The Guardian — The president of the European commission, Jean-Claude Juncker, spent years in his previous role as Luxembourg’s prime minister secretly blocking EU efforts to tackle tax avoidance by multinational corporations, leaked documents reveal.
Years’ worth of confidential German diplomatic cables provide a candid account of Luxembourg’s obstructive manoeuvres inside one of Brussels’ most secretive committees, The Code of Conduct Group on business taxation .
Little has been known until now about the workings of the committee, which has been meeting since 1998, after member states agreed a code of conduct on tax policies and pledged not to engage in “harmful competition” with one another.
However, the leaked cables reveal how a small handful of countries have used their seats on the committee to frustrate concerted EU action and protect their own tax regimes.
Efforts by a majority of member states to curb aggressive tax planning and to rein in predatory tax policies were regularly delayed, diluted or derailed by the actions of a few of the EU’s smallest members, frequently led by Luxembourg.
The leaked papers, shared with the Guardian and the International Consortium of Investigative Journalists by the German radio group NDR, are highly embarrassing for Juncker, who served as Luxembourg’s prime minister from 1995 until the end of 2013. During that period he also acted as finance and treasury minister, taking a close interest in tax policy.
Despite having a population of just 560,000, Luxembourg was able to resist widely supported EU tax reforms, its dissenting voice often backed only by that of the Netherlands.
Among proposals popular in the code of conduct committee but opposed by Luxembourg were:
• Plans for tax authorities in each member state to subject their dealings with multinational businesses to peer review.
• An investigation into cross-border tax avoidance strategies, known as “hybrid mismatches”, often used by multinationals to conjure up artificial tax savings.
• Improved information sharing between member states on tax deals granted to multinationals in private.
The Guardian spoke to another former member of the code of conduct committee, who did not want to be named but corroborated claims in the leaked cables that Luxembourg was regularly among those looking to frustrate EU efforts to tackle tax avoidance.
Some tax experts contacted by the Guardian confirmed that Luxembourg had begun to move away from certain aggressive tax policies under the current prime minister, Xavier Bettel.
However, the leaked cables suggest the country has remained resistant to other changes. In 2016 it fiercely opposed efforts supported by many countries to strengthen and expand the code of conduct committee’s work.
Luxembourg particularly objected to a relaxation of the committee’s own rules on decision making, insisting there was no need to abandon the unanimity requirement.
France, Germany and Sweden argued unsuccessfully that removing unanimity had become essential to the committee’s effectiveness.
Luxembourg also opposed plans to identify member states that were standing in the way of reforms more clearly. One leaked cable noted: “It has become abundantly clear once again that a majority [of members states] are not interested in real reform. In particular, Luxembourg representatives said they would fundamentally object to any proposal to publish arguments made by Luxembourg in the committee.”
A later cable read: “It is impressive to see how some member states present themselves outwardly as proponents of [international tax reforms] and at the same time to watch how they actually behave in EU discussions, protected by confidentiality.”
The Guardian contacted Juncker’s office for comment. A spokesperson said it was not for the European commission to respond to questions about negotiating positions Luxembourg had taken, or about the country’s past tax policies.
Hundreds of the multinational corporations rushed to channel international profits through subsidiaries in the country, among them McDonald’s, Fiat, Amazon, Shire Pharmaceuticals and Skype.
The secret to this success was exposed in 2014 when the Luxleaks scandal revealed the terms hidden within hundreds of private deals, known as “tax rulings”, that Luxembourg had handed out to multinational businesses behind closed doors.
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