Today, 28 October, a public hearing on the LuxLetters scandal is taking place in the FISC subcommittee of the European Parliament. In July, the international “LuxLetters” investigations had revealed that Luxembourg continued to grant tailor-made tax advantages to large companies even after the LuxLeaks scandal in 2014. In order to keep these secret from other countries, informal tax agreements were used. In this way, Luxembourg attempted to circumvent transparency obligations that it had itself introduced with all other European countries following international pressure after the LuxLeaks scandal. In written statements, the Luxembourg government has not provided clarity on crucial points. Yesterday (!) evening, Luxembourg’s tax authority cancelled its participation in today’s hearing. In the run-up, Luxembourg’s Minister of Finance had already refused to participate. PwC Luxembourg had also initially not accepted the invitation of the European Parliament, but, after their refusal to accept the invitation was made public, they agreed to participate. Sven Giegold, finance policy spokesperson of the Greens/EFA group in the European Parliament, said:
“It is unacceptable that the Luxembourg Finance Minister refuses a hearing on the allegations in the European Parliament. The accusation that Luxembourg is circumventing the exchange of tax information remains. Luxembourg’s finance minister apparently wants to avoid unpleasant questions. At least PwC is now taking part in the hearing, after the company had initially cancelled. Our pressure on PwC has obviously worked.”
The FISC subcommittee hearing will take place today, 28 October, at 13:45 and can be followed live here: https://www.europarl.europa.eu/committees/en/public-hearing-on-the-luxletters-revelat/product-details/20211026CHE09622
Reporting on PwC Luxembourg: “Better not ask uncomfortable questions” https://www.sueddeutsche.de/wirtschaft/pwc-deloitte-luxemburg-giegold-eu-luxletters-1.5440864
Since the third EU Directive on Tax Administrative Cooperation (DAC3), there is an obligation in the EU to exchange cross-border tax rulings and similar agreements with other countries. This came into force in Luxembourg in 2017. Article 1.1.b.14 of the EU Directive defines a ‘cross-border advance ruling’, which must be exchanged automatically, as “an agreement, notice or other instrument or measure having similar effect, even if it is given, made, modified or renewed in the course of a tax audit”. In its response to the allegations, the Luxembourg government now argues that the information letters do not comply with the small print of the Directive. It therefore rejects the accusations as groundless. It does not deny the practice itself. However, it insists that any correspondence would be unilateral in nature and could in no way be construed as an agreement binding on the tax authority. However, the international research team on the LuxLetters is not aware of any case to date in which the Luxembourg authorities have challenged a tax avoidance construct that had previously been set out in an information letter.