Scope of Leaked Tax Accords Took Luxembourg by SurpriseStephanie Bodoni
Luxembourg’s government was taken by “complete surprise” by the amount of files revealed last week in a report detailing hundreds of secret corporate deals that allegedly helped multinationals dodge taxes during Jean-Claude Juncker’s tenure as the nation’s prime minister.
The publication of a “tsunami” of more than 500 so-called tax rulings executed by the government between 2002 and 2010 “totally astonished” Luxembourg Finance Minister Pierre Gramegna, he told journalists at a briefing yesterday in Luxembourg.
“This was an attack on our country like it has never seen before,” Gramegna said at the briefing with Luxembourg Prime Minister Xavier Bettel. “Not for one second did I know that documents would be leaked and that as a government we would have to answer for what happened in the past.”
More than 340 companies have transferred profits to Luxembourg using complicated tax arrangements, according to leaked documents published by the International Consortium of Investigative Journalists on Nov. 5. The report, which reviewed almost 28,000 pages of confidential tax deals 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.
Bettel, who took over from Juncker as Luxembourg prime minister last year, said his country is “in the process of disappearing from gray and black lists and enormous efforts are being put into working on the image.”
“It’s not a coincidence that until now, no high-ranking foreign politician has spoken out against the Grand Duchy,” said Bettel. “Finger-pointing against one another is in my view not the right approach.”
Juncker, who was Luxembourg’s prime minister for almost 19 years and took over as commission president on Nov. 1, two days ago ended almost a week of silence since the publication of the documents about tax arrangements done while he led the country. He had no involvement as finance minister or prime minister, Juncker said at a press conference in Brussels.
“There is nothing in my past indicating that my ambition was to organize tax evasion,” Juncker said. While he was not the “architect” of the Luxembourg tax model, he is “politically responsible for what happened in each and every corner of that country,” Juncker said.
Back in his days as Luxembourg’s prime and finance minister, Juncker said in a speech to his nation’s parliament in 2005 that his government planned to make Luxembourg the main address for e-technology, with names such as Amazon.com Inc. already being flagships “for the policy that is being driven by the finance minister and by others.”
“Promising contacts are also happening with other international players,” said Juncker in the 2005 speech. “This promising activity takes place, even if not exclusively, in a favorable tax environment that we have created here in Luxembourg.”
Luxembourg, with a population of just under 550,000, 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 and Fiat Finance & Trade in Luxembourg, Starbucks Corp. in the Netherlands and Apple Inc. in Ireland.
New EU Competition Commissioner Margrethe Vestager, a former economy minister of Denmark, said last week 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.”
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.
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.