Leandra Lederman (Indiana-Maurer; Google Scholar) presents The Rise And Fall (?) Of Luxembourg As A Tax Rulings Haven at Duke today as part of its Tax Policy Seminar hosted by Lawrence Zelenak:

In November 2014, the International Consortium of Investigative Journalists (ICIJ) broke the “LuxLeaks” scandal, revealing hundreds of billions of dollars of secret deals given by the tiny country of Luxembourg to large multinational enterprises such as Amazon, Apple, and Verizon. These sweetheart deals, in the form of Luxembourg tax rulings, allowed many name-brand companies to dodge huge amounts of tax that would otherwise be due to the U.S. or other countries. The international LuxLeaks scandal was headline news because it revealed that large multinationals had essentially bought tax breaks without the knowledge of the countries that would have collected the taxes dodged.

The tax rulings that Luxembourg used to grant these tax breaks were lengthy and complex. It is surprising that a small tax administration was able to produce thousands of these rulings in a few years. This Article is the first to explore the history of where Luxembourg’s informal tax-rulings process came from and the elements that allowed it to be so prolific. 

After discussing key players in the importation and growth of the rulings process, the Article argues that three elements were critical to allowing these secret tax deals to attract so many major multinational companies: (1) amenability of the tax administration, (2) trust in that administration by tax advisers, and (3) secrecy.

The Luxembourg example shows that a country can have high statutory tax rates and still function as a tax haven. Secrecy is key, however. Once tax-rulings secrecy ended, Luxembourg’s rulings volume plummeted, as the Article demonstrates. Moreover, at the same time, a secret new process allegedly arose, as revealed in the lesser-known 2021  “LuxLetters” scandal. This Article shows that LuxLetters illustrates the same three factors, suggesting that as long as a tax administration is amenable and advisers trust that administration, together they may be able to find ways to significantly reduce their taxes at the expense of other countries. Transparency is therefore critical for countries to be able to effectively impose taxes on multinational enterprises.