“A Luxembourg structure is a way of stripping income from whatever country it comes from,’’ said Stephen E. Shay, a professor of international taxation at Harvard Law School and a former tax official in the U.S. Treasury Department. The Grand Duchy, he said, “combines enormous flexibility to set up tax reduction schemes, along with binding tax rulings that are unique. It’s like a magical fairyland.”

The deals can be so complex that PwC accountants frequently include “before” and “after” diagrams to illustrate how money flows from subsidiary to subsidiary and across different countries and tax havens. The leaked records show that Luxembourg’s 2009 tax deal for Illinois-based Abbott Laboratories – which makes arthritis drugs and Ensure meal replacement shakes –features 79 steps including companies in Cyprus and Gibraltar. Abbott projected it would invest as much as $50 billion via Luxembourg.

More than 170 of the Fortune 500 companies have a Luxembourg branch, according to Citizens for Tax Justice, a nonprofit research and advocacy group. A total of $95 billion in profits from American corporations’ overseas operations flowed through Luxembourg in 2012, the most current statistics from the U.S. Bureau of Economic Analysis show. On those profits, corporations paid $1.04 billion in taxes to Luxembourg – just 1.1 percent.

– From the ICIJ’s report: Leaked Documents Expose Global Companies’ Secret Tax Deals in Luxembourg

The expose by the International Consortium of Investigative Journalists (ICIJ), at times reads like a movie script. Leaked documents, one of the world’s largest accounting firms, and a retired tax official named Marius Kohl, nicknamed “Monsieur Ruling,” who was described by a Belgian newspaper as “the guardian of the only door through which companies can enter the fiscal paradise of Luxembourg.”  This piece has it all.

Here are some choice excerpts:

Pepsi, IKEA, FedEx and 340 other international companies have secured secret deals from Luxembourg, allowing many of them to slash their global tax bills while maintaining little presence in the tiny European duchy, leaked documents show.

These companies appear to have channeled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes, according to a review of nearly 28,000 pages of confidential documents conducted by the International Consortium of Investigative Journalists and a team of more than 80 journalists from 26 countries.

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