Leaked
papers reveal that as Luxembourg’s PM, the European commission president
obstructed the bloc’s tax reforms efforts
 |
| The leak will embarrass Jean-Claude Juncker, who has since said he would lead EU tackle tax avoidance efforts. Photograph: Xinhua/REX/Shutterstock |
The president
of the European commission, Jean-Claude Juncker, spent years in his previous
role as Luxembourg’s prime minister secretly blocking EU efforts to tackle tax
avoidance by multinational corporations, leaked documents reveal.
Years’
worth of confidential German diplomatic cables provide a candid account of
Luxembourg’s obstructive manoeuvres inside one of Brussels’ most secretive
committees.
The code of conduct group on business taxation was set up almost 19 years ago to prevent
member states from being played off against one another by increasingly
powerful multinational businesses, eager to shift profits across borders and
avoid tax.
Little has
been known until now about the workings of the committee, which has been
meeting since 1998, after member states agreed a code of conduct on tax policies and pledged not to engage in “harmful competition” with one another.
However,
the leaked cables reveal how a small handful of countries have used their seats
on the committee to frustrate concerted EU action and protect their own tax
regimes.
Efforts by
a majority of member states to curb aggressive tax planning and to rein in
predatory tax policies were regularly delayed, diluted or derailed by the
actions of a few of the EU’s smallest members, frequently led by Luxembourg.
The leaked
papers, shared with the Guardian and the International Consortium of Investigative Journalists by the German radio group NDR, are highly
embarrassing for Juncker, who served as Luxembourg’s prime minister from 1995
until the end of 2013. During that period he also acted as finance and treasury
minister, taking a close interest in tax policy.
Despite
having a population of just 560,000, Luxembourg was able to resist widely
supported EU tax reforms, its dissenting voice often backed only by that of the
Netherlands.
Among
proposals popular in the code of conduct committee but opposed by Luxembourg were:
• Plans for
tax authorities in each member state to subject their dealings with
multinational businesses to peer review.
• An
investigation into cross-border tax avoidance strategies, known as “hybrid
mismatches”, often used by multinationals to conjure up artificial tax savings.
• Improved
information sharing between member states on tax deals granted to
multinationals in private.
A
spokesperson for Luxembourg’s finance ministry refused to comment on the
positions previous governments had taken in private EU discussions. “We have no
knowledge of the communications you claim to have, and whether they are
genuine, and therefore cannot comment on them,” he said.
The
spokesperson added: “In recent years Luxembourg has been at the forefront of
the global trend towards greater transparency in tax matters and the fight
against harmful tax competition.”
The
Guardian spoke to another former member of the code of conduct committee, who
did not want to be named but corroborated claims in the leaked cables that
Luxembourg was regularly among those looking to frustrate EU efforts to tackle
tax avoidance.
The source
said the committee was no longer fit for purpose. They said it was unable to
achieve much because it was governed by unanimity. “Each country is ready to
block any agreement. Moreover, each country stands ready to bargain its
position on tax against any other topic at stake in the EU,” they said.
Some tax
experts contacted by the Guardian confirmed that Luxembourg had begun to move
away from certain aggressive tax policies under the current prime minister,
Xavier Bettel.
However,
the leaked cables suggest the country has remained resistant to other changes.
In 2016 it fiercely opposed efforts supported by many countries to strengthen
and expand the code of conduct committee’s work.
Luxembourg
particularly objected to a relaxation of the committee’s own rules on decision
making, insisting there was no need to abandon the unanimity requirement.
France,
Germany and Sweden argued unsuccessfully that removing unanimity had become
essential to the committee’s effectiveness.
Luxembourg
also opposed plans to identify member states that were standing in the way of
reforms more clearly. One leaked cable noted: “It has become abundantly clear
once again that a majority [of members states] are not interested in real
reform. In particular, Luxembourg representatives said they would fundamentally
object to any proposal to publish arguments made by Luxembourg in the
committee.”
A later
cable read: “It is impressive to see how some member states present themselves
outwardly as proponents of [international tax reforms] and at the same time to
watch how they actually behave in EU discussions, protected by
confidentiality.”
The
Guardian contacted Juncker’s office for comment. A spokesperson said it was not
for the European commission to respond to questions about negotiating positions
Luxembourg had taken, or about the country’s past tax policies.
Damaging
revelations
Jean-Claude
Juncker’s record as Luxembourg’s prime minister has cast an enduring shadow
over his presidency of the European commission.
On paper,
his marathon 18-year stint at the helm of the EU’s second smallest member state
might be hailed a triumph. He recast the fading steel-based economy into a
booming hub for international business, and when he departed in 2013 Luxembourg
had been transformed into one of the richest countries in the world per capita.
Hundreds of
the multinational corporations rushed to channel international profits through
subsidiaries in the country, among them McDonald’s, Fiat, Amazon, Shire Pharmaceuticals
and Skype.
The secret
to this success was exposed in 2014 when the Luxleaks scandal revealed the
terms hidden within hundreds of private deals, known as “tax rulings”, that
Luxembourg had handed out to multinational businesses behind closed doors.
The rulings
effectively rubber-stamped complex tax structures that global corporations used
to access ultra-low tax rates, often less than 1%, for profits shifted to
Luxembourg.
Juncker
conceded the scandal had damaged his reputation. While not illegal, he admitted
Luxembourg’s tax system was also “not always in line with fiscal fairness” and
may have breached “ethical and moral standards”.
Since then,
Juncker has made a point of supporting the EU’s competition commissioner,
Margrethe Vestager, as she pursues high-profile investigations into specific
tax rulings, including deals Luxembourg granted separately to McDonald’s and
Amazon.
The
investigations are examining whether the deals were so generous that they
amounted to illegal state aid from Juncker’s Luxembourg.
Juncker has
also campaigned hard for greater tax cooperation among member states in the
battle against international businesses that avoid tax. The latest leaked
cables, however, raise further questions about whether he is the right person
to champion such reforms.
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