Comment: Why LuxLeaks couldn’t solve Europe’s tax problem

As long as Jean-Claude Juncker is at the helm, corporate tax dodging looks likely to continue

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In 2014 investigative journalism broke ugly news. Between 2002 and 2010, Luxembourg had allowed over 300 multinationals to drastically reduce their global tax bills. Some got away with effective tax rates of less than 1 per cent.

In the wake of the so-called LuxLeaksthe EU Commission declared two tax arrangements illegal: Fiat’s in Luxembourg and Starbuck’s in the Netherlands. As a Guardian editorial put it, ‘the effect of such understandings is to move from taxation as obligation to tax by negotiation’.

Despite this move, a year on from LuxLeaks the problem remains largely unsolved. The EU is at fault, and so are many European countries: they compete with one another, each offering different creative tax measures, grabbing from other nations big wedges of their due tax revenue.

Their brazenness can be astonishing. As Green MEP Molly Scott Cato reminded us last week, ‘the UK has denied the European Parliament’s Special Committee on Tax access to important documents they requested in order to carry out its mandate to investigate tax evasion and dumping in Europe.”

It gets worse. The Irish Finance minister Michael Noonan ‘vowed to challenge any ruling that strikes down the Apple tax scheme’, the Independent’s Leo Centrowicz reported from Brussels. Apple was allowed to hide profits from tax in return for keeping jobs in Ireland, a clear case of illegal state aid. 

Similarly, an Independent editorial stated that ‘Facebook paid less UK tax in 2014 than the average British citizen’.These cases correlate to LuxLeaks, the vast revelations EU chief commissioner Jean-Claude Juncker would rather forget.

Corporate tax revenues are being driven down. This money could be used to keep public services, healthcare and schools going. The stakes couldn’t be higher. With dwindling figures, affluence is being privatised and stolen from the public.

The EU Competition commissioner Margrethe Vestager said that Fiat and Starbucks will have to repay tens of millions of euros to make up for past underpayments. Things seem to be moving in the right direction, but Vestager’s boss is Juncker – enough said.

Juncker was Luxembourg’s prime minister and finance minister at the time when the deals were agreed. To think he might not have known anything about these would be dangerously naive, despite his denying any involvement.

Having performed a fifth of his mandate, Juncker has successfully ridden out the LuxLeaks storm. He’s unabashedly portrayed himself as a hero against tax evasion and avoidance. For him, no turnarounds are too difficult to perform. 

“There are few leaders in Europe who understand the workings of the EU as well as [Juncker], … the only leader left [except Wolfgang Schäuble] who took part in the negotiation of the Maastricht treaty more than 20 years ago,” said Brussels correspondent Ian Traynor.

“He knows everyone. He has friends everywhere. A fixer, a mediator between France and Germany … the consummate EU insider, he also knows where the EU’s skeletons are buried.”

Yet, the EU parliament won’t topple him. It would destabilise an EU anxious to pull itself out of years of crisis. Anti-establishment populists did table a vote of no confidence in Juncker, but crucially everyone else in Strasbourg, even his numerous mainstream-party critics, still endorsed him, however unconvincingly.  

One year ago, Juncker looked tarnished by the LuxLeaks disclosures. Today, he’s safely strapped into the driving seat, with attention deflected from him by a near-Grexit, a possible Brexit, immigration issues and terrorist attacks.

“Although he is free to resign, he cannot be removed as an individual. The entire European commission would have to go, felled by a vote of no confidence in the European parliament. … And for this to happen, national leaders, chief among them [Angela] Merkel, would have to signal that Juncker’s time is up,” was Traynor’s final verdict at the end of 2014.

Tax dodging is Europe’s scourge. If any pressure is to be kept on the ambiguous Juncker, this won’t come from the EU or single nation elites, but from the media bringing up further debates and leaks. Keep them coming, please.

Alessio Colonnelli also contributes to openDemocracy and Euro Crisis/LSE

6 Responses to “Comment: Why LuxLeaks couldn’t solve Europe’s tax problem”

  1. NHSGP

    So set corporate tax rates to zero.

    It’s people who pay tax.

    You then tax the shareholders and you tax the employees.

  2. madasafish

    “Its most recent Companies House filing shows the company as making a pre-tax loss of £28.5m last year, but the firm also paid its 362 UK staff a total of £35.4m in share bonuses.”

    Companies need to make taxable Profits to Pay Corporation Tax. as any fool knows.

  3. Barry_Edwards

    One would also expect bonuses linked to profits. Something does not smell right.

  4. Peter

    Bonuses are taxable (income tax) unless they are paid into pensions or given out in some other form.

    Bonuses count as salary so they are deductable (against corporation tax) as a business expense against the businesses profits.

    However most countries have laws which state that companies must be operated in a profitable manner and the directors can be found guilty of misconduct if this is not the case (such as paying bonuses when there is no profit).

    However the reality is that action is only normally taken against the directors of an unprofitable company once it has gone bankrupt.

  5. Woo11

    You might want to read the Tax Justice Network’s info on how the audits are done to create a pre-tax loss. This is why I have taken their calling for country by country reporting of multinational profits and all trading, and for this to be made public.

  6. Dave Stewart

    BY far the biggest change that the EU desperately needs is to do away with the unelected commission and transfer the powers to the elected EU parliament. That way when corrupt politicians like Junker can be removed by the people of Europe. Of course such a change would never be countenanced by Cameron because he would be worried that the people of Europe might not capitulate to the demands of his corporate backers. Same goes for most of the other national governments to be fair.

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