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 was set up almost 19 years ago to prevent member states from being played off against one another by increasingly powerful multinational businesses, eager to shift profits across borders and avoid tax.
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 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.
Jean-Claude Juncker’s record as Luxembourg’s prime minister has cast an enduring shadow over his presidency of the European commission.
On paper, his marathon 18-year stint at the helm of the EU’s second smallest member state might be hailed a triumph. He recast the fading steel-based economy into a booming hub for international business, and when he departed in 2013 Luxembourg had been transformed into one of the richest countries in the world per capita.
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.
The rulings effectively rubber-stamped complex tax structures that global corporations used to access ultra-low tax rates, often less than 1%, for profits shifted to Luxembourg.
Juncker conceded the scandal had damaged his reputation. While not illegal, he admitted Luxembourg’s tax system was also “not always in line with fiscal fairness” and may have breached “ethical and moral standards”.
Since then, Juncker has made a point of supporting the EU’s competition commissioner, Margrethe Vestager, as she pursues high-profile investigations into specific tax rulings, including deals Luxembourg granted separately to McDonald’s and Amazon.