Jean-Claude Juncker has been portrayed as a man set on greater EU integration when he becomes EU President, which is why the UK does not support his appointment, but what will his appointment mean for Commission tax policy? Juncker has been Luxembourg Prime Minister, from 1995 until 2013, when Luxembourg maintained tax policies which some claim encouraged BEPS – so is he likely to promote or even support a programme for the next Commission which seeks to remove tax regimes within the EU which foster BEPS? Particularly if this is not in the interest of his own country? What happens will of course partly depend on the strength of the new Tax Commissioner. It is perhaps ironic that we will have an EU President who maintained corporate tax regimes which are under review by the EU Commission for state aid infringement, and which will surely be a target of the BEPS project but who supports greater EU integration. What will his position be on the subsidiarity principle for tax? Tax is one of the key policy areas where greater EU integration and the interest of member states conflict. This was illustrated when Sweden opposed the amendments to the Parent Subsidiary directive because of its impact on a major Swedish group. What leadership will Juncker be able to give in this area? Will he be able to lecture and admonish member states given his track record as Prime Minister of Luxembourg? I was going to write about his record but then I started reading some of the NGO commentary and decided to quote a piece from Private Eye in the UK which gives you a flavour of the views. Some of the commentary is pretty trenchant. Private Eye has written:
“SUPPORTERS of would-be European Commission president Jean-Claude Juncker should perhaps pause to examine the great man’s record of wreaking fiscal havoc across the continent. Thanks to Luxembourg’s warm embrace of corporate tax dodgers under his watch, those same austerity-hit EU governments who are backing his appointment have been denied huge sums in tax revenue over the years.
Juncker was prime minister of Luxembourg from 1995 until the end of last year, as well as its finance minister for 20 years until 2009. But in the Grand Duchy (population: 525,000) these roles weren’t enough for Juncker. In the early 1990s, as chair of the European Union’s council of economic and financial affairs, he played a key role shaping the economic and monetary aspects of the 1992 Maastricht Treaty, and in 2005 became president of the Eurogroup of finance ministers within the euro area.
Tax-free flows of money Luxembourg under Juncker certainly exploited the economic freedoms enshrined by the EU’s founding treaty and assiduously promoted by Brussels’s big cheeses. Over the 20th century’s closing decades it would turn itself into little more than a tax haven – but, crucially, one at the heart of Europe entitled to tax-free flows of money in and out of its borders in a way traditional sunny island havens such as the Caymans could only dream of. The Grand Duchy became the member of the economic club that pilfered from the club’s funds.
An especially fruitful line has been multi-billion-pound corporate tax avoidance at its neighbours’ expense. In the most infamous case, Vodafone still routes more than £50bn worth of loans through Luxembourg for no purpose other than taking advantage of tax laws and administrative rulings carefully tailored by Juncker’s governments to facilitate large-scale tax avoidance. As the last Eye reported, the company is sitting on a £17.4bn “tax asset”, ie reduction in future tax bills around the world, courtesy of Här Juncker. Funnily enough, the company’s largest tax dodge is in the country on whose leader’s support he depends for his Brussels elevation: Germany.
Transparency initiatives As Eye 1314 reported two years ago, hundreds of other multinationals, including the UK’s Glaxo, Tesco and Financial Times publisher Pearson, use Luxembourg in similar ways at enormous cost to Europe’s economies.
The European Commission has never taken serious action against this tax dodging, however – unlike the use of undeclared accounts by tax evaders against which it has tried, with mixed success, to act – but with no thanks to Juncker’s Luxembourg. The Grand Duchy has resisted transparency initiatives at every step and has only just been persuaded to sign up to a new EU “savings directive” aimed at informing tax authorities of hidden accounts.
When Juncker announced he would relent last year, after looking at Switzerland and noticing what an angry US can do to small countries that hide its citizens’ dirty money, he admitted it was only “because the Americans leave us no other choice”. “
What does this mean for EU tax policy over the next five years? What will the strategic direction be? And to what extent will the principle of tax subsidiarity slow and limit the progress of EU integration? And finally, what does Juncker’s appointment say about EU member state support for BEPS? This isn’t a poacher turned gamekeeper, it looks more like the poacher in charge of the gamekeepers!