EC president accused of hypocrisy over Luxembourg tax schemes

Tax Disc

Margaret Hodge, the British scourge of corporate tax evasion, has accused the European commission president, Jean-Claude Juncker, of hypocrisy and demanded he explain whether he personally authorised tax avoidance schemes that were rife in Luxembourg during his premiership of the principality.

Hodge said it was outrageous and the height of hypocrisy that he was representing the European Union at the G20 summit in Brisbane this weekend where the countries are expected to agree new measures to crack down on corporate tax evasion.

As chairwoman of the public accounts committee Hodge has made a reputation for aggressive cross-examination of company chief executives about their tax efficiency schemes, including the leading technology firms such as Apple and Amazon.

She said of Juncker: “He needs to give an explanation about what he knew. It seems inconceivable that he did not know about these tax schemes and it is outrageous that he is now representing the EU at the G20 on tax evasion.”

She said: “He has got to explain himself. For a long time he was prime minister of a country that was operating as an aggressive tax haven. He has to say what he is going to do to restore his reputation and what he is going to do ensure the EU will prevent these schemes proliferating across the EU so that ordinary people can have confidence in the EU and G20 agenda.

“Ultimately taxpayers from other countries foot the bill for the kind of aggressive schemes run in Luxembourg. These schemes in Luxembourg have been reported on repeatedly, yet he seems to have done nothing.

“Public opinion is changing about these schemes, and companies are beginning to realise the reputational damage being inflicted on them. But the EU has to be at the forefront of greater transparency and information sharing.”

Juncker served for 19 years as prime minister of the tiny principality of Luxembourg, and for many of these years served concurrently as a finance minister.

The Guardian, along with other newspapers last week gave the most detailed accounts yet of the devices used by Luxembourg officials to help companies minimise taxes.

The strategies were often developed together with company leaders and served to entice multinationals to come to Luxembourg, so depriving other EU countries of badly needed income.

Juncker has so far refused to say anything in public about the revelations but will be expected to give a press conference in Brisbane probably at the weekend. The issue is also controversial in Australia since the Australian tax office said it had launched an investigation into whether multinational firms operating in Australia were avoiding tax by using deals arranged through Luxembourg. Bloomberg News has called for Juncker to step down, saying, “although he has not done anything illegal he made his country rich by picking the pockets of other countries, including those of the European Union he is now mandated to serve”.

It has also been alleged that Luxembourg only started to cooperate with the European commission competition authorities after he stopped being prime minister in 2013. During his campaign to become European commission president he rejected the claim, saying: “The allegation … that I actively promoted tax evasion is an outrageous attack on my country and my person. I will not accept that.”

EU authorities are already investigating corporate tax avoidance schemes in Ireland and the Netherlands on suspicion that they may constitute illicit state aid to business.

Global brands such as PepsiCo, Amazon, insurer AIG and Deutsche Bank AG are reported to have benefited from such deals with Luxembourg.

The European commission will be reluctant to see Juncker’s future seriously questioned at a time when the euro is under pressure.

He should not be judged on the past,” opined Pierre Moscovici, the European commissioner for economics, taxation and customs.

David Cameron tried to block Juncker from being commission president in the summer but largely due to his alleged federalist beliefs and the way in which he was selected once he became the candidate of the European People’s party group.

Cameron as chair of the G8 last year put corporate tax evasion high on the political agenda and since then the OECD had been working up more detailed schemes for information transfer between tax authorities.

The chancellor, George Osborne, has promised that he will use the autumn statement to crack down on technology companies that evade tax.

At the Conservative party conference he said: “Some technology companies go to extraordinary lengths to pay little or no tax here.

“If you abuse our tax system, you abuse the trust of the British people. And my message to those companies is clear: we will put a stop to it.”

But Hodge said the British government’s hands were not entirely clean on tax avoidance pointing to a series of schemes introduced by the current UK government including the so-called patent box.

Following months of negotiations Germany and Britain announced a deal on the scheme introduced by Britain that allows countries to give preferential tax treatment on intellectual property.

The scheme provided incentives to encourage high-tech businesses to commercialise their intellectual property in the UK by charging just 10% tax on the resulting income. Britain was increasingly isolated in the EU over the scheme and the issue was threatening to undermine Cameron’s credentials at the G20 summit. The new deal restricts the tax break to research and design carried out in Britain.

Powered by article was written by Patrick Wintour, political editor, for The Guardian on Tuesday 11th November 2014 19.33 Europe/London © Guardian News and Media Limited 2010