The small European Duchy has been the target of critics in recent months following leaked documents that revealed the various secret tax deals between Luxembourg and various multinational corporations.
These arrangements allowed companies such as IKEA, FedEX and Pepsi to slash their tax bills significantly as many were allowed to channel money in and out of Luxembourg for a reduced tax rate.
Following the release of the leaked documents in November 2014, many analysts went on to describe Luxembourg as a "magical fairyland" for companies who managed to strike a deal with authorities.
Golden Tax Avoiding Medal (GTAM) goes 2015 to: #Ikea. http://t.co/Wu3Z2bGwZr #luxemburgleaks pic.twitter.com/bAyrXcasbf
— Thomas Lehning (@adverrtising) December 13, 2014
Luxembourg Investment a 'Drop in the Ocean'
This is why many have viewed the recent announcement that Luxembourg is contributing $87 towards a European Union Investment Plan as laughable.
"That's just a drop in the ocean," John Christensen, executive director of tax analyst group, the Tax Justice Network told Sputnik.
The Tax Justice Network have been among many vocal voices calling for the EU to step in and change Luxembourg's secret arrangements, which have been estimated to cost the economically under pressure bloc dearly in unpaid tax.
@IrishTimesBiz More state facilitated tax avoidance by corporations — this time in Luxemburg http://t.co/QIojTJuUVo pic.twitter.com/OYYi6mI1ON
— Seán Ó Riain (@Sean_ORiain) November 5, 2014
"We're talking about hundreds of billions every year, which would be a massive boost to the European economy," Mr Christensen said.
"What's happening is that these tax deals are shifting wealth upwards into the hands of the tiny elite and away from the majority of people. If that wealth was distributed downwards, that would boost the economy and create jobs. This is a massive economic distortion and it's very harmful to the European single market."
The issue of Luxembourg tax havens is thought to be a particularly sensitive issue for the EU, given that the current President of the European Commission, Jean-Claude Juncker, was the Duchy's prime minister for 18 years, when many of the various tax structures were introduced.
Tax Havens 'Incompatible' With EU Single Market
Mr Christensen believes introducing automatic information exchanges between the EU's tax authorities is one way of ensuring greater transparency when it comes to sniffing out tax havens in Europe, and says Luxembourg's actions are "incompatible" with EU principles. He said:
"The European Union needs to recognize that having a tax haven in the heart of Europe is incompatible with the idea of a single market. The ability of some companies to shift profits through Luxembourg, through the special deals done with Luxembourg, undermines the whole idea of a proper undistorted market economy."
"Luxembourg is anti competition and the European Union must recognize that if they want to have a proper functioning market, Luxembourg now needs to move away from its tax haven model."
