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Europe to fast-track action against ‘sweetheart’ deals

The European Commission has pledged to act on demands for tax reform with new rules to be unveiled within months.

European Parliament tax haven protest during censure motion.

The European Commission has pledged to fast-track new legislation that will provide greater scrutiny over sweetheart tax deals with multinational corporations as pressure from finance ministers, politicians, and activists grows in the wake of the Luxembourg Leaks revelations.

Aggressive tax avoidance schemes that use loopholes in tax treaties between countries have been in the spotlight in Europe since ICIJ and its partners published more than 500 secret Luxembourg tax agreements that showed how multinational corporations were using the tiny Grand Duchy to drastically cut their tax bills.

Campaign for EU-wide reform

Tax rulingThe European Commission will unveil a new directive on the automatic exchange of information regarding tax rulings in the first quarter of 2015, amid mounting pressure from some of Europe's biggest economies.

Tax rulings, or "comfort letters" from governments to multinational companies that approve special tax-reducing arrangments, were at the heart of the Luxembourg Leaks files, which included more than 500 of these documents. The new, Europe-wide directive would aim to provide greater scrutiny over these rulings in a bid to discourage so-called "sweetheart" deals. 

The pledge to act within the next four months came as Germany, France and Italy joined forces to campaign for reform against the sort of tax-avoiding techniques revealed by the Luxembourg Leaks investigation.

In a letter written to Pierre Moscovici, the European commissioner for economic and financial affairs, taxation and customs, the French, German and Italian finance ministers took aim at low-tax jurisdictions like Luxembourg for a lack of cooperation on tax policy.

“The lack of tax harmonization in the European Union is one of the main causes allowing aggressive tax planning, base erosion and profit shifting (BEPS) to develop within the internal market,” the letter said.

The letter demands “stricter conditions and rules” for unilateral tax rulings, examples of which could be seen in the Luxembourg Leaks documents, and calls for EU-wide reform by the end of next year.

"Our citizens and our companies expect us to cope with tax avoidance and aggressive tax planning. It is our common duty to meet their expectation by ensuring that everyone pays their fair share of tax to the state where profits are generated," it said.

MEPs, activists push for investigation

The news comes as the European Network on Debt and Development (Eurodad), a coalition of European NGOs, wrote en-mass to members of European Parliament to support a Greens proposal for a stand-alone committee to investigate corporate tax avoidance.

“The Luxembourg Leaks scandal has shown that multinational companies are exploiting Europe’s tax rules to avoid billions of euros in tax, and that certain governments are making it easy for them,” said Tove Maria Ryding, Tax Justice Coordinator for Eurodad. “Strong and urgent action is essential because the public is furious that in difficult economic times, big companies are getting away with tax abuse on an industrial scale.”

Danish parliament almost unanimous on response and reform

Meanwhile, in Denmark, the government has decided to expand its public corporate tax register from one year of records to five years of records, citing the Luxembourg Leaks investigation as a key driver.

The Danish government also invited political parties to negotiations on new law initiatives aimed at curbing tax evasion, and set aside money in the budget for an investigation of the Luxembourg Leaks documents. 

Catch up on LuxLeaks stories from our partners around the world:

Juncker looks back on Luxembourg’s tax policies

In the lead-up to a LuxLeaks-related censure motion in European Parliament last week, European Commission President Jean-Claude Juncker gave an interview to a small group of European press in which he defended Luxembourg’s push into the financial sector through its tax policies, but admitted more official oversight was needed.

Juncker, who was Luxembourg’s prime minister for almost 19 years while many of the controversial tax rulings were approved, told reporters Luxembourg needed to grow its economy in new directions.

“I would do exactly the same because we had no other choice than to diversify our economy,” he said. 

“But I would have had a more precise look at these tax rulings. Everyone knew that these tax rulings did exist in Luxembourg and did exist in other countries, in 22 European countries they do exist, and I would have changed the law allowing the finance minister to be involved, which our law does not allow.”

The European Parliament overwhelmingly rejected the censure motion against Juncker, allowing him to continue as president of the Commission.

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