Jean-Claude Juncker has not had an easy start as European Commission president. When he was nominated five months ago, a handful of EU leaders raised questions about the ability of the former Luxembourg prime minister to meet the demand of many Europeans that the EU must change. Now he is being forced to fend off criticism over the way the Grand Duchy became a tax haven for leading multinationals during his long tenure as its premier and finance minister.
Luxembourg’s status as a tax shelter may not be news. But Mr Juncker’s role in the Grand Duchy’s tax dealings has been thrust into the spotlight following the leaking of a trove of documents revealing special tax arrangements between Luxembourg and 340 multinationals, including Pepsi, Ikea and JPMorgan. The files show how secret deals with Luxembourg between 2002 and 2010 saved these companies from paying billions of dollars in tax in countries where they do business.

These disclosures come at an embarrassing time for Mr Juncker. Across the EU, there is public indignation at the way multinationals have shuffled profits across borders to avoid paying tax. In the year before he took office, the commission responded by launching probes into companies suspected of benefiting from such arrangements – including at least two in Luxembourg, Amazon and Fiat’s financial arm.
Last weekend’s G20 summit highlighted the awkwardness of the situation. In Brisbane, Mr Juncker endorsed plans to crack down on multinational tax avoidance – including the introduction of transparency measures that he spent years blocking within the EU while running Luxembourg. The incongruity led one NGO to quip that putting him in charge of efforts to combat tax avoidance was like placing Dracula in charge of a blood bank.
Mr Juncker has been damaged by the scale of tax avoidance on his watch. These wounds need not be mortal. The commission president acknowledges that he was “politically responsible for what happened in each and every corner” of Luxembourg when premier. But he also insists that the tax authorities in the Grand Duchy were “autonomous.” No “smoking gun” has yet been produced showing he broke EU law.
Still, Mr Juncker must act to restore public confidence. As commission president, he oversees the officials investigating the tax incentives that Luxembourg offered to Amazon and Fiat. Their inquiries are examining whether those companies effectively received a form of illegal state aid.
Although Mr Juncker says he will allow these inquests to continue without hindrance under the new competition commissioner, Margrethe Vestager, he has so far refused to recuse himself formally from participating in the commission’s final judgments. Mr Juncker should think again. He should make a clean break and officially hand over all oversight for the probes to Frans Timmermans, his deputy.
Mr Juncker should also step back from involving himself as far as possible in policy discussions on tax transparency. The commissioner in charge of these matters is France’s Pierre Moscovici. Mr Juncker should let him take the lead on all matters relating to tax, including in forums such as the G20.
Mr Juncker has more than enough to do. He is leading a vital initiative to boost investment in the EU’s struggling economy. He needs time to settle into the job. Nonetheless, he should acknowledge Luxembourg’s increasingly toxic reputation within the EU for tax avoidance. Mr Juncker would enhance his authority if he were to put himself at arm’s length from the commission’s activities in this field.

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