Jean Claude Juncker: Luxembourg past haunts EC President as Brussels slams Starbucks tax deals

Pressure mounts on Juncker over Luxembourg’s tax regime during time as PM

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Starbucks' tax deal with the Netherlands breaches European rules on state aid to industry, the European Commission has said in a preliminary finding, as pressure mounts on the EC’s President, Jean-Claude Juncker, over Luxembourg’s tax regime during his time as prime minister of the country.

In a 39-page letter to the Dutch Government, the EC said its “preliminary view” is that tax arrangements agreed with the coffee chain “constitute state aid” and that “the Commission has doubts about the compatibility of such aid with the internal market”.

The finding came as G20 leaders met in Brisbane, with plans to tighten international rules on corporate taxation high on the agenda.

Speaking to journalists in Brisbane, David Cameron underlined Britain’s stance on the subject, saying: “When you’ve got a strong case to make ... when you’ve got a  20 per cent tax rate, then you damn well expect people to pay it.”

According to the Prime Minister, more than 90 countries have agreed to share tax information. However, he would not comment on the controversy swirling around Mr Juncker.

The UK fiercely opposed his elevation to the presidency of the EC, but largely on the grounds that he was seen as an old-school federalist who would be likely to frustrate British attempts to reform the EU – rather than because of his record on tax. In the end the UK was joined in opposition only by Hungary as Mr Juncker swept into office.

Since then, however, controversy has mounted over his record while prime minister of Luxembourg, with the tiny country seen as operating an overly permissive tax regime in a bid to lure multinationals to base their headquarters there.

Mr Juncker has taken responsibility for what happened inside the country during his 18-year stint as prime minister but claimed he didn’t put the tax regime together and that his tax authorities acted autonomously.

After chairing his inaugural EC meeting last week, Mr Juncker said he felt no conflict of interest and pledged not to interfere with the investigations into tax by the commission’s competition department, including those focusing on Luxembourg.

Ireland’s tax regime is also being investigated by the EC and, in addition to Starbucks, companies involved include Fiat, Amazon and Apple.

All the governments concerned have previously defended their tax rules, arguing that they complied with EU law. Ironically, they could benefit if the commission rules against them because the companies could be forced to pay tax back to their exchequers.

Starbucks has also stated that its tax arrangements are fully compliant with OECD guidelines. The company has come under fire from MPs in Britain, who have accused it of using complicated cross-border accounting techniques to transfer profit to low-tax jurisdictions, enabling it to show a loss, or only small profits, in Britain and thus avoid corporation tax – despite rates here being the lowest of any large economy.

Earlier this year Starbucks said that it was planning to move its headquarters away from the Netherlands and to the UK.