Gramegna Calls LuxLeaks ‘Game Changer’ for Tax-Deal Probe

The disclosure of thousands of pages of confidential documents on Luxembourg tax deals was a “game changer” that led European Union regulators to expand their probe of such accords to all 28 nations in the bloc, Luxembourg Finance Minister Pierre Gramegna said.

The EU’s expanded investigation “is not a surprise after LuxLeaks,” Gramegna said in an interview on Dec. 19, a day after his government announced it would give up its fight against handing over a full list of so-called tax rulings approved over three years. “It doesn’t make any sense anymore to continue, we would be sealing ourselves out.”

The European Commission in Brussels on Dec. 17 widened its request for full lists of companies that obtained tax rulings between 2010 and 2013 to the rest of the EU. Luxembourg had been challenging the EU in court since April over the same order, refusing to hand over the files in what it called a “speculative request for information.”

The commission’s decision to expand its request “changed our mind,” Gramegna said in the interview in his office. Apart from whether “the request from the commission is legal or not, it becomes secondary compared to the fact that they now need the list of rulings of all countries,” he said.

“What we are sending, as the other countries have been requested to, is a list of rulings, with the names of the companies that have benefited from the rulings, the type of ruling, the date and the duration of the ruling,” he said.

Tax Deals

The revelation of thousands of pages of leaked secret tax deals with companies from around the world, including PepsiCo Inc. and Walt Disney Co. (DIS), has shaken Luxembourg. The Grand-Duchy is also among countries that have come under pressure amid a global push to fight tax evasion and tax fraud. Last year, it announced plans to abandon its long practice of offering bank secrecy and switch to a system of automatic exchange of tax information starting Jan. 1, 2015.

Amid a push to repair what Gramegna calls “reputational damage,” Luxembourg has vowed to rein in sweetheart tax deals. One measure will be a new law that will make “the tax ruling procedure clear and predictable,” he said.

The legislation would create a commission for tax rulings, which would have to give its advice on every request, alongside the tax authority that gets the requests. Rulings — which were free of charge — will in future cost between 3,000 euros ($3,700) and 10,000 euros.

The Rules

“We are confident that if the rules are on the table and known for everybody, why would companies leave Luxembourg?” Gramegna aid. Still, the government “is monitoring” a possible exodus by companies, he said.

“Maybe some in a hurry want to leave Luxembourg in the weeks to come, because they are focused on LuxLeaks; I cannot exclude that,” Gramegna said. “For the time being, fortunately, we have not witnessed that.”

The revelations of 28,000 pages of leaked documents by the International Consortium of Investigative Journalists that showed international corporations effectively lowered their tax bills to less than 1 percent of profit in Luxembourg also shook Jean-Claude Juncker, the nation’s prime minister until 2013, who is now president of the European Commission. More than 340 companies have transferred profits to Luxembourg using complicated tax arrangements, the ICIJ said last month.

Before the leaks, “nobody really cared about this” and now “the whole world has started to discuss rulings,” Gramegna said. “We made the commission aware that it would be important that all the countries of the EU be requested to send in a list of rulings.”

EU Role

EU Antitrust Commissioner Margrethe Vestager, who took up her EU role on Nov. 1, inherited probes into Irish tax deals with Apple Inc. (AAPL), Luxembourg’s taxation of Amazon.com Inc. (AMZN) and Fiat Finance & Trade and the Netherlands’ treatment of Starbucks Corp.

“We had not been champions of transparency in the past,” Gramegna said in the interview. “It was important to make sure it is known outside that those rulings are not a hidden technique a country does in the backyard.”

Abandoning the challenge at the EU courts, where a hearing was scheduled for Jan. 8, was a government decision, even if now the question “remains unanswered” whether the regulator’s request for the full lists is legal, said Gramegna.

Juncker, who took over as commission president last month after being his country’s prime minister for almost 19 years, said he had no involvement in the deals during his time as finance minister or premier of the nation. The commission is the 28-nation EU’s regulatory arm.

“I’m very confident that our rulings are legal,” Gramegna said. “In the past, there have been many such cases” on state aid “that have been opened and in the end didn’t materialize. Let’s not put the cart before the horse.”