Five days into his new job as European Commission president, Jean-Claude Juncker's honeymoon in the job ended yesterday, following the revelation that hundreds of companies had used Luxembourg's tax rulings to slash their tax bills while he was the state's prime minister.
To some extent the timing of the publication was serendipitous for him: the previous day he had appeared before the press in an effort to demonstrate the new commission’s commitment to communication and transparency.
Yesterday the commission’s chief spokesman was was bombarded for an hour by questions from a packed room of journalists.
Mr Juncker also cancelled a planned appearance at an event with Jacques Delors yesterday in Brussels after the former commission president pulled out due to illness.
“He can’t dialogue with himself,” his spokesman told the sceptical journalists.
Moral authority
Yesterday’s relentless line of questioning had a serious undertone. How could the man responsible for the austerity policy promulgated by Brussels while he was head of the euro group lead with any moral authority? Would Juncker co-operate with any investigations that might be initiated into tax deals offered during his premiership? Would competition commissioner
Margrethe Vestager
be able to do her job properly?
The commission answered the procedural and technical questions relatively satisfactorily, while batting away the political ones. As the spokesman pointed out, member states are entitled to offer tax arrangements to companies to attract investment, as long as those arrangements are not in breach of state aid rules.
Less convincingly, the commission argued that deals such as these were “typical”.
But politically the revelations of a systematic culture of promoting aggressive tax planning by the duchy are highly damaging for Juncker. MEPs from across the political spectrum responded yesterday to the revelations of Luxembourg’s tax deals. Unsurprisingly, the European People’s Party, which last March nominated long-term member for the commission presidency, said the issue was not a personal one for him.
Credibility
‘on the line’ However, t
he centre-left Socialists and Democrats group, which also backed Juncker as part of a quasi-coalition pact, said his credibility was “on the line”.
The question for Ireland is whether the Luxembourg scandal has an adverse impact on its already damaged reputation as a low-tax jurisdiction. While on the one hand the scale of Luxembourg's tax deals takes some heat off the Republic, it also refocuses attention on the broader issue of multinational tax avoidance.
The revelations are likely to reignite debate over the possible introduction of a common consolidated corporate tax base, though the proposal has more or less been abandoned.
With any decision on tax requiring unanimity from member states, the introduction of any form of harmonised tax rates is highly unlikely, particularly as the tendency among member states has been to reduce corporate tax rates over recent years.
Whether the latest revelations of aggressive tax planning will propel Ms Vestager to intensify her oversight of the tax rulings of individual countries as she assumes control of the EU’s powerful state-aid division will be the key question in coming months.