European Commission President Jean-Claude Juncker today (17 September) gave MEPs an occasionally short-tempered defence of his alleged role in the Luxleaks tax scandal.
Juncker was appearing before the European Parliament’s Special Committee on Tax Rulings, set up after it emerged that Luxembourg gave sweetheart tax deals to multinational companies when he was the country’s prime minister and finance minister.
Such deals are controversial because they erode the tax revenues of other countries, where multinational companies’ profits are actually generated. Corporate tax avoidance is thought to deprive public budgets of billions of euros a year.
“I didn’t set up any system in Luxembourg to ensure there was tax avoidance in order to discriminate against other member states,” he told MEPs. “You actually in fact exaggerate my political talent.”
“I never gave an order to set up a certain approach […] the Luxembourg tax authorities are very allergic to the idea of ministerial interference,” he said. “I think you have (an) exaggerated idea of (the) power of the prime minister in this respect.”
The Luxleaks scandal broke as Juncker took over the Commission president November. The executive later launched state aid investigations against several member states, including Luxembourg.
Juncker said: “You should rather say EUleaks rather than Luxleaks – this is not only a phenomena that only happens in Luxembourg.”
The probe aims to discover whether the sweetheart deals constituted anti-competitive and illegal state aid. But that has not silenced critics concerned that the investigation would be carried out by an institution helmed by a man suspected of playing a central role in turning Luxembourg into a tax haven.
Juncker moved to play down those fears, telling the special committee that the investigation was the responsibility of Competition Commissioner Margrethe Vestager.
“I am not interfering or involved in any way in these procedures because the Competition Commissioner enjoys large degree of autonomy […] I should not be involved in any way for ethical reasons,” he said.
“I am President of the Commission but I am not going to take the place of the Competition Commissioner – that is not my job.”
— Sven Giegold (@sven_giegold) September 17, 2015
Junker was asked whether he has met with tax consultancies, an “unholy alliance” blamed by MEPs for encouraging multinational companies to relocate to less stringent tax regimes.
Once in such tax havens, the multinationals can shift their profits to minimise their tax payments.
“Have I met with tax consultants? Never,” said Juncker. “I am one of the very few people in this room who hasn’t! I see that tax consultants have a lot of communication with members of the European Parliament.”
But after a question by German MEP Fabio De Masi, Juncker did admit to meeting Commerzbank and Luxair to discuss the bank’s tax burden.
“I have met with banks and Commerzbank. It would be pretty normal [to do so] when prime minister and finance minister, especially in a country where financial institutions play a very important role,” he said.
“But I never talked about the tax arrangements that Commerzbank might have.”
Juncker defended his past and present record on tax evasion and avoidance, saying tax evasion, tax avoidance and tax rulings were a priority for the Commission.
Tax rulings and agreements did give companies predictability, which was important for investment, he said, but the system had been abused. A framework was needed to stop that, he said.
“The system we have at (the) moment is a system which has become unusable and unjust,” said Juncker. “We need to get a better idea of how multinational corporations are behaving.”
The Commission’s efforts were based on the principle that taxes should be paid on profits in the country they are generated, he said.
He pointed out that Taxation Commissioner Pierre Moscovici would relaunch the Common Consolidated Tax Base (CCTB). The CCTB aims to standardise the way multinationals’ taxable profits are shared between countries.
Moscovici, who was present, has also put forward legislation requiring the automatic exchange of information between member states on their tax rulings.
Juncker told MEPs that the current holder of the rotating six month presidency of the EU – Luxembourg – was working to ensure a decision on that was taken in October.
The Commission President said that he supported international moves to combat tax evasion by multinational, the OECD’s Base Erosion and Profit Shifting project.
He had pushed for action on the issue at a G20 meeting in Lisbon but other countries’ “enthusiasm wasn’t overwhelming”. Even so, Europe should press on, he added.
As president of the ECOFIN council of EU finance ministers in 1991, Juncker said, he convinced in the face of much opposition all the member states to harmonise VAT and excise duties.
Juncker had repeatedly pushed for the establishment of a taxation committee in the European Parliament, an idea he still backed, he said.
And, as Luxembourg’s prime minister, he had approved plans to pay Belgium for Luxembourg residents who used Belgian schools but didn’t pay tax in the country.
Juncker clashed with German Green MEP Sven Giegold. Giegold interrupted Juncker, accusing him of dodging a question about access to minutes from meetings on tax by EU finance ministers and the Commission.
Giegold, and other MEPs, want minutes of meetings of the Code of Conduct Group on Business Taxation, dating back to 1998. The meetings discuss harmful tax measures in the EU.
Juncker told Giegold that Moscovici would field the question. Gielgold answered, “It is under your responsibility.”
Juncker shot back tetchily, “No. You said the Commission is here. The Commission has to send you the documents.
“I am very grateful that the discussion moved forward. Mr Moscovici will respond to that!”
MEPs want to know which member states were responsible for tax rulings, and which were blocking progress. The identity of the states is a secret.
Giegold said the minutes had only been offered under “TTIP conditions.” MEPs can read some Transatlantic Trade and Investment Partnership documents in special reading rooms, but are forbidden from taking notes.
“Are you ready to give these documents to us under honourable conditions? You are bringing democracy into dispute,” he said.
Moscovici said the Commission would try and satisfy the requests but added, “We need to respect transparency but balance it with respect for secrecy.”
MEP De Masi questioned Juncker about press reports of a missing page in a tax report from the Luxembourg government.
“The government didn’t ask for that that particular part of report be removed. I don’t have my documentation in my cellar and I am not going into my cellar with you to look for it,” he told the GUE/NGL MEP.
— FabioDeMasi (@FabioDeMasi) September 17, 2015
Questions cut short
The hearing began 15 minutes late because of an emergency plenary vote on the migration crisis with about 20 questions from MEPs.
Juncker said he would have to give short answers to the questions, adding, “This will give you the opportunity to tell the press didn’t answer your questions.”
After a second round of questions, Juncker handed over to Moscovici to answer them, and left.
“I always agree with him even when he is wrong,” Juncker said before citing his busy schedule as an excuse.
Before he left, Juncker quickly added, “The phenomenon dubbed Luxleaks is much wider than that and therefore we need new terminology.”
The European Network on Debt and Development said that Juncker remained on the defensive in front of the Luxleaks committee.
Tax justice coordinator Tove Maria Ryding, said: “The problem with the Commission’s transparency package is that it didn’t include any transparency, and the problem with the tax package is that it doesn’t fix our tax system, and might even make things worse by opening up new loopholes for multinational corporations to avoid taxation.
“The good news is that the European Commission and the member states can’t keep dodging questions on whether they are serious about transparency or not. The European Parliament has introduced a very concrete proposal to demand that multinational corporations publish information about where they make their profits and whether they pay their taxes.
"Whether the Commission and the member wstates agree to this proposal or not will be the real test of whether they are willing to respond to the Luxleaks scandal and start fixing our broken tax system.”
GUE/NGL MEP Fabio De Masi, said, "Juncker pretends to have been at the forefront of the fight for tax justice in Europe. This is absolutely ridiculous given his 20 years at the helm of one of Europe's most prominent tax havens and an utter mockery of every honest taxpayer on the continent.
"His principle today was that he did not take any decisions on tax matters in Luxembourg in the past, and does not take decisions in the Commission at the moment either. His assertions of never having met a single tax advisory firm during his tenure or never having talked about tax during, as he admits, regular meetings with Luxembourg bankers sound like they are from another planet."
On 12 February 2015, the European Parliament decided to launch a special committee for an initial period of six months, to investigate the sophisticated tax rulings of EU member states that became the centre of a media storm earlier this year.
With 45 members and the same number of substitutes, the TAXE Committee's role is primarily to investigate the compatibility of tax rulings with the rules on state aid and tax law. The special committee will then draft a report, including recommendations on how to improve transparency and cooperation between member states to the benefit of the internal market, European companies and citizens.
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.
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.
Luxembourg has faced international criticism following the revelations. The leaks put pressure on European Commission President Jean-Claude Juncker, a prime minister of Luxembourg, to explain his role in the country's tax policies.
Juncker has defended the country's tax practices, but is now promoting a plan for a common EU system to share tax information.
- October: Planned decision on automatic exchange of tax ruling information between member states.
- EurActiv.com: Brussels mulls clampdown on tax avoidance after Luxleaks
- EurActiv.com: Juncker admits he is 'weaker' after fresh batch of Luxleaks revelations