Tempests in tax havens

The claim that Luxembourg has been offering negligible tax rates to multinational companies might just convince Europeans of the need to harmonize their tax systems. It is clear we cannot continue in a situation whereby some countries – and parts of countries – can go on providing services which, in the end, deprive others of revenues. When Greece has been sucked dry by austerity, high taxes and a lack of investment, when almost all EU countries are struggling to meet their obligations to their citizens and partners, it is inconceivable that tiny Luxembourg should have attracted at least 340 major companies and investment funds with almost 3 trillion euros. With this, Luxembourg’s citizens enjoy the second-highest per capita income in the world, after Qatar.

A recent report by the US-based International Consortium of Investigative Journalists claimed that some companies were offered tax rates as low as 0.25 percent. Officially, corporate income tax in Luxembourg is 22.5 percent. Among EU countries, tax rates in Ireland (12.5 percent) and Germany (15.8 percent) are at the low end, whereas in France (34.4 percent) and Belgium (33.9 percent) they are at the top. In Greece the rate is 26 percent. With various breaks and benefits, in many countries the final rate is much lower than the nominal one, but the very low rates that companies were asked to pay in Luxembourg (as well as in Ireland and the Netherlands, with a nominal tax rate of 25 percent) indicate that the system is skewed.

The chasm between 12.5 percent in Ireland and 34.4 percent in France is already too great and needs fixing. According to EU treaties, each country has the right to set its own tax rates. Even when Ireland was forced to ask its EU partners for a bailout, French President Nicolas Sarkozy failed in his effort to force Dublin to raise taxes. In this way, European Commission President Jean-Claude Juncker is correct when he says that Luxembourg’s tax regulations are not illegal. What many observe, though, is that they are unethical, offering companies and individuals the opportunity to avoid paying taxes in the countries where they earned their profits. There is also the question of whether any companies received special treatment.

Defending himself in the European Parliament, Juncker, who dominated politics in Luxembourg for over two decades, declared that the Commission will investigate the issue and will propose ways to harmonize tax systems and exchange information between countries. The G20 summit in Brisbane this weekend is expected to deal with tax evasion, among other issues. Everywhere there is a pressing need for more funds and greater justice, so the time has come for many countries (and parts of countries, such as the Channel Islands) to lose the privileges which allowed them to get rich at the expense of others. Greece will gain from this only if it combines tax harmonization with greater stability in its tax system and with a fundamental improvement in the dispensation of justice in issues pertaining to investment and taxation. This is our challenge.

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