LUXEMBOURG’S LUXLEAKS DEAL
Journal: The EU’s ongoing investigation into Luxembourg’s tax agreements with multinational corporations is threatening to leave a black mark on the Grand Duchy at the end of its six-month European presidency.
Luxembourg’s finance ministry could face legal action from the European Commission, as the EU authority continues its probe into illegal state aid to corporates seeking favourable tax treatment in the Grand Duchy.
The commission has already accused Luxembourg of helping carmaker Fiat avoid paying high taxes in 2012, after headquartering a lender in the country.
Brussels found “a large variety of methods, one more complex than the other”, that enabled Fiat to gain certain tax advantages.
“These arrangements shifted profits from one company to another in the same group, with no valid economic justification,” said the EU’s antitrust chief, Margrethe Vestager. “The result is that the company pays almost no tax on profits made.”
The probe is part of a crackdown on tax rulings that European governments grant corporations as a pre-determination of how they will be treated by national tax authorities. The EU watchdog is currently scrutinising Amazon’s tax treatment in the Grand Duchy as well.
But Luxembourg “disagrees with the conclusions reached by the European Commission,” it said in a statement. Vestager has “not established in any way that Fiat received selective advantages with reference to Luxembourg’s national legal framework,” according to the government.
The commission has nonetheless told the Grand Duchy to recover up to €30m in unpaid taxes from the Italian company. In 2014, Fiat only paid the country €400,000 in tax, a year in which the company’s global profits almost reached €1.2bn before tax. If Luxembourg refuses to comply, the case could end up in the European Court of Justice in Kirchberg.
European presidency
The accusations have put a black mark on the country, which ends its six-month term as the facilitator of European lawmaking among states–the EU presidency–in December.
Luxembourg had hoped to use the presidency as a means to rid its reputation as a tax haven. To do that, the country helped push for a new EU rule that would bring greater transparency to tax arrangements, like the ones used for Fiat and Amazon. It will require finance ministries to exchange their corporate tax arrangements with each other from the start of 2017.
“The EU is leading the way,” said Luxembourg’s finance minister, Pierre Gramegna, as he unveiled the agreement in October. “This is a decisive step towards greater transparency in tax matters.” But the information exchange will exclude one authority: Vestager, the commissioner responsible for holding the country to account over state aid matters.
Her exclusion has left EU lawmakers disappointed, to the extent that the European Parliament criticised the new rule as “a missed opportunity to create more transparency in taxation” in a non-binding opinion.
“You need to have an arbitrator,” said French conservative MEP Alain Lamassoure, who heads a special committee on tax rulings. “Simply having a mutual exchange [between EU governments] does not guarantee that illegal practices won’t happen again,” he said.
