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24th Jul 2021

Skype among newly revealed Luxembourg tax deals

  • Through its scheme, Skype could avoid paying tax on 95 percent of its profits (Photo: Alvaro Ibanez)

Political pressure on European Commission president Jean-Claude Juncker is set to rise again after newly-revealed documents show an additional 35 companies, including Walt Disney and Skype, using Luxembourg's tax regime to avoid paying taxes.

The International Consortium of Investigative Journalists (ICIJ), which in November broke the story it titled Luxembourg Leaks, reported on Tuesday (9 December) that following publication of the first revelations, it received a new tranche of leaked so-called 'comfort letters'.

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The documents reveal that not only accounting firm PwC, but also its three main competitors Deloitte, Ernst & Young, and KPMG, have written explanations to the Luxembourg tax office on their clients' elaborate financial schemes, which allow them to pay as little tax as possible.

The tax office then stamps the letters to let the company know their scheme is deemed legal.

The American media company Walt Disney's tax scheme for example, involves 34 steps, “moving money in circles across the globe while transforming it from cash to debt to equity and back”, the ICIJ writes.

But the new tax deals also describe newly uncovered tax schemes by European companies.

Skype, an online phone service which allows its users to make phone calls cheaply or for free, is often lauded by European officials as a success story of European innovation.

In 2013, the European Commission issued a press release in which it wrote it “wants young Europeans to be inspired by home-grown entrepreneurs”, like the two Scandinavian creators of Skype.

On 11 November 2010, Neelie Kroes, then European Commissioner for digital agenda, held a speech on the importance of network neutrality, the principle that all data should be treated equally.

“There were 21 million people using Skype alongside me when I called my family at the weekend”, Kroes said.

But the same day Kroes held that speech, Ernst & Young sent a comfort letter to the Luxembourg tax office on behalf of Skype, seeking to pay as little tax as legally possible.

According to European newspapers that cooperate with the ICIJ, including De Tijd and the Guardian, Skype had set up four separate tax deals between 2005 and 2010, before it was bought by Microsoft in 2011 for $8.5 billion.

Through its scheme, Skype could avoid paying tax on 95 percent of its profits because it had asked that part to be treated as royalties, paid to Skype's Irish subsidiary.

Juncker was prime minister at the time as well as finance minister. He recently easily survived a motion for censure in the European Parliament.

In an interview with France's Liberation newspaper, Juncker admitted he has been "weakened because the Luxleaks suggests that I would have participated in schemes which infringe elementary rules of ethics and morality".

Earlier in December, the European Parliament said it would issue a report on fiscal schemes in EU member states, but shied away from launching an indepth enquiry into the matter.

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