Europe could probe sweetheart deals after Luxembourg leaks

MEPs have called for the creation of a committee to investigate potential favourable tax deals granted to multinational companies by EU member states.

In all, 194 MEPs – more than a quarter of the house – backed the inquiry, which follows revelations late last year that Luxembourg was facilitating more than 1,000 multinationals in tax avoidance activities.

Major companies including FTSE 100 drugs group Shire, City trading firm Icap and vacuum cleaner firm Dyson, who are headquartered in the UK and Ireland, used transfer pricing and internal loans to drive down their tax bills. Those arrangements – which are entirely legal – were signed off by the Grand Duchy.

Temporary committees such as the one proposed to examine the deals are rather rare and are established to investigate alleged breaches or poor application of European law. Previous such investigations include those that followed the Equitable Life scandal and BSE controversies.

Proposals for an investigation into the tax deals were initially put forward by the Green Party, but lost momentum after some leading political blocs encouraged their members not to back the measure.

However, support has been growing and this week the proposal received the backing of 194 MEPS – over the quarter threshold required to put the matter back on the agenda. The support of the major groups’ leaders within the parliament is still required, though, with the matter set to be considered next week.

It now seems likely the plan will go before parliament for a full vote, although it is possible less radical alternatives will be sought or the remit for the group narrowed.

Managing partner of Taxand Luxembourg Keith O’Donnell said:”Following a number of years where aggressive scrutiny and knee-jerk investigations have focused on multinationals, who are simply operating within countries’ legal framework, it is right that the political agenda moves on to concentrate on the role and actions of countries themselves. Governments have created the modern day international tax environment, acting through the OECD, and businesses have followed this structure and adapted business models to conform to it, in a tax-efficient and legal manner.

“It should come as no surprise that in the drive for investment, jobs, and growth, governments across the world have courted multinationals with an array of incentives. This is clearly not an issue that affects the handful of countries mentioned in the media, but extends much wider – as the investigation looks set to reveal.”