Recently confirmed as President as the European Commission, Jean-Claude Juncker was formerly prime minister of Luxemburg. During his tenure in his former office, it appears that he presided over a scheme which offered substantial tax breaks to upwards of three hundred multi-national companies. The European Union intends to press Luxemburg for an explanation of the matter, but the EU President will not be in charge of the probe, for obvious reasons.
The allegation is that Luxemburg entered into deals with major businesses such as Pepsi and Ikea which enabled them to save billions of Euros in taxes that should have been payable in other EU states. The current Luxemburg PM, Xavier Bettel was at pains to insist that the deals in question did not breach international tax rules (but it would appear at first blush that they certainly bent them).
Luxemburg is already being scrutinised over a so-called “sweetheart” tax deals with Amazon and Fiat’s financial arm. Malta and Ireland are also under scrutiny for their tax arrangements as part of an EU crackdown on tax avoidance schemes by multi-national companies. The issue of such tax avoidance (instigated by the firms themselves) caused much political and public anger last year. Tax avoidance was a hot topic at G8 and G20 meetings, but now it would seem that some EU governments may be complicit in these schemes. At the time of these meetings, it was estimated that tax avoidance (as opposed to illegal tax evasion) cost the EU as a whole more than the 28 member states spent collectively on health care – a colossal sum.
According to research from the International Consortium of Investigative Journalists (ICIJ) (who broke the story), more than 1000 businesses were involved in schemes to move profits from other EU states in which they operated, to Luxemburg where they maintained headquarters or had significant business. The ICIJ claims that some of these companies paid less than 1% tax on profits transferred to Luxemburg.
There seems to be nothing illegal in what has been done, but the morality of the move in “defrauding” other EU states of their due share of taxes for corporations operating in their jurisdictions is another matter.