Luxembourg tax rulings and the EC Commissioner

The coverage of Mr Juncker’s suitability for a lead role in the BEPS project has been fascinating during the G20 summit in Brisbane. In my blog of 30 June, I ended it by saying:

“This isn’t a poacher turned gamekeeper, it looks more like the poacher in charge of the gamekeepers.”

A number of politicians have picked up on this concept with references to vampires and blood banks. There has been quite a lot of comment in the UK from politicians across the political spectrum. I had some experience of the Luxembourg tax ruling system in the 1990s with a structure I inherited when I took over at Rio Tinto. I unwound the structure, but what surprised me was how easy it was to get a ruling on almost any structure or structural change. For all of that period, Mr Juncker was first Finance Minister then Prime Minister. The idea that Mr Juncker’s analysis of why we are where we are is frankly laughable. To quote the FT:

“Speaking at the start of the G20 summit in Brisbane, where leaders will discuss a global plan to crack down on tax avoidance, the former Luxembourg prime minister blamed discrepancies between different national tax rules for the problem. He vowed to lead Europe’s response to the problem against a background of calls for him to quit a role he assumed just weeks ago.

“We have to harmonise this tax legislation as far as Europe is concerned; we have to make sure that we find an agreement on Europe on the common taxation basis,” said Mr Juncker.”

To blame discrepancies between national tax rules is fine when you are a taxpayer, but when you make those rules it’s not acceptable.

We have seen a large number of Luxembourg corporate tax rulings published. Now, the fact that they have been stolen (according to PWC) is also unacceptable, but what they show is fascinating. The major issue is the treatment of some Luxembourg companies as transparent and therefore not tax resident in Luxembourg whereas other Luxembourg companies in the same legal structure are tax resident. It is this which facilitates the tax planning by having transactions between Luxembourg companies, which are treated differently for tax purposes on the two sides of a transaction. This is similar to the “double Irish structure” in Ireland. Now Luxembourg (like Ireland) must have known what they were doing in these rulings – why did they accept the ruling requests they received  and make the rulings?

I also found the statement by PwC on these rulings, “PwC said media do not have “a complete understanding of the structures involved.”” Odd?

Well, 28,000 pages of documents seems pretty comprehensive – it would be fairer to say they don’t have an understanding yet as there is a lot to digest. Also if the media can’t have a complete understanding from a ruling request, how could the Luxembourg Ministry of Finance? So my conclusion has to be that if the Luxembourg Ministry of Finance had enough information to make a ruling, it must have known what it was doing , and if it did, then the public and media should have enough information to form a judgement – or am I missing something?

 

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