9 Nov 2014

An open letter to Jean-Claude Juncker - president of the European Commission

The world has just heard the full details about how Luxembourg has been providing tax deals that have allowed hundreds and possibly thousands of multinational corporations to avoid paying taxes in the countries in which they make their profits. This has been a major factor in causing the public sector debt crises that have been affecting all European countries - with the possible exception of Luxembour itself.

Before being nominated president of the European Commision in 2014, you were the Prime Minister of Luxembourg from 1995-2013, and its Ministry for Finances from 1989-2009. You were certainly fully aware of the way that your country was deliberately allowing multinationals to reduce their taxes, and quite possibly directly involved in setting up these dubious and secretive deals.

I presume that you realize just how bad this looks to anyone outside the system. We are continuously being told that one of the basic principles of the EUs is to encourage fair and open competition. And yet, thanks to the system that you sent up, multinationals have been able to avoid billions of euros in tax, tax that smaller locally based companies could have no hope of avoiding. Try setting up a coffee shop next to Starbucks store, or a bookshop when you have to compete with the likes of multinationals like Amazon.

I wonder how you can look at yourself in the mirror.

But I'm a reasonable person. And I'm happy to give you a chance to make up for all the damage that you have inflicted on everyone not resident in Luxembourg.

Here's what you should do.

I believe that there is simply no hope of making the current system for taxing company profits fair. As long as there are taxes on company profits, there will always be a veritable army of tax consultants and advisors prepared to work to take advantage of any loopholes that exist.

So, why not do what all businesses would dream of? Why not simply scrap all taxes on company profits? Given that companies will almost certainly devise new ways of getting round their tax obligations if at all possible (arguing that they are simply acting in the best interests of their shareholders)?

Of course, if you scrapped taxes on company profits, you would have to find some alternative way for governments to get the revenue needed to cover the costs of providing public services and the link.

Fortunatetly, there is just such an alternative scheme. It's called a flat-rate financial transaction tax that would apply on every electronic transfer of funds in Europe. 11 countries in Europe are already hoping to introduce such a scheme in 2015. Just make all European countries introduce one and use the revenue generated to allow taxes on businesses to be abolished.

You would make yourself very popular with almost everyone. In principle, all business leaders will be delighted, because it would make life much easier for everyone, and provide a massive simplification.

It would also bring an end to the "tax-optimisation" industry at a stroke. The only thing that a business could do to reduce its tax payments would be to keep transactions low. But for all parts of the economy involved in producing useful goods and services, such effects would be marginal. The only people that would be seriously affected would be those who are currently involved in high-frequency trading and speculation. But I assume that you are not working for them - right?

The other group who might protest are politicians who have been used to being able to use tax breaks as a way to appease lobbyists and win favours. With the change in the system, they would be forced to make direct subsidies with taxpayers money if they want to support a particular group - much less easier than the tax break option.

So, why not make up for all the harm you have done by working to improve the way the tax system works?

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