POLITICS & INSTITUTIONS - ECONOMY

Luxembourg and the Paradise Papers



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Luxembourg's name has cropped up less often in the Paradise Papers than in previous leaksPicture credit: Vince Viloria 

As the revelations about the “Paradise Papers” unfold, the name of the grand duchy slowly creeps up here and there.

Just a few weeks ago, it was revealed that Volkswagen has a holding company in Luxembourg, thereby avoiding higher taxes in Germany.

So far, Luxembourg has been implicated in tax avoidance schemes by just a handful of companies and Shakira, the famous singer, according to the Süddeutsche Zeitung, which broke the news.

While the big stories focus on wealthy individuals and companies, rather than countries, it is nevertheless worthwhile to have a look at how, and to what extent, Luxembourg has been mentioned so far.

Shakira

The Tageblatt wrote on 7 November, based on information from El Confidencial and Süddeutsche Zeitung, that Shakira’s companies involve a company in Luxembourg which manages her musical and intellectual property.

She owns the company Tournesol Limited, which owns the rights to her music, intellectual property and brands. Its capital amounts to €3,020,001, but also has capital reserves of €31,637,050. Tournesol Limited owns the Luxembourg-based company ACE Entertainment, due to the “low taxes”.

Until 2016, Shakira was officially the sole owner of a Maltese company. A third company, based in the Netherlands, is also involved, as the money is being shifted from one company to the other, avoiding millions in tax payments.

A lawyer representing Shakira told The Guardian that her investment “fulfils all legal requirements”.

Fraport

Fraport, partially owned by the German state of Hesse, which operates the Frankfurt airport, has units in Malta and in Cyprus, but also a sister company in Luxembourg to “optimise the tax position”.

This scheme has been used by other companies to save taxes, but the Süddeutsche has calculated that the German treasury loses €17 billion a year through legal tax avoidance and illegal tax evasion.

(As of this writing, Fraport had not returned Delano’s message seeking comment.)

Luxaviation

Luxaviation, a Luxembourg private jet operator, had a branch in the Isle of Man until the end of July this year.

The Isle of Man is known for its accommodating tax regime for the purchase and registration of private jets, which can be manipulated to pretend commercial activities take place and thus avoid VAT.

The public radio station 100,7 reported on Thursday 9 November that the company Luxlegacy Ventures Limited was the parent company of Legacy Aviation, which was responsible for buying, selling and leasing of airplanes. This Luxembourg company has belonged to the Luxaviation group since 2011.

Patrick Hansen, CEO of Luxaviation, told 100,7 that the parent company on the Isle of Man was not founded by Luxaviation, but by the owner of an airplane which Luxaviation operated.

To operate this airplane, an Embraer Legacy 600, an outfit called Luxembourg Yep Aviation was created in 2008 by Russian businessman Nikolay Bogatchev, together with Patrick Hansen.

A few years later, to pay off some outstanding bills, Luxaviation bought the shares of Luxlegacy Ventures Limited on the Isle of Man. Last year, that plane was sold. The company had no use anymore, and to save money, it was liquidated on 31 July 2017, the Luxaviation CEO explained to 100,7.

The public radio station noted that a month before that, a law came into effect which stated that the names of the real owners of companies must be published, not just the administrators. Hansen said that the liquidation of that company had nothing to do with that.

Editor’s note: The activity described in the Paradise Papers has not been ruled illegal.