Brussels, 06/11/2014 (Agence Europe) - What is lawful today “may no longer be desirable or could be seen as incompatible with what we consider to be the standard which should prevail”, Luxembourg's finance minister, Pierre Gramegna, said on Thursday 6 November (our translation).
“A situation in which an international company pays little or no tax is untenable for Luxembourg”, he added. The Luxembourger was referring to the practice of tax ruling which, he pointed out shortly beforehand, complies with Luxembourg law, European law and all “international conventions in place on the matter”.
These anticipatory tax decisions are once again under the spotlight following a leak, via the International Consortium of Investigative Journalists, of 548 tax agreements concluded with Luxembourg between 2002 and 2010 by more than 340 multinational companies, including Amazon, IKEA, Pepsi and Heinz. The agreements saved these companies billions of euro in tax. The Belgian daily newspaper Le Soir stressed that, in some cases, the real tax rate on profits was less than 1%. The news immediately shook the Commission led by the former prime minister of the country, Jean-Claude Juncker, who has been in position for five days.
The decisions stemming from these practices “may lead to double non-taxation”, Gramegna said, adding: “Luxembourg is not happy with this situation and is working with the international community on efforts to remedy it”. He confirmed the intentions of the Grand Duchy to sign up to the anti-abuse clause of the parent/subsidiary directive. This clause allows the member states to ignore artificial arrangements made for tax avoidance purposes and to apply tax on the basis of actual economic data. Luxembourg was one of the last states to issue reservations on the legal safety of the text. “We feel that it is the right answer to the problem we have seen at international level”, he said.
Pointing out that the practice of “tax ruling” is used by several countries, Gramegna added that it would not be enough for one country to take initiatives on its own. “We have gradually brought in an automatic exchange of information at European level, why not extend this information exchange system to the rulings or other issues?”, he asked, going on to stress that this discussion needed to be held at international level “so that it's not just a European initiative”.
When contacted by EUROPE, Pascal Saint Amans, Director of the Centre for Tax Policy and Administration of the OECD, explained that extending the scope of the exchange of information to these kinds of practices would limit their potentially harmful nature and that this was already the subject of an agreement within the OECD, in the framework of point 5 of its BEPS (Base erosion and profit shifting) initiative aiming to fight tax optimisation. The BEPS action plan will be discussed in Brisbane on 15 and 16 November.
When asked about the position to be adopted by Luxembourg on the common consolidated corporate tax base, a project which has been on the negotiating table for several years, Gramegna responded by saying that the Grand Duchy would be “one of the countries calling for a 'level playing field' in as many areas as possible”.
DG Competition investigates. The Commission reiterated its hope of seeing things “start to move on tax policy” and repeated Juncker's calls to move towards greater tax harmonisation. However, the institution took pains to stress that this is an entirely separate matter from the investigations underway, opened by its DG Competition, on certain tax ruling practices. The investigations were opened in June of this year by Commissioner Joaquin Almunia, Margarethe Vestager's predecessor in the competition job. These relate to the decisions made by Ireland over Apple, the Netherlands over Starbucks and Luxembourg for Fiat Finance and Trade. A further investigation was subsequently opened into Luxembourg's decisions regarding Amazon.
On Thursday 6 November, Juncker said that he would not stand in the way of his commissioner in these investigations. “That would be unacceptable”, he stated. The Commission spokesperson explained that it is up to the current Luxembourg government to provide the information. In June of this year, when the opening of these investigations was announced, the Commission also opened infringement proceedings against Luxembourg, as the country refused to supply all of the information requested. More recently, the Commission stated that cooperation with the Luxembourg authorities had improved considerably. Luxembourg appealed against the Commission's injunctions calling upon it to supply the missing information. “I said and I maintain that we will cooperate fully with the Commission on specific cases”, said Gramegna, but “we disagree over the interpretation of the law as to whether it can ask the country to share all of its taxation decisions”. It is believed that the Commission has requested information about a good hundred rulings. On the basis of the information it has received, it has so far decided to open these two in-depth investigations. (EL)