The Guardian view on tax avoidance: Europe must take Luxembourg to task.Luxembourg and Juncker under pressure over tax deals Politicians in France, Germany and Netherlands protest at effect of laws passed by EC chief when the country’s prime minister. / The Guardian.

The Guardian view on tax avoidance: Europe must take Luxembourg to task

Most European leaders are as short on funds as they are on popularity. They can no longer indulge a tiny partner who fills its coffers at the expense of the rest of the club

Editorial

The Guardian, Thursday 6 November 2014 / http://www.theguardian.com/commentisfree/2014/nov/06/guardian-view-tax-avoidance-europe-luxembourg-task

The organograms are dizzying, and the make-money-disappear-by-lending-it-to-yourself wheezes leave the head spinning. But through all the many intricacies in the leaked 28,000 pages concerning corporate tax agreements with the Luxembourg authorities, two breathtakingly simple truths emerge. First, the tax-avoiding shenanigans that shamed internet giants Google and Amazon are in no sense an online preserve. The papers relate to 1,000-plus businesses, including vacuum manufacturer Dyson, a firm UK politicians routinely hold up as a model for putting something solid back into an economy that often seems to be melting into air. Second, the arrangements whose cost often comes in lost revenues for Luxembourg’s European partners are taking place not merely under the blind eye but with the active complicity of the Grand Principality.

A cash-strapped continent has reason to feel fury, but it must also acknowledge, too, that tax havens can only ever exist because the world declines to stop them: no island is an island. Very often in history, as in the Caymans and the Channel Isles, their security was underwritten by British force. In more recent times, malign neglect from Washington was the chief facilitator. In the first few years of this century, Bush administration officials would describe themselves as “amused” in response to revelations about a million undisclosed off-shore accounts. They would liken tax competition to economic competition of other sorts, disregarding the distinction between the race for industrial efficiency, which will in time enrich all, and a race to the bottom on taxes, in which wealthy shareholders are fated to be the only winners, while regular citizens are doomed to be the certain losers. That American attitude rendered it pointless for anyone else to do anything, since hot money can always answer unilateral action by finding a new haven. Besides, in these pre-crash years, intense relaxation about the filthy rich was the vogue in Europe as well as the US.

It is harder to fathom such practices coming to light in 2014. A president who condemned “brass plate” companies on his path to power is six years into office, while five years have passed since the crash galvanised the G20 to pledge to work together to force tax havens into the sunlight. The slow but abject injustice of forcing the poor to pay for the misdeeds of bailed-out bankers through austerity has brought many a city out on to the streets. Governments everywhere face miserable fiscal choices, with the result that – as the US midterms underlined – this is a dangerous time to be an incumbent. World leaders, then, should have every reason for working together to claim the revenue that is their due. Yet it is still not happening, or at least not with the intensity required – and not even within the EU, where there are more mechanisms to cooperate for the common good.

Individual treasuries may always be tempted to cut cushy deals with companies to grab what they can at the expense of their counterparts, especially in states like Luxembourg, which have long paid their way in the world like this. But they will only act on this motive where they can do so with impunity, in the shadows cast by continuing secrecy and clever accountants. Europe needs to face up to its tax-avoidance problem before it can fix it, This means, first, the EU getting ahead of the OECD game by disclosing all that data on transnational profits in each jurisdiction that is already collected but then kept under wraps. Instead of leaving it to a cross-national team of journalists to explain who is dodging which tax and how, governments should get in on the naming and shaming directly. Every bit of pressure helps, because shrewd companies cannot remain indifferent to public opinion forever.

The ultimate goal should be international agreement to bar particular dodges – and ideally further tax harmonisation, to prevent countries undercutting each other. The realpolitik of Europe makes the latter a remote prospect for now. But then the realpolitik facing European leaders, who are as short of funds as they are affection, surely precludes doing nothing. They must crack down on a tiny partner that fills its coffers at the expense of the rest of the club.

 Luxembourg and Juncker under pressure over tax deals

Politicians in France, Germany and Netherlands protest at effect of laws passed by EC chief when the country’s prime minister

Rupert Neate, Simon Bowers and Ian Traynor in Brussels

The Guardian, Thursday 6 November 2014 / http://www.theguardian.com/business/2014/nov/06/luxembourg-jean-claude-juncker-pressure-tax-deals

French, German and Dutch finance ministers have rounded on Luxembourg for allowing multinational companies to create complicated structures to avoid billions of dollars of tax.

Pressure is also mounting on Jean-Claude Juncker, the new president of the European commission and former long-serving prime minister of Luxembourg, who oversaw the introduction of laws that helped turn the tiny European country into a magnet for multinationals who are seeking to reduce their tax bills.

The calls for Luxembourg to stop arranging special deals that help corporations avoid tax came after a vast cache of 28,000 leaked tax papers from the Grand Duchy revealed the country had been rubber-stamping tax avoidance on an industrial scale. Details of the documents were revealed by 80 journalists in 26 countries working with the International Consortium of Investigative Journalists (ICIJ), including the Guardian.

Wolfgang Schäuble, Germany’s finance minister, said the revelations about Luxembourg’s secret tax deals showed that the Grand Duchy had “a lot to do” to meet global standards.

The French finance minister, Michel Sapin, said such deals were “no longer acceptable for any country”. He added: “I wish that in a few years we never have to talk about something like this again.”

The Netherlands finance minister, Jeroen Dijsselbloem, who is also chair of the Eurogroup of all 18 finance ministers in the eurozone, said that Luxembourg was breaching international tax standards. “Many countries make agreements with companies to provide security. But these agreements need to comply with international standards. We still have some work here.”

At Westminster, Margaret Hodge, chair of the Commons public accounts committee, said: “[Juncker has] just taken over the European commission, [yet] he’s presided over the biggest exploitation of European nations in his own little country for decades.”

Despite the criticism, Juncker was said to be “very serene” and “cool”. Juncker, who took over as president of the commission on Saturday after serving 19 years as premier of Luxembourg, was scheduled to take part in a public debate on Thursday in Brussels. But he pulled out on Wednesday night as news organisations prepared to publish the leaked tax documents.

His official spokesman said Juncker did not feel under any pressure to explain how he oversaw changes to Luxembourg’s tax laws. He said: “If he were a teenager I’d say he was cool.”

Many of the tax deals – secured for companies including Ikea, Pepsi, Burberry, FedEx and Procter & Gamble – were aided by laws written during Juncker’s term of office.

The Danish tax minister, Benny Engelbrecht, said the revelations were “shocking”. “Tax payments are down to percentages that are so crazy that you can almost not even describe the challenges that they create for other countries,” Engelbrecht told the Danish paper Politiken.

Juncker is credited with helping transform Luxembourg’s economy from one relying on agriculture and steelmaking into a low-tax centre for financial services. His changes turned the small nation into the world’s richest country with a per capita income of $111,000, compared with $39,000 in the UK, according to the World Bank.

Luxembourg’s current prime minister, Xavier Bettel, called an emergency press conference to defend his country. “These rulings, as they have been done in Luxembourg, are in line with international and national rules,” he insisted. Pierre Gramegna, the Grand Duchy’s finance minister, said the comfort letter tax deals exposed in the leaked documents are “not something that’s particular to Luxembourg. It exists in a lot of countries.”

Gramegna will face tough questioning from his counterparts across Europe on Fridaywhen EU finance ministers meet in Italy. Up for discussion is a new anti-tax-avoidance measure targeted at multinationals.

A spokesman for the European competition commissioner, Margrethe Vestager, warned Luxembourg she was considering launching a series of fresh investigations into state aid, in light of the revelations.

Luxembourg is already the subject of EU probes into claims that local tax agreements for Amazon and a subsidiary of Fiat amount to state aid.

Hodge, who hauled the bosses of Starbucks, Google, Amazon and the big four accountancy firms to parliament to explain their roles in UK tax avoidance, told the Guardian that Juncker should be forced to come clean about his role in turning Luxembourg into a low-tax haven for multinationals.

“I think he should come clean and talk about it, certainly try to explain it,” she said. “How can we know he’s working in the interest of Europe when as prime minister in Luxembourg he has exploited populations in every European country and elsewhere for decades?”

Ronen Palan, professor of international relations at City University, London, a specialist on tax havens, said: “Luxembourg is extremely secretive. I can’t underline [enough] how aggressive they are in denying that they are a tax haven. Now we have evidence. For the first time we have real evidence as opposed to supposition, as opposed to suspicions and so forth.”

The revelations have sparked political outrage across the world. The Australian tax office said it had launched an investigation into whether multinational firms operating in Australia were avoiding tax by using deals arranged through Luxembourg. ICIJ documents show that Ikea’s Australian arm has paid hardly any tax on an estimated $1bn profit earned since 2003, according to the Australian Financial Review’s report on the leaked documents.

“Luxembourg is extremely secretive … Now we have evidence. For the first time we have real evidence"

Ronen Palan, City University

Guy Verhofstadt, president of the alliance of liberals and democrats for Europe and former prime minister of Belgium, said: “Recent allegations against the Grand Duchy of Luxembourg on tax avoidance practices need to be clarified immediately. The commission should come to the European parliament immediately to explain if these practices are in accordance with EU law. It must be made clear, if the setup chosen by Luxembourg is legal or not.”

The anti-corruption campaign group Transparency International said: “EU ministers must now take action to end the secrecy of corporate tax deals in Europe. The Luxleaks deals could not have been kept secret if all companies were required to report details of their tax payments in every country where they operate.”

Oxfam’s tax adviser, Catherine Olier, said: “The leaks underline the scale of tax dodging – it’s not just one isolated scandal; we’re talking about a whole industry making profits disappear. Tax-dodging results in both developing and European countries missing out on billions in tax. This is money that would be much better spent on healthcare or education rather than lining already wealthy corporate pockets.

“G20 leaders meeting next week should adopt ambitious rules that will benefit all countries, including the developing countries that suffer most from corporate tax dodging.”

The anti-poverty campaign group ActionAid said: “This exposure of the industrial scale of global tax avoidance involving Luxembourg clearly highlights the need for global action.

“A fundamental rethink of the world’s tax system is needed, that puts all the issues on the table and includes all countries, including developing countries, as equal partners, to tackle these kinds of abuse.”