State aid probes set to intensify in wake of leaks Luxembourg Multinationals are bracing themselves for more state aid investigations, following the publication of a massive cache of leaked corporate tax documents from Luxembourg. The tax affairs of more than 300 multinationals were dragged into the open when the International Consortium of Investigative Journalists, a global network based in the US, partly published a stash of nearly 28,000 pages of leaked files. These businesses include corporations such as PepsiCo, Ikea , Accenture, Burberry, Procter & Gamble, Heinz, JPMorgan, FedEx, Abbott Laboratories and Macquarie. The revelations have lifted the lid on practices that are regarded as normal in the corporate world, where most big businesses use Luxembourg as part of their financial structures. But tax experts said that the documents may provide more examples of cases where allegedly favourable tax "rulings" - comfort letters concerning a company's future tax treatment - amounted to illicit state aid, breaching EU rules. Caroline Ramsay, a state aid lawyer at Pinsent Masons, an international law firm, said: "The commission is now very likely going to scrutinise this dossier of papers in great detail - and several more companies could join the ranks of Fiat, Apple and Starbucks and find themselves in the state aid firing line." The commission is currently probing rulings agreed by the Luxembourg tax authority with car group Fiat and Amazon, the ecommerce company. The government and companies subject to the state aid probes reject any improper arrangements or wrongdoing. The ICIJ also stressed that it was not suggesting any irregularity in any of the documents it had examined. However, the release of the documents is likely to give renewed momentum to the international crackdown on international tax avoidance that is set to be discussed at this month's G20 leaders" meeting in Brisbane. Given Luxembourg's importance in international tax planning, the publicity around its tax arrangements will focus attention on the effort to rewrite the global tax rules, which is about half way through. The ICIJ - which worked with 80 journalists and outlets including The Guardian, Le Monde and Germany's Süddeutsche Zeitung - said that its findings illustrated how companies saved billions of dollars in taxes. It said: "In some instances, the leaked records indicate companies have enjoyed effective tax rates of less than 1 per cent on the profits they've shuffled into Luxembourg." Although it has long been known that companies achieve the very low tax rates in Luxembourg, the cache of data provides insights into the complex mechanisms used to achieve them. Luxembourg is not overtly a low-tax country for businesses: more than two-thirds of OECD countries have corporate tax rates lower than its 29.2 per cent. But the documents show that there are numerous deductions and exemptions that lower the rate by creating profits that escape tax altogether. The documents reveal myriad strategies, including arrangements such as low-tax Swiss branches, "hybrid" financial instruments and "hidden capital contributions." They also outline details of sprawling structures, often involving companies and branches in business-friendly countries such as the Netherlands that allow companies to arbitrage the difference between countries" tax rules. The exposure is likely to be particularly unnerving for some companies because it contrasts with a tradition of secrecy in Luxembourg. Foreign tax inspectors trying to understand their multinationals" tax planning often struggled to make sense of the sparse details in the companies" Luxembourg accounts, and found it hard to obtain legal documents. Campaigners said that the latest "Luxembourg leaks" underlined the need for G20 leaders to go further in their crackdown on corporate tax avoidance. Murray Worthy, a campaign manager at ActionAid, a development group, said: "This exposure of the industrial scale of global tax avoidance involving Luxembourg clearly highlights the need for global action." Nicolas Mackel, chief executive of Luxembourg for Finance, an inward investment agency said that Luxembourg had been aware that the details would be published, although he had not anticipated the scale of the publication. He said: "The criticism that Luxembourg helps companies evade taxes on an industrial scale is rubbish. This does not show that Luxembourg has any scheme that helps companies. Rulings are a normal tax technique. They exist in multiple countries. The documents referred to date back a number of years - we cannot comment on individual cases Mr Mackel also hit out at reports that the publication features "secret deals," saying that the rulings were merely confidential. He said he believed the data had been leaked by a "disgruntled employee" from an archive. The confidential documents mostly concern clients of PwC, the professional services group. ICIJ said it had helped multinational companies obtain at least 548 tax rulings or "Advance Tax Agreements," from 2002 to 2010. PwC said: "The documents referred to date back a number of years - we cannot comment on individual cases." At a time when businesses are increasingly aware of reputational risk, the public scrutiny of their tax plans is likely to hasten the restructuring of their global tax planning. Fears of a state aid investigation will further add to concerns, according to Ms Ramsay. The companies that are on this list should immediately consider how they can restructure their global tax planning in a way that the European Commission will not find offensive. Back to the top of the page