Luxembourg Tax Scandal, Hiding Billions In Corporate Tax Dollars

Public officials across the globe reacted with swift condemnation and calls for reform following ICIJ’s investigation into secret tax deals between Luxembourg and hundreds of international corporations. The New York Times said the revelations have sparked a “rising furor” in Europe. Reuters called the reaction a “tax storm.”

Response has been especially instense in Brussels, where the European Commission has been seeking to eliminate tax havens within the European Union. Reporting by ICIJ and its partners was based on a leak of 548 private tax rulings – also known as “comfort letters” – negotiated by accounting giant PricewaterhouseCoopers on behalf of more than 340 multinational corporations.

The documents provided a road map into how corporations shave billions of dollars in taxes by routing profits through Luxembourg. At the center of the “Lux Leaks” controversy is Jean-Claude Juncker, new president of the European Commission. Juncker was Luxembourg’s prime minister at the time many of the country’s tax-avoidance rules were enacted.

Jean-Claude Juncker addresses the Photo: AP

Among the latest impacts and responses:

• In Australia for the G20 Leaders’ Summit, European Commission President Jean-Claude Juncker pledged to push for tax reform in Europe, but faced continued pressure over his links to Luxembourg’s own controversial tax policies revealed by ‘Lux Leaks‘. Tim Costello, chair of the civil society group C20 compared Juncker’s presidency as “Dracula in charge of the blood bank,” while reporters again asked Juncker if he would resign.
• Luxembourg Finance Minister Pierre Gramegna told reporters at a press briefingthat he was “totally astonished” at the publication of more than 500 tax rulings by ICIJ and its media partners, and called it an “attack” on his country. At the same briefing, Luxembourg Prime Minister Xavier Bettel said the Duchy was making “enormous efforts” to clean up its image.
• Almost a week after the first stories were published, Juncker fronted the media and the European Parliament for the first time to deny that he was the “architect” of Luxembourg’s tax “problems” but admitted as prime minister of the tiny Duchy he was “politically” responsible. The subsequent debate on the floor of the parliament was dominated by questions of European tax policy and Juncker’s connections to Luxembourg.
• A strongly-worded editorial from media organization Bloomberg calling for Juncker’s resignation was widely reported by a number of media outlets days after the first ‘Lux Leaks‘ stories were published. Ructions from within the European Parliament were also growing, with left-wing parties gathering support for a censure motion against their newly-elected President, and many other MEPs calling for Juncker to address the Parliament and the public and respond to concerns regarding Luxembourg’s tax policies under his tenure as the Duchy’s prime minister.

• Meanwhile, Juncker found some support from sources both near and far. Pierre Moscovici, European Commissioner for economics, repeated comments that Juncker was the right person to preside over the European Commission, and that Juncker believed in a “world of fiscal transparency.” An editorial in Cayman Islands’ Cayman Compass media outlet also voiced support for Juncker, based on the principle that “every country must be able to write and enforce its own tax laws.” Luxembourg’s Foreign Affairs Minister Jean Asselborn, in an interview with German outlet Der Spiegel, pledged to change Luxembourg’s tax policies and put an end to tax avoidance schemes.

• French Finance Minister Michel Sapin spoke to media after a meeting of the European finance ministers, and said “taxes must be paid be it by individuals or business and no one has the right – even legally—to place themselves beyond this obligation.”  He added that “the Commission now has a chance to show it is a real commission and that it has the will to put an end to situations like this.”

• In the U.K., Margaret Hodge, a member of Parliament and chair of the Public Accounts Committee, called on Juncker to break his silence and explain his actions. “How can we know he’s working in the interest of Europe when as prime minister [in Luxembourg] he exploited populations in every European country and elsewhere for decades?” Hodge asked.

• In Belgium, the government of Prime Minister Charles Michel condemned secret tax rulings obtained by the country’s richest family, the de Spoelberch dynasty, and by such big companies as Lhoist and Belgacom. Belgian finance minister Johan Van Overtveldt has ordered an investigation into all the tax rulings published by ICIJ that relate to Belgium. Particular attention has been drawn to a tax deal obtained from Luxembourg by Belgacom, a telecom operator that is 53 percent owned by the Belgian government. Minister Alexander De Croo, who supervises state companies, said he would have never allowed such a deal under his watch. ICIJ’s Belgian reporters have been asked to testify before Parliament about the deal.

• Luxembourg has continued to defend itself in the face of this global criticism, saying that it follows all international rules and treaties.  Pierre Gramegna, Luxembourg’s finance minister, pledgedat the meeting of economic ministers in Brussels that his country will “cooperate fully” with the European Commission’s continuing probe into Luxembourg tax rulings. “For Luxembourg it is not acceptable that companies, through a combination of national regulation and international conventions, reach a situation where they have no tax or just symbolic taxes. This is something that should concern us all,” Gramegna said.

• In Germany, Finance Minister Wolfgang Schaeuble, told German lawmakers that Luxembourg has “a lot to do” to meet global standards based on the ICIJ findings.  At the same time, Sven Giegold, a spokesman for Alliance90/Greens political party said ICIJ’s revelations are “a major blow” to Juncker’s credibility.“There has never been such concrete evidence of the extent multinational corporations go to avoid their tax responsibility but also of the role of state actors in facilitating this,’’ he said. “The fact that EU commission president Juncker served as Luxembourg’s finance and prime minister throughout this period makes him directly complicit in this mass corporate tax avoidance.”

• Australian tax authorities said they are increasing efforts to make sure companies pay tax on the income they earn in Australia. “We are very aware that taking action with those who do not do the right thing is critical to community confidence in our fairness and integrity, and ultimately the sustainability of the system,” Chris Jordan, Australia’s commissioner of taxation, said. Jordan added that he has written to other countries asking them to collaborate on a “joint investigation” of the data made public by ICIJ and its partners. Australia will also hold a senate inquiry to look into allegations of profit shifting.

• In Denmark, Danish Tax Minister Benny Engelbrecht, told the national radio network, DR, that he planned to push Margrethe Vestager, the European competition commissioner, to take action on Luxembourg’s corporate tax deals. “It smells like illegal state aid,” Engelbrecht said. “I will contact the European Commission and have great hopes that Margrethe Vestager will act on this.”