EU and OECD half-measures fail to detect Luxembourg’s shadow tax rulings 


EU and OECD half-measures fail to detect Luxembourg’s shadow tax rulings 

An international investigation conducted by Le Monde,  Süddeutsche Zeitung, El Mundo, Woxx and Investigative Reporting Project Italy, with the Tax Justice Network and The Signals Network, reveals the existence and application of secret tax practices in Luxembourg that breach EU transparency rules. While the EU rules on information exchange were deemed to be too weak by the European Court of Auditors in January 20211, Luxembourg has now been caught breaking even these. As the Tax Justice Network’s Corporate Tax Haven Index 2021 pointed out, the era of tax rulings is far from over in Luxembourg.2 But the secret tax practices revealed today are a damning indictment of the EU and OECD’s noncommittal approach to tax transparency, the Tax Justice Network argues.

The secret tax practices at the centre of what is being called the LuxLetters scandal allow multinational corporations to circumvent transparency measures that Luxembourg was pressured to adopt specifically in response to their corporate tax abuses exposed by the LuxLeaks scandal3 in 2014.

LuxLeaks exposed corporate tax rulings – written binding statements from a tax authority to a person or entity confirming whether their tax plans are a legal or illegal interpretation of tax laws4 – issued by Luxembourg, but enabling multinational corporations to underpay billions in tax in other countries. The rulings allowed tax advisers and law firms to sound out the limits of just acceptable, maximum tax aggression in individual cases, so as not to step beyond them. Some tax rulings were later found to be illegal by the European Commission.

Luxembourg began efforts in 2014 to meet EU and OECD rules on exchanging information with other countries about its corporate tax rulings. However, it is now revealed that shortly after this, many of Luxembourg’s accounting and law firms engaged with the tax authority to establish “information letters” about the tax planning of multinational corporations. These information letters effectively fulfil the same purpose as tax rulings – but crucially, were deemed to be outside of the scope of the information exchange rules and so were not reported as rulings, according to sources familiar with the practice.

Importantly, however, this too is prohibited under EU rules and is likely illegal also under OECD rules. Any type of tax agreements – even if not demonstrably legally binding – must be exchanged with European tax authorities.

According to sources familiar with the practice, the process involves a careful dance of nods and winks through which information letters are unofficially given consent by the tax authority. The procedure for receiving quasi-official endorsement by the tax administration for desired tax positions apparently combines oral discussions between high level staff in accounting and law firms, and the tacit understanding that a non-response by the tax administration to written information letters sent by the firms to the tax administration implies that the practice is acceptable and would not be challenged in the subsequent tax return. In the rare event of disagreement by the tax administration, it would reach out to the firm by phone or request a meeting to discuss.

In what was presumably an attempt to prevent just the sort of public exposure now occurring, only the most senior executives of accountancy firms and members of the tax authority have access to the information letters. This would have kept citizens and lawmakers both in Luxembourg, in the EU and around the world completely unaware of the aggressive tax treatment, exemptions and reductions granted in secrecy to designated multinational corporations.

Luxembourg’s ability to bypass EU law and OECD rules without detection can be directly attributed to the EU and OECD’s resistance to building public transparency into global tax rules, the Tax Justice Network argues. Luxembourg ranks 6th on the Corporate Tax Haven Index 20215, a global ranking of countries most complicit in helping multinational corporations underpay tax, yet its tax system was graded as “not harmful” by the OECD’s flagship safeguarding policy against countries enabling harmful tax practices6. The EU’s list of non-cooperative jurisdictions, meanwhile, openly excludes all member states from evaluation – despite the presence of six EU members in just the top 20 of the Corporate Tax Haven Index.

Markus Meinzer, director of financial secrecy and governance at the Tax Justice Network, said:

“These shocking revelations make clear that the Luxembourg authorities have deliberately conspired with leading tax professionals to frustrate EU law. It is no secret that the exchange of information to curb tax abuse by means of tax agreements is too weak – the European Court of Auditors already pointed this out in January 2021.  But what is now coming to light with the LuxLetters is a completely different matter.

“With the practice of the information letters, Luxembourg may have indirectly broken not only European law, but also Luxembourg law directly. For tax agreements – even if they are not demonstrably legally binding – must be exchanged with European tax authorities. Everything indicates, however, that these information letters were not sent to partner authorities, but rather that their purpose was precisely to circumvent these reporting obligations. It’s hard to believe that a national government would make such a childish argument: ‘I can’t hide tax rulings anymore? OK then, this tax ruling isn’t a tax ruling, it’s just an information letter.’ But that seems to be the exact response of the Luxembourg authorities to the efforts to discipline their antisocial behaviour in the wake of the original LuxLeaks.

“Luxembourg had its chance to shed its tax haven image after it was dealt a yellow card by the EU for LuxLeaks, but LuxLetters demands a red card. Luxembourg is without a doubt one of Europe’s most antisocial corporate tax havens and has now proven that it cannot be trusted to abide by community rules.

“If ever a country had shown itself worthy of the label ‘non-cooperative jurisdiction’, it is surely Luxembourg – but the EU blacklist does not even consider member states. Today’s revelations are a damning indictment of not just Luxembourg’s shameless fixation on undermining its neighbours, but of the embarrassing failure of EU and OECD tax rules. All this could have been exposed and deterred years ago if proper tax transparency was in place. But the OECD and corporate lobbying in the EU have repeatedly blocked the public from having full transparency on multinational corporation’s tax. LuxLeaks, Paradise Papers and now LuxLetters – how many more scandals do policymakers need to understand nothing short of full transparency will protect their citizens from corporate tax abuse?

“LuxLetters make it clear how necessary the global minimum tax rate and public country by country reporting are. The global minimum tax rate will put a floor on the profit shifting taking place in Luxembourg, but G20 countries meeting in the next week to discuss the global tax rate must be wary of any exemptions Luxembourg may push.

“The public country by country reporting agreement reached by the EU trilogue last month7 has the potential to expose the most abusive profit shifting enabled in Luxembourg, but the agreement is so watered down, it won’t detect multinationals moving their tax abuse activity to other tax havens, like Switzerland, Hong Kong or the British Virgin Islands. The EU must match the ambition shown in the US House of Representatives two weeks ago8 and adopt a more robust standard of public country by country reporting that requires multinational corporations to report country by country data for all countries they have a presence in, not just in EU countries.”

Liz Nelson, director of tax justice and human rights at the Tax Justice Network, added:

“These revelations show Luxembourg as a clear threat to human rights internationally. It’s not simply how the government is conniving with tax professionals and multinational companies to deny transparency. It’s the fact that these shameful actions are being carried out in order to ensure the continuing facilitation of billions of euros in tax losses all around the world.  

“During a global pandemic, when public health systems are buckling under the pressure in lower- and higher-income countries alike, it is simply unconscionable that one of the richest states in the world is secretly leeching tax revenues from all sides. Our analysis shows that Luxembourg imposes revenue losses on the rest of the world equivalent to the annual salaries of more than two million nurses, or enough to cover more than a third of the $66bn cost of global COVID-19 vaccination.”9


 Contact the press team: [email protected] or +491783405673 

 Notes to editor: 

  1. The report released by the European Court of Auditors on 26 January 2021 stated on page 35: “According to the visited Member States and to the Commission’s evaluation of the DAC, the summary of uploaded rulings sometimes lacked sufficient detail for a proper understanding of the underlying information; it was difficult for Member States to know when to request further information and, if they did so, to demonstrate that it was needed for purposes of tax assessment”.  
  2. The Tax Justice Network has published its analysis of Luxembourg’s information letters as part of an update to the vast database the Corporate Tax Haven Index compiles on each country’s tax and financial systems. The Corporate Tax Haven Index ranks countries based on their complicity in helping multinational corporations underpay tax. Tellingly, the exposure of information letters did not result in a worse tax aggression score for Luxembourg since the country had already gained the worst possible score on tax ruling regulations for its lack of full disclosure on rulings. The information letters confirm that the lack of transparency for which Luxembourg has received the worst possible score for runs deeper and harbours risks for serious corporate tax abuse. The relevant data points can be found in Luxembourg’s corporate tax haven profile accessible at:  (to find the detailed account, under the previous link, click first on “Haven Indicator 1: LACIT”, then on “ID 545 — Corporate Income Tax Rate: Adjustment for tax rulings”). 
  3. Click here to read more about the LuxLeaks investigation conducted by the International Consortium of Investigative Journalists (ICIJ). 
  4. Click here to read our primer blog on corporate tax rulings. 
  5. Click here to view Luxembourg’s ranking breakdown on the Corporate Tax Haven Index 2021. 
  6. Our analysis of the OECD’s flagship safeguarding policy against countries enabling harmful tax practices found that the policy failed to detect almost all corporate tax abuse risks documented by the index. The policy is one of the four key pillars of the set of global rules the OECD launched in 2015 to tackle tax abuse by multinational corporations, known as the BEPS (Base Erosion and Profit Shifting) Action Plan. Under the safeguarding policy, countries’ tax systems are evaluated and graded by the OECD on whether they enable harmful tax practices by multinational corporations. A comparison of the OECD ratings that countries received against their evaluation on the Corporate Tax Haven Index 2021 revealed that countries graded by the OECD as “not harmful” are responsible for 98 per cent of the world’s corporate tax abuses risks. 
  7. Click here to read our response to the EU trilogue’s agreement on country by country reporting. 
  8. Click here to read our response to the passage of the Disclosure of Tax Havens and Offshoring Act in the US House of Representatives, which requires public country by country reporting from multinational corporations. 
  9. Our latest annual report, the State of Tax Justice 2020, shows that Luxembourg imposes global revenue losses of $28 billion, by facilitating cross-border tax abuse by companies and individuals. Click here for the full report and data. Global COVID-19 vaccination would cost an estimated $66 billion, according to the letter to the G7 signed by more than 100 former prime ministers, presidents and foreign ministers and seen by The Guardian