Koch’s Luxembourg transactions revealed by the new documents involved its chemicals and polymers subsidiary Invista BV, which makes Lycra-brand fiber and Stainmaster-brand carpets.
The Koch documents, also prepared by Ernst & Young, describe “Project Snow,” a 26-step restructuring of Invista designed, they say, to simplify the company’s structure, centralize its cash flow into Luxembourg, and pay down debt.
The restructuring was worked out in a series of four meetings in late 2008 and early 2009 between Ernst & Young employees and Marius Kohl, head of the Bureau d’imposition Sociétés VI, part of Luxembourg’s revenue authority, according to the tax ruling. Kohl, now retired, approved thousands of tax deals over 22 years that helped save companies billions of dollars.
The documents show that in the restructuring, which took place starting in September 2008, the subsidiaries of Invista passed hundreds of millions of dollars back and forth, converting shares to debt and occasionally dissolving firms. Tax-free “hidden distributions” among subsidiaries are just one type of head-spinning transaction included in the confidential tax ruling approved by Luxembourg authorities. Another section describes a $736 million loan that gets passed from company to company until a U.S.-based subsidiary becomes “both the debtor and creditor of the same debt,” and the debt is canceled.
Each step in the tax ruling includes a separate interpretation of how it will impact the company’s taxes in Luxembourg. In most instances, the transactions are exempt.
Central to Koch’s restructuring deal is an internal company bank, Arteva Europe S.à.r.l., which manages the cash flows of the company’s European operations through Luxembourg. Arteva had established a Swiss branch that likely benefited from low tax rates in Switzerland. Luxembourg officials agreed to treat the Swiss branch as separate from the Luxembourg company, according to the tax deal.
From 2010 through 2013 the company paid $6.4 million in taxes on $269 million in profits. Its highest annual tax rate was 4.15 percent.
Arteva reported no staff costs in its annual financial reports filed in Luxembourg. In Switzerland, Arteva’s branch shares an address in Zurich with a firm called Tax Partners AG, whose principals are also listed in public filings as the deputy branch managers of Arteva, according to reporting by ICIJ partner, The Guardian. The branch manager of Arteva Switzerland describes himself on the web site LinkedIn as “tax director, Europe” for Koch International Shared Services.
“Like all Koch companies, Invista conducts its business lawfully, and pays its taxes in accordance with applicable laws,” said Rob Tappan, a Director of External Relations for Koch Companies Public Sector. The company declined to respond to detailed questions about its Luxembourg operations.
Koch says Invista is headquartered in the United States. However, U.S. and other operations are owned by a holding company incorporated in the Netherlands, a low-tax country, where it reports financial results.
The Invista offices are located in a modern office building in Luxembourg in a suite with other Koch companies. A sign on the glass front says Koch Business Solutions — Europe S.à.r.l. The building is home to more than 670 active businesses, according to an ICIJ analysis of Luxembourg’s corporate registry as of September 2014.
No one responded when a reporter rang the bell at the office, and two workers who were leaving declined to say how many people work there and what they do.
Koch Industries is the second-largest privately owned company in the United States, according to Forbes, and it is not required to report its financial information in the U.S., so it’s impossible to know how much tax it has paid here. The company bought Invista from DuPont in 2003 for $4.4 billion and combined it with KoSa, the Koch subsidiary that produced polyester and nylon fibers. It incorporated the new company in the Netherlands.
Koch Industries immediately began paying down Invista’s debt, according to reports from Moody’s. By 2010, Koch Industries had contributed $350 million to Invista, and by 2011, Koch had helped the company repay an additional $720 million, leaving Invista debt-free, Moody’s said.
Owners Charles and David Koch have been in the center of political controversy in recent years as they’ve sought to use their money and connections to elect Republican political candidates who are sympathetic to their libertarian beliefs.
Koch Industries admitted in 2011 that one of the key companies in its Luxembourg holdings, Invista S.à.r.l., had funneled a dozen illegal campaign contributions to state political candidates in Virginia, Delaware and Kansas and to the U.S. Democratic Governors Association. The company agreed to pay a fine of $4,700.
In its submission to the Federal Election Commission the company said that “the violations resulted from a general lack of knowledge among company personnel of either the nature of Invista's legal structure or of the restrictions that applied to it as a foreign company.”
The Kochs and their network of big-money donors and politically active nonprofit groups raised more than $400 million in an unsuccessful effort to thwart President Barack Obama’s bid for re-election in 2012. They were back this year, supporting Republicans’ successful bid to gain control of the U.S. Senate.
The Center for Responsive Politics calculated that David Koch and his wife Julia contributed at least $2.4 million to political candidates and groups during the 2014 election cycle, while Charles Koch and his wife Elizabeth contributed about $2.3 million. Each of the brothers, through trusts, contributed $2 million of that to the nascent Freedom Partners Action Fund super-political action committee.