Luxembourg may be focus of another Brussels tax inquiry

The European Commission may open a fresh investigation into tax rulings offered by Luxembourg as early as this week, as EU competition commissioner Margrethe Vestager continues her clampdown against corporate tax avoidance.

Luxembourg is already awaiting a final decision on the EU state aid investigation against Amazon following an almost two-year investigation. A separate probe into McDonald's tax dealings with the duchy was launched in 2015.

However, it is understood that a new investigation could be opened in the coming week by the EU’s competition arm. A European Commission spokesman declined to comment on the matter.

Last December, the European Commission found Luxembourg had illegally offered state aid tax treatment to Fiat, ordering the government to recoup up to €30 million from the company. A similar order was made to the Netherlands over Starbucks.

The relatively small numbers involved in both rulings had led some analysts to believe a similarly low figure would be reached in the commission's investigation of Apple's tax dealings with Ireland. But while the two previous rulings focused on the methodology used to calculate transfer-pricing arrangements underpinning the deals, the Apple ruling focused on the internal arrangements within two Apple subsidiaries registered in Ireland.

Some Brussels-based commentators believe Ms Vestager will be keen to announce a clampdown on an EU rather than US company, in a bid to soothe concerns in Washington that Brussels is unfairly targeting US multinationals.

Ms Vestager is due to meet US treasury secretary Jack Lew in Washington later this month. The US administration has accused Brussels of protectionism in its targeting of the tax arrangements of US companies in Europe.

Tax practices

Luxembourg’s role at the centre of alleged unfair tax practices is politically sensitive for the European Commission given that Jean-Claude Juncker was prime minister when many of the alleged sweetheart deals were negotiated. Within weeks of the former head of the eurogroup’s appointment as European Commission president in late 2014, the Luxembourg Leaks scandal broke, revealing how the Luxembourg authorities had helped hundreds of companies slash their tax bill.

The revelations galvanised Mr Juncker’s willingness to prioritise tax avoidance as a key policy focus during his five-year tenure. The former Luxembourg prime minister stressed, on appointment as successor to José Manuel Barroso at the helm of the EU’s executive arm, that the European Commission would be “more political” than previous administrations.

Ms Vestager has refuted allegations that the finding by the commission’s competition division against Apple was political, arguing that state aid law applies to tax as well as other forms of state aid. Brussels’s order that Ireland recoup up to €13 billion from Apple in unpaid taxes over a 10-year period marks by far the biggest judgment made by the European Commission related to state aid. The previous record was €1.3 billion in 2014.

In his first public comments since the Apple announcement, Mr Juncker said in China that the “landmark ruling” was made “without discrimination and without bias”.

“This is the result of intensive work which has been going on for many years,” he said. “Our rules on state aid have always been clear: national authorities cannot give tax benefits to some companies and not to others. This is the level playing field that the commission is always working to defend. We apply these rules without discrimination and without bias.”