Blog AnalysisEuropean policy

Luxleaks! A great opportunity to act… a little wasted

SurveyLuxLeaksIcijMainStamp(BRUSSELS2) The establishment of a system intended to encourage investments by multinational companies in Luxembourg is undoubtedly not the scoop of the century. But the investigation by the consortium of journalists - on what was called the LuxLeaks — has great interest: 1) scientifically describing all the stages of a mechanism; 2) remember that this mechanism intended to capture corporate income to the detriment of other countries owes nothing to chance; 3) incite political action and overcome all easy excuses.

Everyone does it…

This was the first “excuse” that popped up. Effectively. Belgium has its notional interests and a very attractive tax system for “dormant” assets. The Netherlands has legislation facilitating the establishment of holding companies. Ireland has an unbeatable tax rate for multinational companies (bordering on tax dumping). Both Estonia and Slovakia have defended (and applied) the principle of a “flat tax” (almost zero tax rate). The United Kingdom has Jersey and Guernsey and above all a few islands as exotic as they are profitable for mailboxes of all kinds. Etc. As the President of the European Commission has also pointed out, 0 States have adopted “tax ruling” rules (advance tax decision). But Luxembourg has acquired, in terms of tax optimization, a comparative advantage and notable success, which it defends step by step. The “tax ruling” being only one of the elements of its tax policy. He did not hesitate to slow down or limit any European tax harmonization initiative, sometimes finding himself in the same camp as the British. London having, in addition to defending its own interests, a strong ideology to counter anything that remotely resembles a more effective Europe. Which is the opposite of the traditional position of the Grand Duchy, pro-European integration.

…and it’s not illegal

This practice is not illegal, we hear. Yes of course. This is also the reason for the existence of hyper-specialized legal and tax firms which allow a company to stay within the law while saving the maximum amount of taxes. But does the “legality” of this practice mean that it must continue? This is the whole question posed, quite rightly, by this investigation (*). Today, this practice no longer appears compatible with a certain view of Europe, which is more united. It even appears very unfair at a time of intense economic crisis – a crisis which continues and will last for several more years – and where the gaps are widening in European societies. In a word, if this practice is “legal”, it is no longer legitimate. A bit like bankers' bonuses: totally known, totally legal, but somewhere outside of time.

A practice in contradiction with the economic situation…

The economic and financial crisis – which continues – has been there. And the contradictions come to light. First contradiction: equality between taxable persons. We tolerate legal entities – especially large companies, which can play across borders – which we do not tolerate individuals or small businesses. Individuals and craftsmen cannot use all the tax engineering available to large companies, whether by using specialized tax advisors or by setting up parafiscal structures. If they relocate and it will be considered fraud. Second contradiction: at the economic level, between States. How can Member States, required to apply rigor to their budgets, cut spending and find other resources, carry out these reforms if some of their companies find a “lower tax bid”, in others? Member States, more lax than the first in tax terms.

…and the spirit of European construction

Last contradiction: more political, on European construction. Jean-Claude Juncker himself had defended before the European Parliament in July as in October, a return to European fundamentals, to restore full importance to the Commission's initiative and to action which gives the same place to social issues. than the economy. This construction has always been based on one principle = harmonization. A principle which does not consist (only) of tracking down illegalities (which is specific to competition policy) but which aims to establish a new legality, more just and profitable for citizens, for economic exchanges and which eliminates friction and attempts at competition between Member States. This is how all European rules were constructed: environmental standards, waste, maritime safety, banking regulation, etc.

A politically unsustainable absence

The absence of Jean-Claude Juncker who, for almost a week, played cat and mouse with the media, his reluctance to move forward on the path of greater fiscal deepening, were surprising in a man who wanted to play the “renewal” card. They ultimately only gave credence to the idea that the former Prime Minister of Luxembourg was not very sure of himself in his attitude towards the States. The first arguments developed by the European executive were, in fact, quite limited: competition rules are applied, an investigation underway into the distortions noted (notably in Luxembourg and Ireland). As for the rest, it is not the fault of the Commission, the rule of unanimity (**) like the absence of will of the Member States explaining the current situation. To be honest, it was rather weak as a justification (Barroso would not have done better) and rather contrary to the “voluntarist” general policy declaration of the Juncker Commission (see also: The 5 major projects of the Juncker Commission et Notice to amateurs: the Commission will return blow for blow).

A week of procrastination

It then took, almost a week, violent apostrophes in the media, a press room which, every day, tirelessly repeated the same questions... without obtaining an answer, the threat of a motion of censure (by the Left group) which had no chance of succeeding but which nevertheless sounded like a parliamentary horn, so that JC Juncker finally decided to take one (timid) step further. As he announced last Wednesday, a new proposal will be studied to make the exchange of information between Member States automatic. And it will be the commissioner in charge of Taxation, Pierre Moscovici, who will be responsible for preparing this proposal.

A wonderful opportunity… missed

In the end, we can only feel bitterness. This affair offered Jean-Claude Juncker a fantastic opportunity to implement what he has been defending for months: a more reactive “political” commission, with a sense of initiative, closer to citizens, to restore meaning to Europe and rebalance the economic dogma with more social aspects. At the first opportunity, Juncker tripped on the step. We can only hope that on the second occasion, he will be able to seize the opportunities to be a little more ambitious and reactive…

(Nicolas Gros-Verheyde)

(*) See a conspiracy the “odious” Anglo-Saxons against the “nice” Juncker – as my (excellent) colleague Jean Quatremer suggests, is undoubtedly amiable in terms of journalistic theory. However, this is quite simplistic in the face of the reality of the raw facts and the issues that this journalistic investigation raises. And above all the lack of reaction from the executive which ultimately fueled the controversy more than the investigation itself.

(**) We note in passing that the Commission has not proposed using the “bridging clause” included in the Lisbon Treaty and which would allow a move from unanimity to qualified majority. A proposal which would almost certainly be rejected but would have the merit of clearly drawing the lines of rupture between the Commission on one side and the Member States on the other.

Nicolas Gros Verheyde

Chief editor of the B2 site. Graduated in European law from the University of Paris I Pantheon Sorbonne and listener to the 65th session of the IHEDN (Institut des Hautes Etudes de la Défense Nationale. Journalist since 1989, founded B2 - Bruxelles2 in 2008. EU/NATO correspondent in Brussels for Sud-Ouest (previously West-France and France-Soir).