Hong Kong firm financing owners of 3 mobile network had secret tax deal

A Luxembourg company that provides indirect financial support to 3 Ireland, is among the latest batch of entities found to be availing of secret tax deals in Luxembourg.

Hutchison Whampoa Europe Investments Sarl (HWEI) – part of the sprawling Hong Kong conglomerate – is an intra-group finance company that borrows money from group companies and lends it to other group companies within and outside Luxembourg.

It provides finance to Hutchison 3G UK Holdings Ltd, owner of the 3 mobile network here, which bought O2’s Irish business last year. 3 sponsors the Republic’s soccer team and Ireland’s rugby team, and has the naming rights on the former Point Theatre in Dublin.

Tax rate

Last year HWEI reported a profit of €429.6 million and paid just €65,067 in tax. The tax charge paid by HWEI equates to a rate of 0.015 per cent (or 1/64th of 1 per cent), whereas Luxembourg’s corporation tax rate is 29 per cent.

The 1/64th of 1 per cent rate is quoted in an advanced tax agreement between the Hutchison Whampoa group and the Luxembourg authorities, negotiated in 2007 by PricewaterhouseCoopers in Luxembourg.

The company is based at Maison de l’Europe, 7 rue du Marché-aux-Herbes, a three-storey building that also houses the offices of the European Commission in Luxembourg.

PwC Luxembourg negotiated an advanced tax agreement with the Luxembourg tax authorities in 2007 when the group was in the process of setting up a European subholding structure, which the Luxembourg tax authorities were told would fund Hutchison Whampoa investments in port, telecoms and retail businesses around the continent.

The agreement said that, given the sums involved, and the “back-to-back” nature of the funding through the group structure in Luxembourg, “a spread of 1/64 [of 1] per cent on the overall principal amounts in back-to-back position should be an appropriate and acceptable profit with respect to general transfer pricing policy”.

Back-to-back funding

The agreement said that the back-to-back funding flowing through the Luxembourg structure (which would include a number of companies) would only be taxed as it passed through one of the companies, and that this would normally be Hutchison Whampoa Europe Investments.

The latest accounts for Hutchison Whampoa Europe Investments show it had assets of €38.7 billion at the end of 2013, which included shares in affiliated companies of €7.2 billion and loans to affiliated companies of €26.3 billion.

Hutchison Whampoa recently made a major investment in its activities here by way of companies that have loans from Luxembourg affiliates. Hutchison 3G UK Holdings Ltd is the direct owner of Hutchison 3G Ireland Ltd, with the UK company having loans of more than £6 billion from Hutchison Whampoa Europe. In March of this year Hutchison 3G Ireland Ltd switched its tax residency from the UK to Ireland. Last year, Hutchison 3G UK Holdings Ltd bought the O2 business in Ireland from Telefonica for €780 million.

Hutchison 3G Ireland reported a loss of €56.6 million in 2013, on a turnover of €179.9 million. It paid interest to group affiliates of €27.2 million and had interest-bearing loans of €1.13 billion from group affiliates at the end of the year.

The company’s auditor is PwC Ireland.

The Hutchison Whampoa group is quoted on the Hong Kong Stock Exchange and had a global turnover of $53 billion last year. It has interests in ports, property, hotels, retail, energy and telecommunications companies around the globe. A spokesman for the group said it did not wish to comment.

PwC code of conduct

PwC Luxembourg has said it does not comment on its clients affairs. It said tax advice and assistance given by it to its clients is “given in accordance with applicable local, European and international tax laws and agreements and is guided by a PwC Global Tax Code of Conduct”.