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08/12/2016

Luxembourg drops legal challenge to EU request for tax info

Euro & Finance

Luxembourg drops legal challenge to EU request for tax info

Xavier Bettel

(European Council)

On Thursday evening (18 December), Luxembourg Prime Minister Xavier Bettel announced that his country plans to withdraw two court challenges against the European Commission and will start handing over past tax rulings. 

In recent months, the European Commission’s Competition unit requested a list of tax rulings from a limited number of member states, including Luxembourg.

Now the Commission is asking all member states to provide information about their tax practices, and in particular whether they provide tax rulings. If they do, member states are requested to produce a list of all companies that have received a tax ruling from 2010 to 2013.

Luxembourg authorities have been embarrassed over the past months after revelations of controversial corporate tax avoidance schemes over the past two decades. 

The International Consortium of Investigative Journalists (ICIJ) has revealed that some multinational companies had channeled hundreds of millions of dollars in profits between 2009 and 2013 through Luxembourg-based subsidiaries which enjoyed tax rates of less than 1%. The releases of confidential documents by the ICIJ has already prompted an European Parliament no-confidence vote on the Commission’s new president, Jean-Claude Juncker, who was both finance and prime minister of Luxembourg when these tax practices took place.

Bettel, who spoke at a press conference during the European Council summit in Brussels, said that since the Commission had changed its strategy of ‘fishing’ for info in specific member states, and now focuses on tax rulings in all of the 28-member bloc, Luxembourg would be willing to cooperate with the EU’s executive.

“If the rules are the same for everyone, then we won’t be in opposition to that. That’s the reason why we decided to drop the two trials we had against the Commission,” Luxembourg’s prime minister told the audience. “We are happy that it is going in that direction. If everybody is in the same boat, then this makes it possible for us to scrap the trials we had against the Commission,” he continued. 

Bettel represented both Luxembourg and the Netherlands at the summit in Brussels, as Dutch Prime Minister Mark Rutte decided to stay at home due to a sudden, domestic crisis.

Pierre Gramegna, Luxembourg’s minister of finance, said in a statement that “Luxembourg has repeatedly stated that the analysis of matters relating to international taxation and tax rulings calls for a broad perspective, and cannot be limited to one country’s regulatory framework and practice. The vast majority of EU member states issues tax rulings. In this context, Luxembourg is strongly in favour of the creation of a level playing field. The Commission’s initiative is an important step in that direction.”

The elephant in the room?

Though common EU tax rules were not on the official agenda for the summit, Ireland’s Taoiseach Enda Kenny was already asked questions by journalists about the country’s corporate tax rate on the Council’s doorstep in the early afternoon. Asked how concerned he was that France and Spain might bring the issue on the agenda, Kenny said: “Ireland has a very clear position here. We will defend completely our 12.5% corporate tax rate. Tax is a matter of national competence.” 

Kenny admitted that Ireland’s tax rules have damaged the country’s reputation, but that this was caused “by perception, by confusion and by misinterpretation”, when the Irish government has already dealt with a number of issues.

“I think it’s also important to say that all countries are now going to have an examination and inspection of their tax matters. So what is being put in place for one, will now reply to all. We are very clear on this, we are very up front and we have nothing to hide and we defend completely our right in a national competence fashion to set our corporate tax rate,” the Irish Taoiseach said.

Meanwhile, German Chancellor Angela Merkel was asked by journalists about whether she has witnessed ‘suspicious’ tax planning in her own country together with other countries. 

“I’m not a judge, prosecutor or policeman. I can only exclude that the federal government has at any point in time made any law enabling that. But actually commenting on any possible violation, I’m simply not in a position to do that,” the Chancellor 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.

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

  • First quarter of 2015: Commission to propose new directive on exchange of information on tax holdings

Further Reading