Disney, Koch used secret tax deals routed through Luxembourg, report says

Walt Disney Co., giant conglomerate Koch Industries Inc. and other companies channeled hundreds of millions of dollars in profits through units based in Luxembourg in secret deals designed to avoid paying U.S. taxes, according to a new report.

The International Coalition of Investigative Journalists said in its report late Monday that the maneuvers were found among a trove of leaked documents highlighting Luxembourg's role as a center of tax-avoidance deals for global corporations.

The organization's reports, which started last month, have roiled the tiny Northern European grand duchy and led to vows from the country's government to tighten oversight of so-called tax rulings, which have allowed the deals to go forward.

In a statement Tuesday, the Luxembourg Finance Ministry "acknowledged the publication" of the journalism group's report, saying "the way in which these documents were acquired is highly questionable."

Even so, the ministry said, "Luxembourg agrees that the legitimacy of certain mechanisms, which are compliant with international and national law, can be put in doubt from an ethical point of view."

The journalists' group has published exposes on the offshore tax haven industry since spring 2013, basing its first reporting on 2.5 million pages of documents leaked from offshore financial servicing firms based in the British Virgin Islands and other tax havens.

Those stories had spurred official investigations in the United Kingdom, France, Canada, the Philippines and elsewhere.

The latest set of leaks was based on what the organization said was a confidential cache it obtained of secret tax agreements approved by Luxembourg authorities that provide tax relief for more than 350 companies around the world.

Among the companies already named as receiving favorable tax rulings are FedEx, Ikea and Pepsico Inc. The private deals are legal in Luxembourg, the journalists'  group said.

In the latest report, the group said Disney and Koch engineered restructuring deals to reorder the ownership of subsidiaries and centralize them under Luxembourg firms that were served by an internal finance company.

These internal lenders, the report said, received interest from the affiliates that had the effect of channeling  profits through Luxembourg from 2009 to 2013. As a result, both companies’ Luxembourg units paid tax rates of less than 1% in some years, the report said.

A Disney spokesperson called the group's report "deliberately misleading" and said: "Disney's global tax rate has averaged 34% over the last five years.  The [Luxembourg] ruling has not meaningfully affected the taxes we pay in any jurisdiction globally."

Rob Tappan, a spokesman for Koch, based in Wichita, Kan., said: “Koch companies conduct their business lawfully, and they pay taxes in accordance with applicable laws."

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For the Record

Dec. 10, 6:15 p.m.: An earlier version of this article misspelled Koch spokesman Rob Tappan's last name as Tappen.

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The Luxembourg revelations are part of a wider scrutiny of offshore tax havens and corporate tax avoidance. The European Commission has opened a formal investigation of tax treatment of multinationals, and widened the probe in October to include a tax deal in Luxembourg won by a unit of Amazon.com Inc.

Twitter: @deanstarkman

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