From Luxembourg Leaks to Panama Papers

In 2014, the International Consortium of Investigative Journalists (ICIJ) broke the story on the first major ever leak on corporate tax dodging in the heart of the European Union: Luxembourg Leaks.

The GUE/NGL group was quick to condemn the practices exposed, to highlight the role played by now President of the European Commission Jean-Claude Juncker and to call for a parliamentary inquiry into the matter. The ‘sweetheart deals’ revealed by whistleblowers Antoine Deltour and Raphaël Halet stretch over most of Juncker’s tenure as Finance Minister and Prime Minister of Luxembourg.

Our MEPs fought hard in the first and second TAXE/TAX2 special committees investigating the LuxLeaks scandal between early 2015 and July 2016. An overview of all activities and positions can be found here (in German). In the process, GUE/NGL sponsored a study on the legality of the European Commission’s continuous refusal to grant full an unequivocal access to tax policy documents related to the inquiry to MEPs. Based on this study the Commission has been taken to court by Fabio De Masi. We expect a positive verdict to significantly contribute to the Parliament’s oversight rights.

Despite our pressure, and evidence that Juncker did not answer MEPs’ questions truthfully in the September 2015 hearing in the Parliament, a majority of political groups however eventually refrained from naming those politically responsible for decades of corporate tax dodging in the EU. Also on a technical front, the final reports of TAXE and TAX2 – voted in November 2015 and July 2016 respectively – contain many positive elements, but fall short on some major causes of tax dodging and harmful tax competition.

We managed to bring several of our key demands into the two reports, including, amongst others:

  • Stronger sanctions against those facilitating and promoting tax avoidance and tax evasion in the consulting and financial industry. This includes revoking banking licences for financial institutions aiding tax fraud.
  • Real transparency through a comprehensive country-by-country reporting, publicly accessible registries of all beneficial owners of corporations and trusts and the need for a global wealth registry.
  • An encompassing protective framework for whistleblowers, the need for which was highlighted again by the verdict against both LuxLeaks whistleblowers as well as the decision by the Luxembourg prosecutor to appeal against the initial acquittal of journalist Edouard Perrin.
  • A recognition that the EU’s framework for dealing with harmful tax competition through the secretive and ineffective Code of Conduct Group has entirely failed and that member states have systematically failed to honour EU law on information exchange and other matters in the past.
  • The need to move beyond the outdated arm’s length principle and transfer pricing framework and to reform rules of international taxation more ambitiously including with a much stronger role of inclusive UN fora at the expense of decisions taken at the rich countries’ club OECD.

For those demands by Parliament to be more than positive rhetoric, they would now need the follow-up of the European Commission in the form of concrete legislative proposals. This has not happened in most cases yet.

In addition, apart from failing to name political responsibilities for the industrial scale of tax avoidance in the EU and beyond, the report also omits a profound criticism of the EU’s own inbuilt mechanisms that facilitate profit shifting and aggressive tax competition through the functioning of the internal market.

Unhindered movement of capital and the jurisprudence of the European Court of Justice which has severely restricted member states capacity to protect themselves against tax dodging through defensive measures have indeed to be reversed for a fairer tax system to be possible.

We will continue this fight in the new Panama Papers Committee of Inquiry that we have pushed for immediately after the revelations of this next massive offshore scandal have been made public in April this year.