Foot-dragging by Luxembourg over an EU probe into questionable tax deals for multinational corporations has created a potential conflict of interest for the Grand Duchy’s former premier who is set to head the EU’s executive branch.
Jean-Claude Juncker, whose nomination to be European Commission chief is almost certain to be approved by the European Parliament next week, presided over the creation of the business-friendly tax regime now under investigation by the institution he is about to lead.
The dispute between the European Commission and the Luxembourg government has become so contentious that Brussels last month launched legal proceedings to force the Grand Duchy to hand over documents as part of its inquiry.
The probe centres around whether three countries – Luxembourg, Ireland and the Netherlands – flouted EU law in providing tax exemptions for multinational corporations that set up operations in their jurisdiction. Both Ireland and the Netherlands have complied with all document requests, according to commission officials.
The Luxembourg case is focused on its tax treatment of Fiat’s financial arm, which is based there. However, the investigation is expected to expand into the country’s treatment of online retailer Amazon. Luxembourg has until the end of the week to comply with the Commission’s document requests or face escalating judicial censure and potentially a fine.
If Luxembourg refuses to comply, Mr Juncker could be faced with the embarrassment of continuing with infringement proceedings against his own country over tax rules introduced during his premiership.
“It’s going to be very awkward for him to be de facto in charge of an investigation into the laws that he put in place to attract multinational companies to Luxembourg,” said an EU official.
According to Commission officials, EU law does not require former prime ministers to recuse themselves from reviews of laws passed under the governments they used to lead. The Commission’s code of conduct has rules in place for conflicts related to “personal interests, particularly a family of financial interest which could impair her/his independence”, but not for policy-linked issues.
During Mr Juncker’s 18-year premiership, which ended last year after he lost his parliamentary majority following a general election, Luxembourg became the EU’s biggest tax haven. Critics say it attracted billions of dollars and euros from individuals and companies seeking to evade taxes in their home countries. Since the 1980s the country’s financial sector has grown from virtually nothing to a €3tn business.
The Organisation of Economic Cooperation and Development, which is responsible for monitoring money laundering and other tax-related lapses, concluded last year the Grand Duchy’s transparency rules did not comply with its standards.
Appearing before the Socialist group of European parliamentarians on Tuesday in Brussels, Mr Juncker insisted he would actively fight tax evasion. “I agree tax evasion and tax havens must have no place in Europe,” he said, according to Mr Juncker’s spokesperson.
Nevertheless, during his premiership Luxembourg persistently opposed a key EU tax reform law that would have forced all EU countries to exchange data on foreigners with taxable assets in their jurisdiction, a move that would have bolstered national governments’ ability to crackdown on tax cheats.
Mr Juncker initially gave up his opposition to the reform late last year after he came under intense pressure from the US, which has launched an aggressive fight against evaders. But before leaving office, Mr Juncker again thwarted the EU tax transparency measure, which was only approved after Luxembourg’s new government came into office.
“The [tax] proposal was on the table for years but Luxembourg [under Mr Juncker] kept on blocking the reform from moving forward,” said an EU official. “They just kept on stalling it at every turn with the help of Austria.”
A spokesperson for Mr Juncker declined to comment on Mr Juncker’s tax record as prime minister.
Richard Murphy, director of Tax Research, a UK-based advocacy group, said that for 18 years Mr Juncker “used every ruse possible to hold out against tax reform” and measures to combat tax evasion.
“He acted in concert to assist Luxembourg’s secretive banking sector for more than a decade,” said Mr Murphy.
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