LUXEMBOURG (AFP) - Luxembourg and its former premier Jean-Claude Juncker - now head of the European commission - came under fire on Thursday after leaked documents showed the tiny nation gave hundreds of global firms huge tax breaks.
Household names such as Pepsi, IKEA and Deutsche Bank were among companies named by the US-based International Consortium of Investigative Journalists (ICIJ) following a six-month investigation of 28,000 leaked documents.
The revelations risked weakening Juncker's position just days after he took office as head of the EU's executive arm after 19 years as Luxembourg prime minister, the period during which many of the tax deals were sealed.
Juncker's spokesman said the veteran politician was "serene" about the revelations, though he pulled out of a public speaking engagement with former commission chief Jacques Delors scheduled later on Thursday.
Under an hour-long barrage of questions from reporters, the spokesman stressed that EU regulators were already investigating whether Luxembourg's deals with US Internet giant Amazon and the financial arm of Italian carmaker Fiat amounted to illegal state aid.
Spokesman Margaritis Schinas said that if the EU found it breached the rules, "Luxembourg will have to take corrective actions."
"We have at this stage not yet formed an opinion about these rulings and a possible formal follow-up by the Commission," EU Competition Commissioner Margrethe Vestager said.
The so-called "Luxleaks" documents showed that billions of dollars were funnelled through the tiny European duchy of Luxembourg thanks to complex financial structures that allowed companies to slash their tax liabilities, depriving hard-up governments around the world of revenue.
Juncker presided over the tax affairs of Luxembourg for over two decades, transforming the country from a sleepy European backwater into a prized destination where hundreds of the world's biggest companies channel their affairs.
The leaks threaten to undermine his vow to be a more politically involved head of the European Commission, the EU's financial enforcer, especially as he is already embroiled in bitter rows with Britain and Italy over their budgets.
On Wednesday, asked about the tax policies he once led, Juncker said he wanted the Commission to investigate independently and would not interfere with its work.
"These revelations are a major blow to the credibility of... Juncker and his capacity to act for the public interest," said Sven Giegold of the Greens group in the European Parliament.
Luxembourg's finance minister, Pierre Gramegna, in Brussels for a meeting of eurozone ministers, said that while the practice was "totally legal" it may no longer be ethically compatible with today's norms.
In its investigation, the ICIJ said global accounting giant PricewaterhouseCoopers had helped multinationals secure at least 548 tax rulings in Luxembourg between 2002 and 2010.
The documents uncovered details of so-called Advance Tax Agreements - pre-negotiated deals which set out how companies will be taxed, the same practice that the EU is investigating in the Amazon and Fiat cases.
"It's like taking your tax plan to the government and getting it blessed ahead of time," the ICIJ quoted Connecticut School of Law tax expert Richard Pomp as saying.
The EU has no power over member states' tax affairs as such, but it can probe whether they amount to illegal state aid by giving a company an unfair advantage over its competitors.
If so, then a country is in breach of the 28-nation bloc's single market rules.
Similar cases have been opened against Ireland for deals with tech giant Apple and the Netherlands with coffee chain Starbucks.
The ICIJ said its investigation had involved more than 80 journalists from 26 countries working for outlets including The Guardian, Le Monde and Germany's Suddeutsche Zeitung.
Other companies that benefited from the schemes included Burberry, Procter & Gamble, Heinz, JP Morgan and FedEx - many of which use Luxembourg as one of several tax havens worldwide to optimise earnings.
"The fight against tax avoidance must be global," said French Finance Minister Michel Sapin.
Influential German Finance Minister Wolfgang Schaeuble said Luxembourg still had "a lot to do" to improve its tax policies.
Fighting the unfair use of these "legal arrangements" was the "next chapter" in the fight against tax evasion, Schaeuble said.