#LuxLeaks and #Ruling-Gate: What Now?

Briefly and succinctly: 12 theses on LuxLeaks by Luxembourgian Déi Lénk MP Justin Turpel.

1. Unparalleled tax fraud. Under the pretence of tax secrecy, billions of tax euros have been evaded in Luxembourg. Documents published by the International Consortium of Investigative Journalists (IGIJ) as “LuxLeaks” clearly show that this is a case of unparalleled tax fraud. By means of so-called “tax optimisation”, multinational corporations were able to save billions of tax euros with the help of the Luxembourg state.
One example is Amazon, a company with a turnover of EUR 5.5 bn, which pays only EUR 4,219,339 in taxes (i.e. less than 0.1%). Another is E.On a firm which pays a mere EUR 1,575 in taxes (1) while making a profit of 130 m thanks to its Luxembourgian financial structure “Dutchdelta”. Not to forget Ikea, Pepsi, Heinz, FedEx, Apple and many more.
2. Only the tip of the iceberg. In total, 340 companies have benefited from these arrangements to the detriment of numerous states and their citizens, who are forced to endure austerity measures and cuts in social services in order to make up for the shortfall in national budgets. However, this is only the tip of the iceberg as the published documents merely concern those tax arrangements managed by consulting firm PriceWaterhouseCoopers in the period from 2002 to 2010. Any arrangements made before or after this period, or arranged by other consulting firms, remain unknown.
3. Profit maximisation for weapons manufacturers and the arms industry. When Yves Cruchten, a young MP and secretary-general of the LSAP (Luxembourg Socialist Workers’ Party), tweeted, “Wéinstens verkafe mir keng Waffen u Schurkenstaaten oder maachen de Nopeschlaenner Konkurrenz mat ridicule niddrege Léin…” (“At least we don’t sell weapons to rogue nations or compete against our neighbouring countries with ridiculously low wages…”), he was obviously overlooking the fact that numerous weapons suppliers and arms manufacturers are implicated.
Every year, the renowned SIPRI (Stockholm International Peace Research and Institute) in Sweden publishes a list of the 100 largest and most influential arms and weapons manufacturers in the world. About a third of these corporations can also be found on the list of companies whose tax arrangements were managed by PriceWaterhouseCoopers (2).
Although Luxembourg prides itself on being a state that enforces a ban on weapons supply and arms deals, the fact of the matter is that it is clearly supporting war mongers and arms producers by helping them to optimise their profits. What hypocrisy. There is also little truth in the claim that Luxembourg is not competing against its neighbouring countries with ridiculously low wages. Firstly, this is the very argument used to suppress wages in Luxembourg and to outsource work and, secondly, Luxembourg taxes enterprises such as Amazon, which generates its profit through “wage dumping” in Germany, a country in which it pays hardly any tax.
4. Partial responsibility for the financial crisis. To this day, it remains unclear as to what happened to the money corporations managed to save with the help of Luxembourg. It is safe to say that a large part of it was invested in shady financial products which ultimately led to the crash in 2008-2009.
One set of documents that particularly stands out is one which concerns the company that played a pivotal role in triggering the financial crisis through shady deals and speculations: Lehman Brothers, a firm that practised profit maximisation and tax savings via its Luxembourg holding structures until July 2008 – exactly two months before the crash. Of course, all this happened with the complicity of PriceWaterhouseCoopers and the Luxembourg fiscal authorities.
5. Is it true that we are all parasites? Now we are being told that the state and all its citizens have benefited from this illegitimate tax revenue. In fact, it is corporate groups and the superrich who have benefited from this. Furthermore, their enrichment is causing an increase in social inequality. Have we not all become prisoners of this system? Isn’t there always yet another country or state stepping forward to offer these corporations even lower taxation and thus pushing us even further into a downward spiral until nothing is left at all?
Furthermore, in Luxembourg households and the workforce are constantly paying higher taxes while the tax contributions of companies are steadily decreasing. Would it not be beneficial for every country and every state if corporations and holders of capital everywhere paid a fair tax contribution? We need to break this cycle, and we need to do it now.
6. The CSV-LSAP government and Juncker must be brought before a parliamentary investigative commission. If the CSV-LSAP government had not become embroiled in a scandal involving the secret service, and if early elections had not been held, the country would most certainly be calling for their resignation.
If #LuxLeaks and #Ruling-Gate had been revealed a little more than one year ago, all opposition parties – including the Greens and the DP – would undoubtedly have requested an investigative commission in order to bring to light the dubious and harmful practices of the CSV-LSAP government and the CSV state. This is precisely what must now happen. In the same way that the Greens and the DP recently demanded investigative committees to examine the Wingring/Livange or the SREL case, they should also support an investigative committee to examine these practices.
7. Practising tax optimisation is enshrined in the EU Treaty. Luxembourg is not the only country trying to attract international companies through tax optimisation. The US, Ireland, the Netherlands, but also Belgium and France, are taking a similar approach. Fiscal competition, and therefore “tax dumping” between EU states, is even incorporated into the Maastricht Treaty.
However, Luxembourg has clearly gone too far. Luring companies away from other countries to have them pay only minimum taxes (or none at all) in one’s own country can greatly annoy other states, who face reduced tax revenues as a result. And yet these states do not want to prohibit tax optimisation; they are simply opposed to the exaggerated levels to which it takes place. The EU Commission’s and OECD’s efforts are equally restrained in this sense.
8. The citizens are footing the bill. If the states collect less and less corporation tax – and this is the ultimate goal of tax optimisation – budget gaps open up which are compensated by cuts in social services and tax increases.
Tax increases, however, do not only concern large enterprises and companies, but also small businesses, households, the workforce and pensioners. In Luxembourg, the 5th austerity package, which was recently tabled, follows the same lines.
9. A government lacking ideas. Two weeks ago in the finance commission of the Chamber of Deputies I made it clear to Luxembourg Finance Minister Pierre Gramenga that if we want to be removed from the grey list of tax havens set up by Forum Mondial and similar institutions, supporting an exchange of information and enacting other insignificantly small changes will not suffice.
If we want to achieve this, it will be necessary to close existing tax loopholes (I mentioned tax ruling and patent boxes) and to ensure that no other loopholes (see, e.g., “Fondations patrimoniales”) are opened. Gramenga denied this, stating that Luxembourg was following the right path, and that the instruments I mentioned were irrelevant. Today, it is not only Luxembourg’s (and its citizens’) reputation that is being damaged; our government is increasingly finding itself entangled in ever-growing contradictions.
10. Hypocrisy is causing additional damage. When the Finance Minister stood in front of the international press and stated that Luxembourg “does not endorse the practise of tax dumping” and “advocates fair taxation”, this is not only extremely hypocritical, it also lacks credibility, especially after he declared that the practise of tax ruling is part of Luxembourg’s “patrimoine” [“heritage”] and after Prime Minister Xavier Bettel loudly proclaimed that it is not his job to pay for other countries’ debt.
All of these statements are as hypocritical as they are untrustworthy. What is more, the fact that the accusations against Luxembourg or the President of the Commission, Jean-Claude Juncker, are called “conspiracy theories” by representatives of PriceWaterhouseCoopers should not serve as a distraction from the topic. Journalists of the International Consortium of Investigative Journalists have done their research and instead of criticising their findings, we should address the issues they raise.
11. Tearing down the labyrinth walls. The inscrutable tax labyrinth must be untangled. It must be made clear, in an open and transparent way, exactly who benefits from the system, where, to what extent and through whom. The tax secrecy of large corporations cannot serve as an excuse for not trying to bring the truth of the matter to light.
This is why déi Lénk is advocating for a parliamentary investigative committee to be established which should conduct investigations and draw corresponding conclusions.
Such an investigative committee could also resort to the expertise of other institutions, such as Transparency International, and collaborate with similar committees in other countries, as well as the European Parliament. This is, after all, not only a matter that concerns Luxembourg.
12. Finally discussing alternatives. It is about time that we discuss alternatives to the government’s current policy of burying its head in the sand, for example, by introducing a taxation system that is actually fair, one which aims at re-establishing a balance between business taxes and taxes paid by households and the workforce.
A taxation system whereby those with “broader shoulders” (i.e. large companies) bear a greater portion of the load and where the top tax rate is further increased and a wealth tax (as duplicitously preached by the LSAP in parliament) is introduced. One which would see the introduction of minimum tax rates for businesses and enterprises which may not be underbid, and where all corporations must pay taxes in the country in which they generate the greater part of their profit.
This way, companies, along with the finance and fund industry, will be prompted to pay taxes in developing countries for the profits they generate there and can no longer deprive these countries of important tax revenues, thus limiting the impact of public development aid schemes. One thing is clear: it is high time for a true paradigm shift.
Translation: Veronika Peterseil
Originally published in German on 7 November at: http://www.goosch.lu/
(1) ARD-Panorama, 6 November 2014
(2) See Tweet of Fisec sàrl @codefiscal referring o justpaste.it/BrothersInArmsLux