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New EU tax supremo urged bloc to oust Luxembourg

New EU tax supremo urged bloc to oust Luxembourg

3 min. 01.06.2021
Economist Gabriel Zucman raised the possibility of excluding Luxembourg in his first book
French economist Gabriel Zucman at a press conference to launch of the European Tax Observatory on Tuesday
French economist Gabriel Zucman at a press conference to launch of the European Tax Observatory on Tuesday
Photo credit: AFP

By Diego Velazquez and John Monaghan

An internationally recognised expert on tax havens who has just been appointed as the head of the EU's new tax research arm in the past raised the prospect of excluding Luxembourg from the bloc over its lax tax policies.

Gabriel Zucman, a French economist, raised the possibility of Luxembourg's expulsion from the 27-nation bloc in his first book, La richesse cachée des nations (The Hidden Riches of Nations), which came out in 2015.  

The new head of the European Tax Observatory criticised the country again in the wake of the OpenLux disclosures earlier this year, when a joint investigation by more than a dozen media groups concluded that Luxembourg's financial transparency laws are ineffective in stopping the world's rich and powerful from hiding their money in the country.

“Luxembourg helps multinational corporations with tax avoidance and so many rich people with tax evasion. In addition, there are numerous funds in Luxembourg in which dirty money, hidden from the authorities, is invested and laundered,” Zucman - currently an economics professor at the University of California, Berkeley - told German newspaper Süddeutsche Zeitung in February.

His most recent book, The Triumph of Injustice: Taxes and Inequality in the 21st Century, is considered a reference work and Zucman has become known worldwide for his research on tax havens. He will lead the new European Tax Observatory, which was officially launched on Tuesday in Paris.

"An economic colony of the international financial industry, Luxembourg is at the heart of European tax evasion and has paralysed the struggle against this scourge for decades," he wrote in his 2015 book, according to extracts in the Financial Times. "No one would dream of considering such a place, where 100% of its production is sent abroad, as a nation … If Luxembourg is no longer a nation, it no longer has a place in the European Union…," he said. 

"Nothing in the treaties, in the spirit of European construction or in democratic reasoning, justifies allowing an offshore platform for the global financial industry to have a voice equal to that of other countries," Zucman said.

EU tax havens

Backed by EU funding of €1.2 million, the Observatory comprises a group of academics whose task "is to research tax avoidance, tax evasion and aggressive tax planning in more detail and to advise policy makers in the EU."

The first study, which outlines the impact of a minimum global corporate tax rate, describes Luxembourg as one of several tax havens within the EU.

Luxembourg was referred to as a EU tax haven in the Observatory's first study
Luxembourg was referred to as a EU tax haven in the Observatory's first study
Gerry Huberty

The Observatory also aims to generate debate and interest around EU tax policy amongst the wider public, instead of limiting the issue to finance ministers and lobbyists, said the Dutch social democrat Paul Tang, who heads the subcommittee on tax affairs in the EU parliament. Members of the European Parliament had been lobbying for the creation of such an institution.

Asked about the new observatory's head, EU tax commissioner Paolo Gentiloni replied that Zucman's academic achievements speak for themselves. 

Global momentum

Gentiloni said that the Observatory would be a tool to "further strengthen our armoury against tax abuse".

“As we focus on the recovery after the pandemic, and on massive investment needed to deliver the green and digital transitions, fair taxation is more important than ever,” Gentiloni said.

The initiative comes at a time of "unprecedented opportunities" for an international agreement, he added, referring to a global deal being negotiated at the OECD to overhaul taxation rules and make multinationals pay more in countries where they operate.

Momentum toward such an accord has been stoked by proposals from President Joe Biden’s administration that include a global corporate minimum tax of at least 15%. Zucman said that floor was "way too low." "All G-7 countries have tax rates that are significantly higher than 15%," he said.

The key problem with globalisation "is that its main winners - multinational companies and their shareholders - have been able to pay less and less in taxes while other groups of the population that have not benefited as much from international economic integration have had to pay more," Zucman added.

(Additional reporting by Bloomberg)

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