Tax professionals and government tax authorities have long suspected that under the leadership of Prime Minister Jean-Claude Juncker, who served from 1995 to 2013 (the longest tenure in EU history), Luxembourg became one of the biggest tax havens in the European Union. But because its system lacked transparency, until recently there was little hard evidence to support those suspicions.
The threads that held together Luxembourg's system of secret tax rulings began to unravel in November 2014, when whistleblowers released more than 300 rulings that showed the small country approving sweetheart tax deals for large multinationals. More about that system was revealed last year when Luxembourg prosecuted the two leakers, and the journalist to whom they leaked the rulings. At their criminal trial in April, one leaker testified that a supervisor in the Luxembourg tax office, Marius Kohl, had rubber-stamped nearly every ruling request his office received -- often the same day the request was made. Unfortunately, the world may never hear from Kohl -- he seems to have developed a rare illness that happens to coincide precisely with the beginning and ending dates for each court session in the case.
New disclosures reveal that while Luxembourg was actively helping large companies avoid their taxes, its prime minister was actively working to sabotage the EU's efforts to attack the commonly used base erosion techniques that Luxembourg was blessing. The new information could further erode Juncker's authority as president of the European Commission. He has already survived one "no confidence" vote in the European Parliament. The new revelations may prompt another (p. 137).
While the Luxembourg court hears the cross-appeals filed by the LuxLeaks prosecutors and defendants, new allegations of government misconduct have been raised. Former Member of Parliament Justin Turpel has alleged that government authorities have had the courtroom and supporters of the whistleblowers under surveillance since the trial began. While the government has not denied that an observer from Luxembourg's homeland intelligence agency attended the trial, it insists that the observer was not there in his official capacity (p. 161).
Continuing concerns about tax secrecy have prompted the public to demand greater transparency from tax authorities and taxpayers. Nowhere are those demands greater than in Europe. While the OECD rejected proposals to make public the country-by-country reports to be filed under action 13 of its base erosion and profit-shifting project, the EU has made a strong push to require some form of public disclosure of CbC reports. Rita McWilliams reviews the current state of CbC reporting, and advises companies that they would be wise to prepare public explanations when questions are raised about their tax planning (p. 132). Still, many remain skeptical that publishing CbC reports will improve the public's confidence in corporate tax compliance (p. 164).
Last month the European Commission released the long-anticipated public version of its ruling that between 2003 and 2014 Ireland improperly provided about €13 billion of state aid to Apple, in the form of favorable tax rulings. Tax professionals are now dissecting the 130-page ruling, seeking to discern the commission's reasoning and identify weak spots, while Ireland and Apple pursue their appeal in the European courts. J. Clifton Fleming Jr. examines Apple's structure that led to the ruling and discusses whether the U.S. has a dog in the fight at all (p. 179). Mindy Herzfeld identifies the most serious problems in the ruling and suggests the lessons to be learned from it (p. 125).
Stuart Gibson is editor of Tax Notes International.