Skype implicated in EU corporate income tax scandal

Microsoft, which bought Skype in 2011, said it 'modified Skype's business model' after the takeover

Skype used two Luxembourg companies and an Irish subsidiary to avoid paying corporate income tax during a five year period, according to documents detailing deals with Luxembourg tax authorities.

On Tuesday, the International Consortium of Investigative Journalists (ICIJ) published a new batch of documents in its ongoing investigation into secret tax agreements approved by Luxembourg authorities.

The documents included some showing that Skype used complicated corporate structures to avoid paying corporate tax, according to an analysis of the documents by The Guardian. Skype did so by circulating royalties and profits between its two Luxembourg subsidiaries and an Irish company, the paper reported, citing a 2005 tax ruling granted to the company.

The ICIJ investigation, dubbed "LuxLeaks", so far has shown that Luxembourg authorities have provided tax-relief for more than 350 companies around the world in private deals that are legal in Luxembourg, but may constitute illegal state aid under European Union rules.

The European Commission has started cracking down on governments giving favorable tax deals to companies. It is already probing Amazon.com on suspicion of receiving illegal state aid from tax authorities in Luxembourg where the company has a subsidiary that records most of its European profit.

The Commission has also started probes into possible illegal tax deals between Apple and the Irish government, and is investigating two other companies outside the technology industry, Fiat and Starbucks.

Microsoft, which bought Skype in 2011 for US$8.5 billion, said it "reviewed and modified Skype's business model as part of the integration process" after the takeover.

"As a global business, Microsoft adheres carefully to the laws and regulations of every country in which we operate," a Microsoft spokeswoman said in an email. She declined to comment on any possible ongoing tax deals with the Luxembourg authorities.

The tax leaks have put pressure on European Commission president Jean-Claude Juncker, who was the prime minister of Luxembourg between 1995 and 2013. Since the revelations began, he has been trying to brush off any accusations aimed directly at him, saying that he was not the architect of the Luxembourg tax system.

"Fairer taxation is a top priority of the European Commission of President Juncker," a Commission spokeswoman said during a press briefing in Brussels on Wednesday.

In addition to its four ongoing investigations into tax deals, the Commission has also asked for extensive information on tax rulings from Luxembourg and other member states. However, the Commission declined to comment on whether deals with Skype or any other company implicated in the new leaks were being investigated because the inquiries are ongoing.

Besides targeting companies and governments through the competition branch, the Commission has also promised to speed up a legislation plans that aim to fight tax avoidance and tax fraud. A proposal is planned for the first quarter of 2015, the Commission spokeswoman said.

Loek is Amsterdam Correspondent and covers online privacy, intellectual property, online payment issues as well as EU technology policy and regulation for the IDG News Service. Follow him on Twitter at @loekessers or email tips and comments to loek_essers@idg.com

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