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Logs are piled up in the forest area where Hellas Gold is constructing an open pit to extract gold in Skouries, at the Halkidiki region, northern Greece. Vancouver-based Eldorado Gold Corp owns 95 per cent of Hellas Gold.STRINGER/Reuters

Canada's Eldorado Gold Corp., the biggest foreign investor in Greece, is engaged in a tax-avoidance scheme that uses mailbox companies in the Netherlands to lower its tax load, a new report from a Dutch foundation says.

The Centre for Research on Multinational Corporations, known as SOMO, made the claim in a detailed 116-page report called Fool's Gold, which was released in Amsterdam Monday and will be presented Wednesday in Athens at a panel discussion featuring Norway's Eva Joly, a member of the Green Party in the European Parliament.

The report claims the scheme has cost the Greek government at least €1.7-million ($2.3-million) in revenue in the past two years.

The timing of the report was apparently no accident. It came as Eldorado fights hard to keep its Greek mining operations going in the face of threats from Greece's new radical left Syriza government to shut down or curtail them over environmental concerns. It also came a month after the European Parliament's committee on tax rulings revealed it is examining allegations that some European Union countries are using special tax regimes or deals to favour large companies.

The Eldorado tax-avoidance manoeuvre described by SOMO is neither illegal nor rare. Foreign companies often use mailbox companies in the Netherlands, Luxembourg and Cyprus to channel money between entities within corporate groups. They are also known as shell companies or special purpose entities. Usually, they have no operating assets or employees.

Katrin McGauran, a SOMO researcher who is the co-author of the Eldorado report, said the mailbox companies expose Greece's bailout masters as hypocrites.

"The European Union and the Netherlands have double standards," she said. "On the one hand, they impose harsh austerity measures, which have devastating social and economic impacts on Greece. On the other hand, they actively facilitate tax avoidance, which costs the Greek state millions of euros."

Eldorado's vice-president of investor relations, Krista Muhr, said "we absolutely deny all allegations" put forth by SOMO, but gave few details as to what the company thinks the SOMO report got wrong. "We have not made any tax savings from Greece," she said. "All revenue generated in Greece is taxable in Greece."

She said the company has paid about €50-million in taxes to the Greek state since 2012. "We are therefore not depriving the Greek state of an important source of income, but rather we are creating an important source of tax revenue for the Greek state," she said.

The conclusions of the report would have come as no surprise to Eldorado, which is pumping $1-billion (U.S.) into four mining operations in northern Greece, dominated by the Skouries gold mine. Last year, SOMO published a "discussion paper" on Eldorado's tax-avoidance methods. Ms. McGauran said Eldorado declined to comment on the report that she said "looked very much like the new report" and that Eldorado had ample time to review the new report before it was published.

SOMO, formed in 1973, is an independent research organization that works on sustainable development issues and the impact of multinational corporations on society and the environment. Its 2013 budget of €3-million was funded by the Dutch Foreign Ministry, the European Union and private funds. The Fool's Gold report itself was funded by the Halifax Initiative of Canada, Interpares, Mining Watch Canada and the Sigrid Rausing Trust of Britain.

The report said Eldorado's tax-avoidance plan relied on shifting money from high-tax to low-tax countries. SOMO determined that Eldorado's Greek subsidiary, Hellas Gold, issued unsecured bonds, worth €96-million in 2013, to several Dutch companies controlled by Eldorado. In turn, the Dutch companies were financed by loans from an Eldorado company in Barbados. Interest payments on the bonds and loans, both from Greece to the Netherlands and from the Netherlands to Barbados, went virtually untaxed, the report says.

Eldorado admits it has Dutch companies but denies they are merely mailbox operations. "In the Netherlands, we have a physical office location with full-time employees," she said.

The SOMO report says Eldorado has at least seven Dutch subsidiaries, only one of which has employees – three in the case of a holding company called Eldorado Gold Cooperatief UA (Eldorado says it has five employees in Amsterdam, one of which is a tax manager).

In a 2013 U.S. Securities and Exchange Commission filing, Eldorado admitted that its efforts to structure the company "in a commercially efficient manner" could result in increased taxes and tax penalties "if any such planning effort is considered by a taxation authority to constitute tax avoidance."

Eldorado has invested about $450-million so far to build the Skouries gold mine and another mine, called Olympias, whose development has often triggered violent protests. In March, the Greek government presented Eldorado's Greek subsidiary with a formal notice revoking a permit required for the final construction of the Skouries processing plant.

Eldorado chief executive officer Paul Wright said failure to restore the permit "may force Eldorado to reconsider its investment plans for Greece."

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