EU Economy
Juncker on Corporate Tax: Poacher-turned-gamekeeper proposes new rules
By Michael Hennigan, Finfacts founder and editor
Nov 13, 2014 - 7:36 AM

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Jean-Claude Juncker, European Commission president, Brussels, Nov 12 2014

Juncker on Corporate Tax: Jean-Claude Juncker, in office as European Commission president for just two weeks, admitted on Wednesday that it was a mistake to hide from the press in the aftermath of last week's revelations on the tax haven he had developed in Luxembourg as finance minister and prime minister for almost two decades. The poacher-turned-gamekeeper has now embraced reform and he has proposed new rules for the European Union to prevent member countries exploiting tax arbitrage and facilitating evasion.

Juncker on Wednesday appeared at a daily press briefing in Brussels to respond to controversy about his role as architect of Luxembourg's tax avoidance system and he announced that the Commission will propose rules that would require countries including Luxembourg to share details of corporate tax ruling with other EU governments – an issue that has been pushed by Wolfgang Schäuble, German finance minister.

The Commission president also proposed a “common tax base” which would help reduce the differences between member states’ tax codes, that companies exploit to cut their overall tax bills. “If we can reach agreement on that, then many problems disappear,” said Juncker.

Ireland opposes such a move.

Last week a trove of almost 28,000 documents mainly from the offices of Pricewaterhouse Coopers (PwC), which has a staff of about 2,000 in the Grand Duchy of 543,000 people,  showed that over 340 foreign multinationals were beneficiaries of rulings made by one civil servant - see here - that reduced taxes on profits made elsewhere to lower than 1%  in some cases.

“I am not the architect of the Luxembourgish model,” Juncker said, adding that the Grand Duchy’s tax authority had acted on an “autonomous basis” with little oversight from the government. But he conceded he was “politically” responsible for the affair.

The claim is as bogus as saying Irish ministers have never contacted the revenue authority on behalf of a multinational company.

Juncker as a tax reformer is possibly the outcome of this debacle and the old saying – "There's no prude so great as a reformed whore" – comes to mind.

Juncker later said in the European Parliament that "there probably was a certain amount of tax avoidance in Luxembourg, as in other EU countries. We find this everywhere in Europe because there is insufficient tax harmonisation in Europe", he explained, adding that Commissioner Moscovici will initiate proposals for an automatic exchange of information regarding national tax rulings."

Guy Verhofstadt, a former Belgium prime minister, said in the Parliament that current investigations by the Commission of tax deals  in Ireland, the Netherlands and Luxembourg  must be completed by the end of the year and deal not only with three countries, but with the problem of tax evasion in general. He also called for a special investigative committee to be set up in Parliament and asked others groups to support this. "This is also a clear case where we need more Europe – to set up common tax compliance legislation and a convergence code not general harmonisation, because we don't know at what level to harmonise," he said.

Reuters reports that Wolfgang Schäuble, German finance minister, has sent proposals to the European commissioner for Economic and. Financial Affairs, Taxation and Customs, urging him to act quickly to improve the exchange of information on tax deals with companies, a move linked to allegations against Luxembourg.

A finance ministry spokesman said on Wednesday Schäuble had made concrete suggestions because he believed Europe needed to guarantee fairness and transparency on tax.

"I would very much be in favour of the European Commission taking the initiative to include information on so-called (tax) rulings in the spontaneous exchange of information," wrote Schäuble to Pierre Moscovici in a letter dated November 11. "With such a move, the information between the tax authorities of member states could be substantially improved quickly and in a legally binding way," wrote Schäuble in the letter, seen by Reuters.

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