Private Eye logo
in the back
Tax dodging the Juncker way
European Commission, Issue 1378
AS HE sets his new team to work, European Commission president Jean-Claude Juncker must be delighted with the way his competition commissioner Joaquin Almunia is dealing with the big tax-dodging question that hangs over Ireland and Luxembourg.

Almunia’s investigations into Apple’s arrangements in Dublin and Fiat’s and Amazon’s in the Grand Duchy are examining whether the companies have received “state aid” through special deals with the local taxmen, who allegedly agreed to tax smaller profits than they should under their own laws.

“National authorities must not allow selected companies to understate their taxable profits by using favourable calculation methods,” says Almunia. “It is only fair that subsidiaries of multinational companies pay their share of taxes and do not receive preferential treatment which could amount to hidden subsidies.”

A wheeze for diverting profits
Illegal state aid, in other words, involves special deals for specific companies, which makes the nature of the investigation highly convenient for Juncker. For as prime minister of Luxembourg for 18 years, he presided over a system in which any big company could approach the Luxembourg taxman with a wheeze for diverting profits made, say, in the UK, US or elsewhere in Europe, into subsidiary companies in the Grand Duchy.

All they had to do was move vast slabs of capital there, dressed up as legitimate financial instruments. The Luxembourg tax authorities would then tax just a tiny fraction of the money using a sliding scale based on how much was washed through the Grand Duchy. In the largest cases involving billions of euros, such as one undertaken by UK drugs company GlaxoSmithKline, the fraction would be just 1/64 percent (0.016 percent) of the funds, when the real profits on this earned by lending money to companies in the organisation elsewhere in the world were hundreds of times as much. Those countries would give tax relief for the latter, far higher, amount. Result: a huge tax dodge.

Hundreds, possibly thousands, of multinationals visited the Luxembourg tax avoidance store, first exposed in the UK in Eye 1314 two and a half years ago when a leaked cache of schemes approved by the Luxembourg authorities revealed companies including Daily Express publisher Northern & Shell, Pearson Group plc, Glaxo, HSBC and even, ahem, the Guardian Media Group enjoying the Grand Duchy’s fiscal charms. The practice explains why the ratio of foreign investment to GDP in Luxembourg is the highest in the world at 4,700 percent (compared to the UK, itself fairly high, at around 50 percent).

Sweetheart deals
But as the scale of the scam shows, the shop was open to all large companies. At several billions of pounds every year, this will have made the cost to other countries far larger than that of sweetheart deals given to particular companies like Apple in Ireland and Amazon in Luxembourg – but its widespread availability also took it out of the definition of “state aid”.

In announcing the state aid investigation into Amazon, Brussels officials were thus able to point out that their inquiry “does not call into question the general tax regime of Luxembourg”. How helpful for its architect, Jean-Claude Juncker!

More top stories in the latest issue:

Children are ending up in care homes as more jailed mothers are separated from their babies and special units in prisons are mothballed

If an opencast mine goes ahead in the Pont Valley near Consett, locals want to know will be around to restore the land once the coal is stripped out.

After 44 years, a blatant wrongful conviction may return to the appeal court for a record fifth time. But it will be too late for Tony Stock, who died a ‘guilty man’ in 2012, aged 73.

Lawyers in London, home of ‘confidential arbitration’, lick their lips at the dispute resolution proposals of the controversial US-EU trade deal.

Relief for George Osborne as Citizens Advice, which will help deal with the mess of pensions reform, drops its political neutrality and endorses the cash free-for-all.

Crocodile tears at Teesside University… a lesson in business reality from the University of Huddersfield’s visiting professor of entrepreneurship, Crombie boss Alan Lewis; and a belated apology from the police to a professor in Portsmouth.

As one NHS trust bails out of a ruinous PFI contract, there’s rich pickings still for the accountants who helped push the rip-off deals in the first place.

The Monaco-based backer of Scottish independence, who is set to win yet another ferry contract for the Scottish coast and islands service.

To read all these stories in full, you can buy the latest edition of Private Eye - or subscribe here and have the magazine delivered to your home every fortnight.

Next issue on sale:
11th November 2014.
More From This Issue
Top Stories
Street Of Shame
more »
Top Stories
Top Stories
more »
A Message
from the New Coalition Academy
more »
A Message
Also Available Online
More From This Issue
Private Eye Issue 1378
private eye Only In The Magazine

The Clooney Wedding, Day 94… ‘Doctors to be paid to do their job’ shock… Madame Tussauds thrilled by new-look Renee Zellweger… Mr Roy Plomley ‘turned to jelly’ by Dame Edith Sitwell… Greek lawyers demand return of Elgin marbles case… Government slashes deficit to new high… Julia Hobsbawm on Networking, as told to Craig Brown

And also...

- Messiah complex: The pundits helping turn Russell Brand into Jesus Christ
- Sun spot:
Why they’re still talking about Rebekah down at Kingston crown court
- Slow justice: The wrongful conviction that may finally be quashed… after 44 years
For all these stories you can buy the magazine or subscribe here and get delivery direct to your home every fortnight.
Next issue on sale: 11th November 2014.

Private Eye Issue 1377