Monday

25th Jun 2018

Magazine

LuxLeaks: An opportunity?

  • Bilions of euros that should have gone to national treasuries never did - their absence secured by 'comfort letters' which gave guarantees that the scheme was approved by the tax authorities. (Photo: Fotolia)

As political honeymoons go, it was short and ended abruptly.

Just one week into his job as European Commission president, Jean-Claude Juncker was broadsided by a series of newspaper articles outlining the depth and breadth of corporate tax avoidance schemes in Luxembourg. Schemes thought up and enacted while he was running the country.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... our join as a group

  • Jean-Claude Juncker - the man in the spotlight. Juncker was prime minister of Luxembourg when the schemes were thought up and enacted (Photo: europarl.europa.eu)

Known as LuxLeaks, and published in early November, they detailed how hundreds of multinationals were able to pay little or no tax in the countries they were based in by channelling profits through the Grand Duchy.

Billions of euros that should have gone to national treasuries never did - their absence secured by "comfort letters" which gave guarantees that the scheme was approved by Juncker's tax authorities.

Luxembourg's affection for making life easy for multinationals was never a secret. In speeches to national parliament in the early 2000s Juncker referred to his role as a negotiator in setting up favourable arrangements for companies such as Aol and Amazon. He saw it as a way of weaning his country off its reliance on industry.

But the scope – revealed in black and white – was new to the public. LuxLeaks showed that 343 companies – including giants such as Swedish furniture maker Ikea, German lender Deutsche Bank, and US tech firm Apple – received comfort rulings.

It was an awkward revelation for someone who had come to the EU post acknowledging that his commission had to win back the trust of EU citizens or "fail".

The more awkward because the political tide has changed in recent years. While such deals may be perfectly legal, they are seen as morally untenable in the context of austerity and high unemployment in Europe.

State aid rules

At the same time, Juncker's own commission - in one of the last steps undertaken by the previous president - is currently investigating a series of tax deals to see whether they breached EU state aid rules.

EU lawyers are looking into breaks given to Apple in Ireland, coffee chain Starbucks in the Netherlands, and to e-commerce giant Amazon as well as to Fiat Finance in Luxembourg - the last two raising the question of potential conflict of interest.

Juncker's initial reaction was a misstep. He chose to ignore the revelations, letting his spokesperson inform the public that it was "normal practice".

A week later, he broke his silence and said that if the "tax rulings" (or comfort letters) led to "non-taxation" he would regret it.

He also made two proposals: the commission would try and unblock the very-stuck legislation on creating a common corporate tax base - first tabled in 2011 - and propose a new law on the automatic exchange of information on comfort letters.

Margrethe Vestager

Juncker is in the spotlight because he is now European Commission president, but many EU governments engage in the same practices.

A day after the LuxLeak revelations, a Dutch report suggested the Netherlands' corporate tax regime is on a par with Luxembourg's. Ireland and the UK are also assiduous in wooing multinationals with tax deals.

The issue looks likely to keep haunting Juncker. His competition commissioner, Margrethe Vestager, is looking into whether Luxembourg breached EU rules on state hand outs.

If she finds the Grand Duchy didn't, there are likely to be grumblings about a whitewash.

If she finds it did, then Juncker would be in the uncomfortable position of heading an EU institution meant to be guardian of rules that he broke as prime minister.

A blessing after all?

But the whole affair could yet turn out to be a blessing in disguise.

LuxLeaks has once more put the issue of tax avoidance onto the political agenda. The fact that the EU commission president is a part of the story means it has a higher chance of staying there.

Reviving the common corporate tax base and putting forward a new law on automatic exchange of comfort letters - as Juncker plans to do - could normally be said to be legislative dead ducks from the get-go.

EU tax-related laws require unanimous agreement - a feature which Luxembourg, among others, has used to its fullest in the past.

But the new political dynamic and the great (and angry) public gaze might make it harder for member states to hide behind their veto than previously.

On balance, having as commission president a man who did so much to aid corporate tax avoidance while PM might result in some real action - 2015 will tell.

This story was originally published in EUobserver's 2014 Europe in Review Magazine.

Click here to read previous editions of Europe in Review magazines.

EU in new push for common corporate tax base

The European Commission Wednesday announced plans meant to put an end to secretive 'sweetheart' tax deals for multinationals and nudge member states towards common corporate tax rules.

Magazine

Macron: Hegelian hero of EU history?

The election of the 39-year old newcomer injected new hope and dynamism. But the French president still has to find solid allies in the EU and deliver his ambitious agenda at home.

Magazine

In 2018, make Europe great again!

Is the EU back on track to make Europe great again? The fifth edition of EUobserver's Europe in Review magazine looks at the biggest events that shaped the EU in 2017 and prospects for 2018.

News in Brief

  1. EU publishes Australia, New Zealand trade mandates
  2. EP civil liberties committee votes for Article 7 on Hungary
  3. Report blames 2017 egg scare on lax EU enforcement
  4. Nine countries to sign up for Macron's military initiative
  5. Re-elected Erdogan potentially in power until 2028
  6. Macron's popularity drops among French pensioners
  7. Tajani calls for €6bn investment to halt migration
  8. Major demo in London for second EU referendum

Stakeholders' Highlights

  1. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  2. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  3. Macedonian Human Rights MovementMHRMI Launches Lawsuits Against Individuals and Countries Involved in Changing Macedonia's Name
  4. IPHRCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  5. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  6. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  7. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  8. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  9. Mission of China to the EUChina: Work Together for a Better Globalisation
  10. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  11. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  12. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform

Latest News

  1. Orban allies divided in vote on Hungary sanctions probe
  2. Rutte - from 'Mr No' to 'next Tusk'?
  3. UN offers to help EU's migrant 'disembarkation' plan
  4. Progressive CAP alternative only hope for sustainability
  5. Ponytailed green MEP joins 'the other side of the table'
  6. EU leaders still in search of migration plan
  7. Migration row at centre of EU summit This Week
  8. Merkel's woes cast shadow on EU's future

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network
  2. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future
  3. ACCAEmpowering Businesses to Engage with Sustainable Finance and the SDGs
  4. Nordic Council of MinistersCooperation in Nordic Electricity Market Considered World Class Model
  5. FIFAGreen Stadiums at the 2018 Fifa World Cup
  6. Mission of China to the EUChina and EU Work Together to Promote Sustainable Development
  7. Counter BalanceEuropean Ombudsman Requests More Lending Transparency from European Investment Bank
  8. FIFARecycling at the FIFA World Cup in Russia
  9. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  10. Centre Maurits Coppieters“Peace and Reconciliation Is a Process That Takes Decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  11. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  12. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece

Join EUobserver

Support quality EU news

Join us