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.
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.
This article was written by Simon Bowers, for theguardian.com on Sunday 1st January 2017 13.14 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010