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.
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”.
Tax dodging isn’t Luxembourg’s sole selling point. Despite experiences such as the collapse of the fraudulent Luxembourg-registered bank BCCI in 1991, Juncker pursued an aggressive regime of financial deregulation, especially in the area of investment fund administration. So it was no surprise that when Bernard Madoff’s ponzi scheme collapsed in 2008, a large chunk of the money had come through loosely regulated Luxembourg funds set up by Swiss banks.
With economic credentials like these, who could argue with Juncker’s appointment as supreme Eurocrat?