Why has the European Commission not investigated Lux Leaks tax deals?
Almost five years ago, the International Consortium of Investigative Journalists published its Lux Leaks investigation, exposing how some of the world’s largest corporations cycled billions of dollars through Luxembourg so as to avoid paying huge amounts of tax — taxes that otherwise could have ended up in the coffers of other European countries.
The revelations laid bare more than 300 secret tax deals that Luxembourg had struck with global businesses, including Disney, Skype, GlaxoSmithKline, Koch Industries and Black & Decker.
In several cases, the deals — known as “tax rulings” — allowed firms to pay less than 1 percent tax in Luxembourg.
The EU’s second smallest member state was secretly offering huge tax favors on an industrial scale. In some instances, leaked documents showed officials even granted lucrative tax deductions for “deemed interest” — that is, pretend payments of interest on loans that, in reality, were interest-free.
In 2014, there were immediate calls for the European Union’s then-new competition commissioner Margrethe Vestager to take action.
If Luxembourg’s tax rulings were found to offer benefits to preferred companies then Vestager could use EU competition law — which bars countries from giving state aid to favored businesses — to reverse these deals and force multinationals to make up years of tax underpayment.
But Vestager declined immediate action.
“We consider the Luxembourg-leaked documents as market information,” she told reporters in November 2014. “We will examine it and evaluate whether or not this will lead to the opening of new cases.”
Now time is running out. The current Commission is coming to the end of its five-year term, and Vestager remains silent. Why?
Certainly, the Lux Leaks scandal was an uncomfortable episode for her boss, Commission president Jean-Claude Juncker. He had previously served as Luxembourg prime minister for almost two decades, the time period in which his officials approved the Lux Leaks tax deals.
In the UK, Margaret Hodge, a member of the British parliament and a prominent tax campaigner, asked: “How can we know he’s working in the interest of Europe when, as prime minister in Luxembourg, he has exploited populations in every European country and elsewhere for decades?”
Many skeptics asked the same question. But Juncker faced down the barrage of criticism, comfortably surviving a no-confidence vote in the European Parliament — and even repositioning himself as a champion of tax reform.
“I have said the Commission will fight … tax avoidance,” he emphasized. “I would like everyone to understand this is not just words for the sake of words. This very much forms part of the Commission’s intentions.”