European Commission President Jean-Claude Juncker admitted that he has been weakened by the revelations of controversial corporate tax avoidance schemes during his long tenure as prime minister of Luxembourg, his confirmation coinciding with a new batch of publications exposing the schemes.
Tax deals that entertainment firm Walt Disney, commodities group Koch Industries, and others agreed to with the Luxembourg authorities were revealed yesterday (9 December) by the International Consortium of Investigative Journalists (ICIJ).
The ICIJ said the two companies engaged in complex restructurings and channeled hundreds of millions of dollars in profits between 2009 and 2013 through Luxembourg subsidiaries that enjoyed tax rates of less than 1%.
The revelations follow earlier ICIJ releases which prompted an EU parliament no-confidence vote on the European Commission’s new president, Jean-Claude Juncker.
Juncker, who had overseen the Grand Duchy’s tax policies for two decades as finance minister and later prime minister, survived the vote.
A spokesman for Luxembourg’s finance ministry declined to comment on the latest disclosures, citing leaked documents.
Tax avoidance is legal, but companies which use complex structures to reduce their tax bills are coming under increasing scrutiny from the public, and legislators internationally, who have promised to crack down on the practices.
The European Commission said it was already investigating the legality of tax deals similar to those revealed by the ICIJ, that countries including Luxembourg, the Netherlands and Ireland agreed to with multinationals in recent decades.
The ICIJ leaks boosted calls for greater harmonisation of European tax laws.
Speaking to the French daily Libération today (10 December), Juncker admitted he was “weakened” by Luxleaks.
“Subjectively speaking, I have nothing to reproach myself more than others would have to reproach themselves. […] But, objectively speaking, I was weakened because the Luxleaks suggests that I would have participated in schemes which infringe elementary rules of ethics and morality,” Juncker said.
The new Commission President also believes that “everybody was at fault” in the case of “tax rulings”, as the scheme to avoid paying high taxes is called.
Luxembourg ready to share information
In the meantime, Luxembourg announced it was giving details of its tax deals with foreign firms to governments that ask for them.
In a statement by the Luxembourg finance ministry issued on 9 December, after a Belgian minister revealed he was expecting data next month, the ministry said it had always been willing to share such information, despite a current court battle with the European Union over the grand duchy’s refusal to release tax files to EU antitrust investigators.
“The rulings issued by the Luxembourg tax authorities are not, and have never been, secret,” it said. However, a finance ministry spokesman said the Belgian handover would be the first on a large scale. And Luxembourg still rejected the demands of the EU competition agents, as they were not a tax authority.
The present government has said it expects further media reports questioning how Luxembourg cooperated with international accountants to approve arrangements that let companies channel profits through the country, paying its low tax rates rather than the higher rates in states where they did more business.
The Luxembourg finance ministry said its agreement to pass details of “tax rulings” affecting Belgian companies to the Belgian government reflected a long-standing policy:
“Luxembourg, spontaneously and upon request, exchanges information on rulings with other countries, as foreseen by non-double taxation treaties,” it said.
“These developments are in line with Luxembourg’s commitment to the initiative of the EU Commission to quickly present a draft directive aimed at introducing a mandatory automatic exchange of information on tax rulings.”
The ministry spokesman said it was also cooperating with an informal request from France for such information.
Juncker will take his formal oath of office before EU judges in Luxembourg today, a day after celebrating his 60th birthday.
Companies deny wrongdoing
Meanwhile, the companies mentioned in the second Luxleaks report strongly rejected any accusations of wrongdoing.
“Koch companies conduct their business lawfully, and they pay taxes in accordance with applicable laws,” Koch spokesman Robert Tappan said in an emailed statement.
Disney established an inter-company bank in Luxembourg which then extended high interest loans to operating affiliates in countries like France, thus reducing their taxable income, the ICIJ said.
Disney spokeswoman Zenia Mucha said the report was “deliberately misleading.”
“Disney’s global tax rate has averaged 34% over the last five years,” she said. “The ruling has not meaningfully affected the taxes we pay in any jurisdiction globally.”
Advisory group Ernst and Young (EY) advised Disney and Koch on their arrangements, the consortium said. Other companies whose tax deals appear in the latest leaks include Hong Kong-based conglomerate Hutchison Whampoa, private equity group Warburg Pincus, and Microsoft subsidiary Skype.
Microsoft said it followed the law in all the countries where it operated. Warbug Pincus declined to comment.
Hutchison and EY were not immediately available for comment.
Accounting firms in the spotlight
The ICIJ’s first set of Luxembourg tax deal revelations, published on 5 November, were based on files from accounting group PricewaterhouseCoopers (PwC).
That prompted a UK parliamentary panel on Monday to accuse PwC of organising tax avoidance on an “industrial scale.”
In addition to EY, the latest set of documents include files from the other two of the “Big 4” accounting firms: Deloitte and KPMG. KPMG said its code of conduct required employees to act lawfully and ethically. Deloitte was not immediately available for comment.
Natalia Alonso, Deputy Director of Advocacy and Campaigns Oxfam, accused European policymakers of doing too little to fight corporate tax avoidance.
“By continuing to do pretty much nothing, European leaders seem content to allow billions in tax revenue to slip through their fingers. The European Parliament is not up to the challenge either, with most parliamentarians refusing to launch an inquiry committee into a problem that is funneling money away from the public purse."
“We cannot tackle this massive tax dodging problem with the legal tools we’ve currently got. It’s frustrating that just one country can block a European tax reform. The unanimity norm should be scrapped.”
“Europe cannot wait any longer. Plans currently in the pipeline to improve tax transparency should be speeded up. EU countries need greater tax base harmonization to avoid companies shifting profits to tax havens. Europe should demonstrate global leadership and tax multinational companies fairly to fund public services essential to people living in poverty both in Europe and across the planet. Corporate tax dodgers must be made to pay their dues.”
Sven Giegold, economic and finance spokesperson for the Greens/EFA group in the European Parliament said: "These latest leaks on corporate tax avoidance in Luxembourg show that we are far from knowing the extent of the practices engaged in by multinational firms to avoid their tax responsibility. This is true for Luxembourg but also other EU countries. We cannot leave it up to the politically-compromised EU Commission president, Jean-Claude Juncker, to elucidate the matter alone. For this reason, the Greens/EFA group has proposed an inquiry committee of the European Parliament. We are close to having the required support and we are renewing our appeal to members of the other political groups to join the initiative. This committee should both scrutinise the role of the European Commission and shed light on the blockade by EU governments, which want to continue to facilitate tax dumping in Europe. Meanwhile, if Jean-Claude Juncker fails to swiftly bring forward comprehensive proposals to tackle tax dumping and avoidance, his position as Commission president will become untenable."
ALDE President Guy Verhofstadt will ask his colleagues to fast-track European Parliament's inquiry and legislative reports, currently being drafted by Parliament economic committee. "The new revelations show this is a European problem that needs a European solution. Citizens and SMEs pay their taxes, while big corporations seem to have a wide range of possibilities to avoid taxes."
"The European Parliament needs to speed up its internal process and come forward with real solutions. During tomorrow's Conference of Presidents, I will urge my colleagues to fast-track our inquiry and legislative proposals," he added.
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.