Monday

26th Jun 2017

Juncker in spotlight after Luxembourg tax revelations

  • The former PM (c) of Luxembourg will have to convince EU leaders he did not create a tax haven. (Photo: consilium.europa.eu)

Governments in Europe and all over the world have missed out on billions of euros of potential tax income because companies channeled their profits through Luxembourg, an investigation by the International Consortium of Investigative Journalists and media across 32 countries has found.

A total of 343 companies, including Swedish furniture maker Ikea, German financial institution Deutsche Bank, and American technology company Apple have put in place complex financial structures to pay as little tax as possible.

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These schemes were approved by the tax office of Luxembourg at a time when Jean-Claude Juncker was the duchy's PM.

On Wednesday (5 November), the investigative journalists published 548 leaked Luxembourg tax rulings from 2002 to 2010.

These rulings are also called comfort letters and give a company the reassurance that its proposed tax scheme is approved by the tax authorities.

The European Commission has been trying to acquire such comfort letters from Luxembourg in their investigation of American online shop Amazon and Italian car manufacturer Fiat.

In October, the commission announced that Luxembourg had provided Brussels with some of the requested information but “the Luxembourgian authorities have still not fully complied with the Commission's information request”.

It is not clear if some of the comfort letters the Commission has not yet received, are among the leaked files.

The arrangements between the companies and Luxembourg are legal. However, they are certain to raise awkward questions.

The leaked documents demonstrate tax arrangements negotiated by PricewaterhouseCoopers, which in a reply to the consortium called the documents “outdated” and “stolen”.

One such document shows how PricewaterhouseCoopers advised Dutch clothing company WE Group several times on how to reduce its tax burden, as reported by newspaper Trouw.

Under the model, a separate company is founded in Luxembourg, which acquires the exclusive intellectual property rights to one of the clothing company's brands. For every clothing piece of that brand, WE pays royalties to the Luxembourg company.

Not only does WE reduce its profit tax due in the Netherlands, it also benefits from Luxembourg's special low taxation of royalties: 80 percent of the royalties are exempt from taxation.

The law, which allows companies this generous tax exemption from royalties, was signed when Jean-Claude Juncker was prime minister of Luxembourg.

The now-European Commission chief was a strong defender of Luxembourg's tax system at the time.

He recently told German TV: "No one has ever been able to make a convincing and thorough case to me that Luxembourg is a tax haven."

However, the revelations come just a few days into his new job as commission president and amid a growing public backlash against tax-avoidance schemes.

Meanwhile, it is not only companies that benefit from the tax rules in Luxembourg.

A Canadian pension fund that invests on behalf of public servants also set up a scheme to avoid paying taxes, the CBC reported.

For his part, German Green MEP Sven Giegold said on Thursday that the "mass corporate tax avoidance" schemes are "a major blow to … [Juncker’s] credibility”.

“The fact that … [he] served as Luxembourg's finance and prime minister throughout this period makes him directly complicit".

Giegold added that EU finance ministers meeting in Brussels on Friday “must immediately respond to these serious revelations”.

Investigation

Europe’s tax haven investments in Africa

A combination of lax rules and no-questions-asked policy means that money from the European Investment Bank, the EU's longterm lending institution, is flowing to tax havens. An Egyptian case study shows how this happens.

Juncker 'serene' over Luxembourg tax scandal

The EU commission may "broaden and deepen" its investigations into Luxembourg taxation practices, a commission spokesman has said, while deflecting questions about Jean-Claude Juncker's involvement in the scheme.

EU approves rescue of Italian banks

The European Commission gave the green light to a €17-billion plan by the Italian government to save Banca Popolare di Vicenza and Veneto Banca.

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