The Offshore Wrapper – 8 October

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Amazon cut down to size

There have been two big announcements from the European Commission this week. Firstly, Luxembourg has been ordered to recover €250m in back-taxes from Amazon. The Commission ruled that a deal struck between that country’s tax authority and the company constitutes illegal state aid. The deal allowed Amazon to avoid taxes on three quarters of their profits.

The European Commission press release reveals details of how the deal worked. It appears that Luxembourg engaged in state-sanctioned tax avoidance, allowing the use of classic transfer pricing techniques by Amazon, including charging companies royalties at inflated prices. It was this suspension of the rules in favour of one company which allowed the Commission to intervene.

At the same time the Commission announced it is taking action against Ireland for refusing to implement a ruling concerning tax dodging by Apple. A year ago the Commission ordered Ireland to collect €13bn in back taxes following unlawful sweetheart deals the country’s tax authority made with Apple.

Ireland has refused to implement the Commission’s ruling, and so the Commission will now start proceedings at the European Court of Justice.

You may be asking yourself which austerity-riven country wouldn’t like an extra €13bn? But sadly, non-compliance with international agreements is the hallmark of many a tax haven, Ireland included.

Opposition builds to Trump Tax proposals

The debate on the Trump tax proposals continues. This week saw an intervention from one of history’s largest investors, Warren Buffett. Speaking to the US network CNBC, he stressed that companies in the United States today are now making a return on capital on an unprecedented scale. These returns are highly competitive globally, despite the headline tax rate in the States being higher than in other countries. (As we always point out, the rate actually companies pay is often much lower).

According to Warren Buffett, many of the arguments on how tax cuts are necessary in order to improve competitiveness are fictitious.

The point that Mr Buffett makes is that corporate tax cuts primarily benefit investors in companies. Whilst there may be some argument for incentivising investment in tough times, investors today are doing very well. Indeed, Mr Buffett notes that the latest proposed cuts to corporation tax would be a boon to investors in his fund, Berkshire Hathaway, including himself.

As the debate heats up, 100 organisations have signed a letter urging congress to reject the proposal to move to a territorial tax system, which would leave the profits generated by the offshore subsidiaries of US corporations untaxed. These organisations argue that the change would provide an incentive for US firms to offshore both profits and jobs.

As AFL-CIO President Richard Trumka has succinctly put it, “I’ve got to hand it to them. They’ve really outdone themselves this time. It must take a lot of effort to come up with an idea this bad.”

Donald Duck launders Iranian cash through Slovenian banks

A Slovenian bank has been accused of laundering €1bn of transactions from Iran, according to the OCCRP. The allegations concern Iranian agents suspected of procuring supplies for the country’s nuclear programme. After Switzerland shut down their accounts it is alleged that the agents, (which included a man called Iraj Farrokhzadeh who was on the Interpol most wanted list), opened up accounts with the New Ljubljana Bank.

Between 40-50 transactions a day were made to 30,000 companies around the globe, including some with directors using names such as Donald Duck and Mickey Mouse.

The centre right Slovenian Democratic Party has accused the previous government of obstructing the attempts of international investigations to uncover the scheme.

The “Cayman of China” attracts movie stars looking for a break

Sixth Zone reports that a remote town on the Chinese-Kazakh border is attracting a wealth of movie stars and film companies due to its generous tax breaks.

The Khorgos / Horgos Free Trade Zone is one of the most remote places in the world, in the middle of the Saryesik-Atyrau desert and not far from Eurasian pole of inaccessibility, the geographical point which marks the furthest distance from an ocean on earth.

In 2014, a new city was founded which now has 87,000 inhabitants. To encourage growth the city became China’s first ‘free economic zone’ with highly preferential tax rates, leading it to its nickname, the Cayman of China.

One industry which has become a particularly heavy user of the zone is China’s film industry, with 1,500 media companies now registered in the zone. Of course, as with any tax haven, the film companies are not actually based in this zone, they simply go there to sign some papers and collect a massive tax break.

The report shows how three companies who invested in China’s summer blockbuster “Wolf Man 2” have saved tens of millions of dollars by registering there.

Photo credit: Mark Fischer on Flickr shared under the Creative Commons License