It’s not just one isolated scandal; we're talking about a whole industry making profits disappear, which hurts Europeans and developing countries alike. Tax dodging is depriving governments from much needed money to pay for basic public services like health and education.

“Since there must be many more sweetheart tax deals like this, Europe must urgently agree on greater transparency on multinationals to ensure they pay taxes where they really make profits. This was proposed by EU leaders in May last year but they failed to take action. It should be one of the main priorities for the new European Commissioner President Juncker and his team."

This problem of corporate profit ‘disappearance’ - and how Luxembourg operates as a tax haven - is not new. However, these leaks show the sheer scale of the problem. This is not one mistake or an isolated case - this is proof of tax avoidance by over 300 large companies, with probably even more benefitting from the sweetheart tax deals Luxembourg offers. Oxfam only has information for companies that were clients of the accounting firm PricewaterhouseCoopers (PwC) and because of secrecy, it is difficult to estimate how many companies really use this system. It results in both developing and European countries missing out on billions of Euros in tax that in times of austerity could be much better spent on healthcare or education rather than lining already wealthy corporate pockets.

Rigged tax rules are at the heart of economic inequality; a growing issue that Oxfam brought to the public’s attention last week. If companies do not pay their fair share of taxes - in this case some pay less than 2 percent tax in Luxembourg – citizens, and small and medium companies, are left to fill the holes, which creates unfair competition and regressive tax systems.

This leak comes at a particularly interesting time as Heads of State from the world’s 20 richest countries are due to meet in Brisbane, Australia, for the G20 Summit next week to agree on the next steps for reforming corporate tax rules. This leak clearly shows how much work is still to be done, and G20 leaders need to walk the talk to adopt ambitious rules that will benefit all countries, including the developing countries that suffer most from corporate tax dodging. Currently, developing countries are barely consulted on the new sets of rules, and cannot participate in these discussions on an equal footing. Instead, reforms are being discussed within the OECD - a group of exclusively rich countries that ironically includes several tax havens, such as Luxembourg.

The leak also arrives at a very good time for the European agenda. Finance Ministers, meeting tomorrow in Brussels, should agree on concrete next steps against aggressive tax planning by some European member states. Transparency is a first and easy step they can take. To fight tax dodging, we need to know where companies have their economic activities and where they make profits and pay taxes (the so-called public country-by-country reporting) so that journalists, civil society and citizens can challenge companies on any tax-dodging habits. Similarly, we need to have public registries of who really owns companies and trusts (the so-called beneficial owners) so that shell companies can no longer be used to stash away billions of would-be tax income.

However, much more could still be done. These tax rulings are a sensitive political decision for some states, but they should be made public or discussed by parliamentarians to ensure some form of democratic control over tax deals. Member States should also urgently implement the European Commission’s recommendations against aggressive tax planning, presented in December 2012, as progress has been arduous and slow. European leaders have promised for years that they will fight tax dodging, but now it has become a real emergency. Leaders need to turn blind eyes into transparency policies – and there is no better time to do so than now.

Tweet: #LuxLeaks show need for greater transparency on multinationals as they don’t pay taxes where they really make profits #ECOFIN