Mylan, Heinz among U.S. companies using Luxembourg for tax reduction

When Cecil-based generic drug giant Mylan bought Bioniche is 2010, it didn’t simply hand over a check to the owners of the Irish pharmaceutical firm.

Instead, Mylan channeled financing through Luxembourg, a small European country that is a magnet for U.S. companies seeking ways to cut their tax bills. The transaction began with Mylan and one of its existing Luxembourg subsidiaries lending $552 million to a new Luxembourg subsidiary. That subsidiary loaned the money to yet another Luxembourg subsidiary, which loaned it to yet another Luxembourg subsidiary, which loaned most of the $552 million to an Irish subsidiary that acquired Bioniche.

Tax experts say the convoluted process generated substantial tax savings for Mylan, which last summer announced plans to reduce its tax bill even more by renouncing its U.S. tax citizenship through a tax code provision known as an inversion.

Mylan has plenty of company in Luxembourg. In 2009, Pittsburgh-based Heinz structured a complex, 16-step transaction that was used to channel approximately $5.7 billion in financing through Luxembourg as part of an initiative called “Project Summer.”

Using intercompany loans, Heinz was able to shift income from Canada and Ireland into Luxembourg, where it would be taxed at a very low rate or not at all, tax experts said.

Confidential documents obtained by the International Consortium of Investigative Journalists and released in November reveal that the two Pittsburgh companies were among 343 large companies that used tax strategies that involved doing business through Luxembourg, considered to be a tax haven fairyland where companies can reduce taxes on profits funneled through that nation to under 1 percent. Nearly 28,000 pages of materials published by the consortium detail how the companies received speedy, favorable rulings from Luxembourg tax authorities. All of the companies were clients of PricewaterhouseCoopers, the global accounting firm.

The leaked documents obtained by the investigative journalists provide a rare, inside look at the intricate maneuvers that companies routinely rely on in their quest to avoid paying taxes. (See icij.org/project/luxembourg-leaks.)

“The less money the corporations pay, the more money you and I pay,” said University of Connecticut tax law professor Richard D. Pomp, who has studied the documents. “The less that gets shouldered by corporations, the more the middle class has to pony up.”

Shifting profits to Luxembourg and other offshore havens enables U.S. multinational companies to avoid paying an estimated $90 billion in federal income taxes annually, according to a report issued in June by Citizens for Tax Justice and U.S. PIRG. The report, “Offshore Shell Games,” said at least 362 companies in the Fortune 500 had nearly 8,000 offshore subsidiaries based in Luxembourg, Gibraltar and other tax havens in 2013.

Mylan, Heinz and five other Pittsburgh-area companies were cited in the joint report: Allegheny Technologies, Dick’s Sporting Goods, PPG Industries, U.S. Steel and Wesco International.

(You can search for and examine each company’s documents here.)

The companies benefit immensely from infrastructure, an educated workforce, government-funded research and other advantages that the U.S. provides, but are trying to get out of paying taxes, said Rebecca Wilkins, senior counsel for Citizens for Tax Justice, a think tank in Washington, D.C.

“Paying taxes is what makes those things possible. … None of us like to pay taxes, but we all know we need to contribute,” she said.

In recent months, another tax-slashing technique has grabbed headlines: the corporate inversion. The process involves relocating a company’s headquarters for tax purposes to a country with a lower tax rate. The company keeps its physical headquarters in the United States.

Critics say inversions are unpatriotic and allow companies to cut billions from their U.S. tax bills each year.

“These transactions are about tax avoidance, plain and simple,” former U.S. Sen. Carl Levin, D-Mich., said last year.