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06/12/2016

Vestager says will use ‘Luxleaks’ documents in EU tax probe

Competition

Vestager says will use ‘Luxleaks’ documents in EU tax probe

Margrethe Vestager [European Commission]

The European Commission will use the ‘Luxleaks’ documents uncovered by investigative journalists three weeks ago in its ongoing investigation of tax avoidance at the European level, Margrethe Vestager, the EU competition chief, said on Thursday (20 November).

The documents, known as the ‘Luxleaks’, showed that more than 300 companies, including PepsiCo Inc, AIG Inc and Deutsche Bank AG, secured secret deals from Luxembourg to slash their tax bills.

The companies appear to have channeled hundreds of billions of dollars through Luxembourg to save billions in taxes, according to the international Consortium of Investigative Journalists (ICIJ), which published a review of nearly 28,000 pages of confidential documents.

Via hundreds of private tax rulings, known as comfort letters, Luxembourg is providing favourable tax treatment to these companies, the investigation showed.

The revelations have embarrassed Commission President Jean-Claude Juncker who was Prime Minister of Luxembourg from 1995-2003, during which these tax arrangements took place.

Market information

“We consider the Luxembourg-leaked documents as market information. We will examine it and evaluate whether or not this will lead to the opening of new cases,” Vestager told a press briefing.

She added that her first priority is to finalise the ongoing four investigations on unfair tax rules in member states. The Commission, the EU’s executive, has opened two cases in Luxembourg, one in the Netherlands and one in Ireland.

The Commission hopes to finalise the cases by the second quarter of 2015, because they are “high priority”, Vestager said. This would giver the Commission a larger degree of technical expertise when investigating these tax arrangements. Despite “good and open” cooperation with the Luxembourg tax authorities, Vestager confirmed that the Commission still has not received all the documents it has requested.

Opening wider tax debate

A week ago, Juncker defended the tax practices in Luxembourg, saying they are normal practice in 22 member states and conform with EU law, provided that the benefits are applied in a non-discriminatory manner.

Vestager said the leaked tax documents from Luxembourg have sparked a broader debate in the EU which she hopes will help pass a long-standing proposal for a common consolidated corporate tax base (CCCTB).

“I hope that some of the momentum created by the work of the journalists will enable us to pass it, because it would be a great benefit for citizens, but also for the companies who do not do tax planning,” the Commissioner said.

Plans for a CCCTB were unearthed during the sovereign debt crisis three years ago, but failed to garner enough support in the Council of Ministers, which represents the 28 EU member states. Any agreement on taxation requires unanimity at the European level, which makes a deal on the CCCTB virtually impossible.

>> Read: Furore over tax evasion opens door to new EU proposal on corporate tax

Juncker has likewise called for common corporate tax rules in the ongoing debate over corporate tax avoidance.

Last Wednesday, Juncker said he had worked throughout his life for more fiscal harmonisation, and that as Commission President he had proposed to the college of commissioners that automatic exchange of tax rulings should be made compulsory.

Pierre Moscovici, the Economic and Financial Affairs Commissioner, is currently working on the draft proposal, Juncker said.

Background

More than 300 companies, including PepsiCo Inc, AIG Inc and Deutsche Bank AG, secured secret deals from Luxembourg to slash their tax bills, the International Consortium of Investigative Journalists (ICIJ) reported on 5 November, quoting leaked documents.

Commission President Jean-Claude Juncker, who was prime minister of Luxembourg from 1995-2013, has so far declined to comment.

The companies appear to have channeled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes, the group of investigative journalists said, based on a review of nearly 28,000 pages of confidential documents.

Timeline

  • Second quarter of 2015: Commission expected to finalise ongoing four investigations on unfair tax rules in Luxembourg, the Netherlands and Ireland.

Further Reading