Luxembourg Fends Off Tax Haven Status as Juncker Pressed

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Luxembourg denied it broke global rules to help hundreds of multinational companies dodge taxes after a report revealed secret details of deals during the tenure of new European Commission President Jean-Claude Juncker.

The nation’s government called an emergency press conference with Prime Minister Xavier Bettel and Finance Minister Pierre Gramegna after the disclosure of tax rulings bestowing low-tax status.

“What has happened here is totally legal,” Gramegna told reporters in Brussels, where he arrived this afternoon to attend meetings of European Union finance ministers.

More than 340 companies have transferred profits to Luxembourg using complicated tax arrangements, according to leaked documents obtained by the International Consortium of Investigative Journalists. The report, which reviewed almost 28,000 documents and identifies companies such as PepsiCo Inc., Ikea Group and FedEx Corp., said some corporations effectively lowered their tax bill to less than 1 percent of profit.

Luxembourg, with a population of about 500,000, is among countries being probed by the European Commission for tax deals that may have violated the 28-nation bloc’s state-aid rules.

Firms named so far include Amazon.com Inc. and Fiat Finance & Trade in Luxembourg, Starbucks Corp. in the Netherlands and Apple Inc. in Ireland.

‘Very Serene’

Juncker, Luxembourg’s prime minister for almost 19 years, took over as commission president on Nov. 1. He is “very serene” following the reports, Margaritis Schinas, a spokesman for the commission, said in Brussels today.

German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Luxembourg has “a lot to do” to meet global tax standards. Speaking later, he said the tax-haven allegations haven’t damaged Juncker’s commission “at all.”

“The fact that Luxembourg tries, like other European countries, through internationally active, highly-qualified advisers, to minimize the tax burden isn’t exactly new and has little to do with individual governments,” he told reporters as he arrived in Brussels.

Juncker told reporters yesterday he will not interfere in the work by Antitrust Commissioner Margrethe Vestager.

Informed Opinion

Vestager said today that while “tax rulings as such” are a common practice, they may be illegal if authorities “accept that a tax base of a specific company is calculated in a favorable way.”

She said she hasn’t had time to reach an informed opinion about the tax leaks. EU officials are working in “close cooperation” with Luxembourg, she said.

Leaked documents included details of tax agreements arranged by PricewaterhouseCoopers LLP. The firm’s Luxembourg unit said documents were “illegally acquired.”

“The concerned documents date back from a number of years -- 2002 to 2010 -- and are therefore not reflecting the current status of local and international taxation rules and practices,” PwC said in an e-mailed statement.

Luxembourg in April filed two challenges at the EU General Court against the commission’s requests for information on tax rulings and on the country’s taxation system for income from intellectual property.

Bettel, who took over from Juncker as Luxembourg prime minister last year, earlier today said he was “of course not happy about the image that’s being circulated” about his country.

The ICIJ project was reported by news organizations including The Guardian, Sueddeutsche Zeitung and Le Monde.

Double Irish

Amid a global push to fight tax evasion and tax fraud, Luxembourg last year decided to abandon its long practice of offering bank secrecy and switch to a system of automatic exchange of tax information from Jan. 1, 2015.

The leaked documents could help the commission get access to information on specific tax deals which could lead to further requests for information from Luxembourg, said Georg Berrisch, a lawyer for Baker Botts LLP in Brussels.

The commission may seek “to use these state aid cases as a way to persuade Luxembourg and Ireland to bring their corporate tax rules in line so that companies can no longer to have structures where profits made elsewhere in Europe are diverted to those countries.”

Ireland’s government will phase out a tax shelter used by U.S. companies from Google Inc. to LinkedIn Corp., amid mounting pressure from international authorities. The country’s “double Irish,” which allows companies to avoid paying tax on much of their income, will be closed to new entrants from January, Finance Minister Michael Noonan said last month.

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