Posted on August 15th, 2016 in Uncategorized

When good guys face jail time for doing the right thing.

In late November 2014,  more than 28,000 documents were leaked by two PricewaterhouseCoopers employees. The documents detailed tax breaks that the EU nation of Luxembourg offered to more than 350 large multinational firms between 2002 and 2010 through the big 4 accounting firms, (Ernst & Young, PricewaterhouseCoopers, Deloitte and KPMG).  The tax breaks were given to allow the multinational firms to funnel profits through Luxembourg at lower tax rates.  Some of the companies named in the documents include Starbucks, Apple, McDonald’s, Amazon, Pepsi and Ikea.

By December 2014 the two whistle-blowers responsible for what is now knows as the LuxLeaks were charged with disclosure of confidential information, theft of trade secrets, money laundering and fraud. Shortly thereafter the reporter who broke the story and published the leaked documents was also criminally charged.

On June 29th 2016, two whistle-blowers and the reporter were all given suspended jail sentences for their involvement in the “LuxLeaks”.  While it seems they will not spend any time in jail, neither accountant be able to practice in accounting field ever again.  At sentencing, the judge noted that the defendants broke the law but there are other issues  at play.  Since the incident began in late 2014, both accountants have received awards and financial help for taking personal risks in the permute of justice.

But there is nothing illegal with tax breaks, right? As a EU member, country Luxembourg is required to tax companies the same and not give individual tax breaks because tax breaks are considered state aid by the EU. So while a EU country can give state aid (tax breaks) to companies in a specific industry they cannot give a tax break to any one specific company.  As a result, the tax breaks these companies received where legal within the country but were illegal according to EU law.

This is not a new issue. Let’s be honest here, Luxembourg has been doing this for a long time. Luxembourg was the second largest destination for investment capital after the US which is an amazing statistic since the country’s population is only 500,000.  The EU first started investigating companies getting special tax treatment in 2013.  Over the years the EU has investigated many tax deals in various countries and are now requiring companies to shift their profits out of countries with low tax rates when there is little or no operating activity there.

Unfortunately, the overwhelming majority of the companies sanctioned so far are US owned companies. As a result, the US government has taken note as government officials have made public statements related to the issue.

About the Author – Phillip Zagotti, CPA is the President of Zagotti and Burdette CPA, LLC. He can be reached at or (832) 800-3347. 

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