Juncker accused of blocking EU efforts against tax avoidance

Jean-Claude Juncker gives his State of the Union Address. Strasbourg, September 2016. [Europeran Parliament]

Jean-Claude Juncker deliberately blocked the EU’s efforts to fight tax avoidance while in office as prime minister of Luxembourg, according to documents revealed by The Guardian and the International Consortium of Journalists. EurActiv France reports.

Member states have supposedly spent the last two decades cooperating in the committee on business taxation, known simply as the Primarolo group. Named after the UK’s former Paymaster General Dawn Primarolo, its founding president, this discrete body within the Council of Ministers is rarely mentioned in the same breath as any significant progress on tax avoidance.

Named after the UK’s former Paymaster General Dawn Primarolo, its founding president, this discrete body within the Council of Ministers is rarely mentioned in the same breath as any significant progress on tax avoidance.

Conceived in 1998, the committee has struggled to come up with binding proposals and failed in many of its main objectives.

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Systematic obstruction

The documents published by The Guardian on Sunday (1 January) “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”.

According to the newspaper, the EU’s efforts to tackle tax avoidance and unfair competition (the same practices that were brought to light by the LuxLeaks scandal) were “regularly delayed, diluted or derailed by the actions of a few of the EU’s smallest members, frequently led by Luxembourg”.

The legal action the grand duchy is taking against the LuxLeaks whistleblowers appears to corroborate this theory.

Measures against tax rulings – agreements between states and multinational corporations establishing special and beneficial tax rates – were among the proposals blocked by Luxembourg.

Other obstructed plans concerned hybrid loans, often used by parent companies to hide or transfer profits. The exchange of fiscal information also fell foul of Luxembourgish opposition.

More recently, Luxembourg and its liberal Prime Minister Xavier Bettel have been accused of blocking EU initiatives against tax avoidance by refusing, against the wishes of France and Germany, to alter the unanimity rule within the Primarolo group.

Split personality

The contradictions inherent in this position are plain to see: Luxembourg supports transparency in public but fights it tooth and nail behind the scenes.

A spokesperson for the Luxembourgish finance ministry told The Guardian they had no knowledge of these latest leaked documents and could not comment.

“In recent years Luxembourg has been at the forefront of the global trend towards greater transparency in tax matters and the fight against harmful tax competition,” the spokesperson said.

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Background

The Primarolo group was created in March 1998 under the presidency of Dawn Primarolo, the UK's then paymaster general. Since its formation, this group has identified close to 300 harmful tax practices and contributed to the revision or replacement of 66 of them, according to a 2007 French senate report by Philippe Marini.

At the time, the report identified new forms of unfair tax competition being developed to get around the rules in place.

Countries like Malta and the Isle of Man have also established differentiated tax regimes offering almost zero tax rates on profits distributed by parent companies and giving a great advantage to non-resident multinationals.

The report said the Commission intended to fight these practices indirectly, by qualifying tax rulings as illegal state aid and demanding retroactive reimbursement. Yet the European Commission only took its first step in this direction in 2016, nine years later, when it ordered Apple to repay a large amount of tax it owed in Ireland.

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