…Another scandal with Deutsche Bank…
…And this one is going to be expensive to solve…
…I said it many times …
…And it is not about to end anytime soon…
Francisco (Abouaf) de Curiel Marques Pereira
(FT) Deutsche Bank has been devising complex international tax avoidance strategies for some of its largest corporate clients, even as G20 governments and the OECD attempt to close loopholes involving moving money to other jurisdictions.
According to documents seen by the Financial Times and people familiar with the process, tax-saving plans were pitched this year to several Deutsche Bank clients with offices in Brazil, including brewer AB InBev and the commodities groups Archer Daniels Midland, Bunge and Cargill.
They involved the so-called profit-participating instruments, or PPI trades. Under the proposed strategy, a Deutsche client in Brazil would have co-invested with the bank’s Austria unit in a newly established Austrian entity. This Austrian entity would then take the funds and lend them back to the corporate client in a jurisdiction outside Brazil with favourable withholding tax rules — such as another European country.
Both the client and Deutsche Bank would benefit from the “profits” of the Austrian entity — generated from the loan terms — and pay them out as dividends that also qualify for tax exemptions.
Deutsche structured the transactions this way to establish a commercial rationale, such as raising finance, rather than simply rerouting money to avoid tax, people familiar with the strategy explained.
It did not want to see the cash being lent around in a circle back to Brazil, the people added.
Similar deals were proposed to take advantage of tax arrangements between other countries, such as Mexico and Luxembourg. None of the proposals was illegal.
Deutsche Bank said it did not proceed with the plans for any clients. “These transactions were never executed,” the bank said in a statement.
AB InBev declined to comment, while ADM and Bunge could not immediately be reached for comment. Cargill said it was looking into the matter.
However, the plans suggest that banks have continued to design creative tax avoidance strategies, despite concerted efforts by the OECD and the G20 to prohibit them, through anti-avoidance measures.
a recent estimate, the OECD said governments were losing $240bn in revenue because of corporate tax avoidance. Recession-hit Brazil has been trying to raise tax revenues in an attempt to reduce a widening budget deficit.
“God knows there are people out there who have a lot of creativity on tax matters,” said Achim Pross, head of international co-operation and tax administration at the OECD. “But we’re pretty optimistic that one way or another, these rules capture the bulk of what governments perceive as the problem. We have put together a pretty comprehensive package and reached a global consensus on what needs to be changed in the international landscape.”
Deutsche Bank appears to have been aware of the possible sensitivities of its proposals, and a Brazilian law firm was asked to review the structures, said people familiar with the deals.
Documents also show that Deutsche executives in its Latin America unit and other divisions were aware of the proposals but needed to approve them. The plans also needed to go through the bank’s reputational risk committee.Deutsche-Bank-created-complex-tax-avoidance-strategies-FT