Luxembourg tax storm hits new EU chief Juncker

By Alastair Macdonald and Julia Fioretti

BRUSSELS (Reuters) - A storm of outrage over Luxembourg's role in helping global companies avoid tax plunged its former leader into controversy in his first week running the European Commission, the EU body that polices tax abuses.

Jean-Claude Juncker, 59, who took over as president of the EU executive after more than two decades as finance minister and prime minister of the tiny Grand Duchy, pulled out of a speaking engagement on Thursday. He repeated through a spokesman a remark made the previous day denying a conflict of interest and saying he would not hinder existing EU investigations of Luxembourg.

And for all the sharp words from political opponents to his left, there seemed little threat to his five-year mandate. Many critics focussed instead on calls for both Juncker and his successor in Luxembourg to follow through on commitments to change and to promote a level playing field for taxes in Europe and worldwide.

Controversy over the role of Luxembourg (population half a million) as a low-tax conduit for corporate cash has long been a feature of Juncker's political career. Some weeks ago, the Commission of his predecessor began investigations of tax deals struck there by web retailer Amazon and Italian carmaker Fiat.

Ireland and Malta are also under scrutiny by EU antitrust investigators for possibly having offered some companies competitive advantages through sweetheart tax deals.

However, the publication of documents by the International Consortium of Investigative Journalists indicated more than 300 companies had secret deals to slash global tax bills - and that has turned up the heat on Luxembourg, and on Juncker.

"These revelations are a major blow to the credibility of new Commission president Junker and his capacity to act for the public interest," said Sven Giegold, finance spokesman for the Greens in the European Parliament, who called Juncker "directly complicit in this mass corporate tax avoidance".

"The Commission must now set out a comprehensive action plan against tax dumping," Giegold added. "Only by doing so can Juncker begin the path to redemption and try and dispel the doubts about his conflict of interest."

The chief Commission spokesman recalled Juncker's words on Wednesday - "The Commission will do its work. I will refrain from intervening." He also noted Juncker had committed himself to seeking a common EU framework for corporate taxation when he was campaigning for his job during May's EU parliament election.

INVESTIGATIONS PURSUED

The new competition commissioner, Margrethe Vestager of Denmark, was pursuing inquiries into Luxembourg and may open further investigations, spokesman Margaritis Schinas said during nearly an hour of news conference questions on Juncker's position.

"Mrs. Vestager will push this through to the end," he said, adding that Juncker himself was "relaxed" amid the controversy.

Vestager said that her office had yet to take a view on the legality of Luxembourg's tax deals but vowed to "enforce state aid control in fair and justified manner".

Schinas characterised the examination of Luxembourg's use of tax policy to bolster its economy as "typical" of investigations into a variety of governments' use of incentives for industry. In some cases, those incentives were deemed illegal "state aid".

Prime Minister Xavier Bettel, who succeeded Juncker a year ago, said his country had not broken any rules and it was not alone in allowing tax schemes for big companies.

Finance Minister Pierre Gramegna told reporters in Brussels that Luxembourg would work with other states to level the tax playing field: "The moment that there is a recognition in the international community that fiscal matters must be equitable and the information should be shared, then Luxembourg would have no problem going in the direction of more transparency."

He offered a defence of Juncker, saying it was wrong to single out "one politician for a particular period of time".

However, Britain's euro-sceptical UK Independence Party did not miss the opportunity to target the new Commission chief personally, calling the tax affair "more proof that the EU elite protect their friends in high corporate places".

But more significant for Juncker's ability to weather the storm may be a statement from his centre-left opponent for the job, Martin Schulz, the speaker of the European Parliament: "I am confident that the European Commission will check the cases with regard to potential breaches of EU law and will take all appropriate actions swiftly and if necessary," Schulz said.

"What worries me most is the fact that the reported practices were manifestly legally possible," the German Social Democrat said. "This reality means that we need to urge the member states to work with us to end systematic tax evasion practices in Europe, be it in Luxemburg or any other country."

(Additional reporting by Adrian Croft and Philip Blenkinsop; Writing by Alastair Macdonald; Editing by Larry King)