EU finance ministers meet in Brussels Friday, with revelations about Luxembourg’s tax breaks for big firms putting pressure on former premier Jean-Claude Juncker, the new European Commission president.
The finance ministers will also hope to end a row over demands for back payments from Britain, with some saying Thursday that paying the bill in instalments was a likely option.
Juncker came under fire Thursday after leaked documents showed the tiny nation gave hundreds of global firms huge tax breaks.
Household names such as Pepsi, IKEA and Deutsche Bank were among companies named by the US-based International Consortium of Investigative Journalists (ICIJ) following a six-month investigation of 28,000 leaked documents.
The revelations risk weakening Juncker’s position just days after he took office as head of the EU’s executive arm after 19 years as Luxembourg prime minister, the period during which many of the tax deals were sealed.
Juncker’s spokesman said the veteran politician was unfazed by the revelations, though he pulled out of a public speaking engagement with former EU commission chief Jacques Delors scheduled Thursday.
Under an hour-long barrage of questions from reporters, the spokesman stressed that EU regulators were already investigating whether Luxembourg’s deals with US Internet giant Amazon and the financial arm of Italian carmaker Fiat amounted to illegal state aid.
Spokesman Margaritis Schinas said that if the EU found it breached the rules, “Luxembourg will have to take corrective actions”.
The EU’s new Competition Commissioner, Margrethe Vestager, said she would “of course” press on with those probes and looked forward to forming a “very concrete picture” of the thorny issue.
Vestager noted “a complete change of mood” in the past few years on taxation, with a huge push by G20 nations to agree new rules to deprive multinationals of easy access to tax havens globally.
– ‘Blow to Juncker’s credibility’ -The so-called “Luxleaks” documents showed that billions of dollars were funnelled through the tiny European duchy of Luxembourg thanks to complex financial structures that allowed companies to slash their tax liabilities, depriving hard-up governments of revenue.
Juncker presided over the tax affairs of Luxembourg for over two decades, transforming the country from a sleepy European backwater into a prized destination where hundreds of the world’s biggest companies channel their affairs.
On Wednesday, asked about the tax policies he once led, Juncker said he wanted the Commission to investigate independently and would not interfere with its work.
But criticism poured in with Sven Giegold, head of the Greens group in the European Parliament, calling the revelations “a major blow” to Juncker’s credibility.
– Burberry, Heinz also named -In its investigation, the ICIJ said global accounting giant PricewaterhouseCoopers had helped multinationals secure at least 548 tax rulings in Luxembourg between 2002 and 2010.
The documents uncovered details of so-called Advance Tax Agreements — pre-negotiated deals that set out how companies will be taxed, the same practice that the EU is investigating in the Amazon and Fiat cases.
The EU has no power over member states’ tax affairs as such, but it can probe whether they amount to illegal state aid by giving a company an unfair advantage over its competitors.
If so, then a country is in breach of the 28-nation bloc’s single market rules.
Luxembourg’s finance minister, Pierre Gramegna, in Brussels for a meeting of eurozone ministers Thursday, said that while the practice was “totally legal” it may no longer be ethically compatible with today’s norms.
Similar cases have been opened against Ireland for deals with tech giant Apple and the Netherlands with coffee chain Starbucks.
Ronen Palan, Professor of International Politics at City University London, said the ICIJ investigation was a “game changer” that would “prove as damaging to Luxembourg as previous revelations were to Switzerland and Liechtenstein.
“Other companies that benefited from the schemes included Burberry, Procter & Gamble, Heinz, JP Morgan and FedEx — many of which use Luxembourg as one of several tax havens to optimise earnings.
“The fight against tax avoidance must be global,” said French Finance Minister Michel Sapin.
German Finance Minister Wolfgang Schaeuble said Luxembourg still had “a lot to do” to improve its tax policies.
The other main issue for the EU finance ministers is the refusal by Prime Minister David Cameron to pay Britain’s 2.
6-billion) funding bill by the December 1 deadline, saying it is “unacceptable” and made it more likely Britain would vote to leave the EU in a referendum planned for 2017.
The Netherlands meanwhile faces a bill for 642 million euros.