According to Der Spiegel, a German news magazine, who conducted the investigation jointly with the journalism consortium European Investigative Collaborations, the German carmaker has had a holding company and a financing company in Luxembourg since 2012, and:

“has woven an almost impenetrable web of capital networks and cash flows within Luxembourg worth a total of 17 billion euros.”

This company currently employs 5 full-time staff in the grand duchy.

Spiegel reported on Saturday 28 October that:

“from 2014 to 2016, VW subsidiaries have transferred 5.8 billion euros to Luxembourg.” Volkswagen Finance Luxemburg SA “declared profits of 3.5 billion euros but paid only 1.7 million euros in taxes--a tax rate of just 0.05 percent.”

Volkswagen has established structures in Luxembourg that allow for the shifting of profits, alleged Spiegel. Volkswagen Finance Luxemburg SA holds 26 subsidiaries and has a balance sheet total of €14.8bn, according to Spiegel.

Profits recycled as internal loans

But the Luxembourg holding company has only sent a portion of those profits back to its German headquarters. Spiegel found that:

“At least 3.5 billion euros either remained in Luxembourg or were transferred back to the country - and essentially recycled as loans within the Volkswagen Group - a second source of profit for VFL.”

Several finance companies are dependent on the Luxembourg-based holding company, stated the online magazine. The company Volkswagen International Luxemburg, for example, is supplied by VFL with capital and liquidity and provides a substantial number of loans within the company. Subsidiaries in France, Sweden and Portugal pay interest on these loans.

The financing companies, in turn, transfer the interest income to VFL as dividends, on which the holding company pays no tax. Ultimately, the loan and capital relationships within the group lead to lower profits at VW subsidiaries and a greater share of those profits end up in Luxembourg, Spiegel alleged.

Tax ruling?

Spiegel said that there are “indications” that VW may profit from a tax ruling. VW did not deny the possibility.