Juncker in a bind

Everyone must have known about it. For years, Luxembourg has offered companies the chance to reduce their tax burden to next to nothing through extremely lax legislation. That's long been the business model of the Grand Duchy, which has enjoyed close ties with the world of finance.

On its website, PriceWaterhouseCoopers (PwC) praises the helpfulness of authorities there for their "innovative" and "extraordinary" strategies for avoiding taxation. The financial services firm has a staff of 2,000 in Luxembourg, and that's not because of the tiny country's pretty landscape or any cultural treasures.

There are dozens of consultancies in Luxembourg, while hundreds of companies from around the world have followed the mating call. European leaders who are now pointing fingers at Luxembourg and its former Prime Minister Jean-Claude Juncker have known that all along.

EU member states compete among themselves over their tax legislation. Some are considered to be true tax havens, with tax avoidance schemes in place in the Netherlands, Ireland, the UK, Malta and Cyprus, among others.

The new revelations in the "Luxembourg Leaks" are just renewed proof of this.

Tax avoidance in line with binding laws in Luxembourg and elsewhere is legal. Globalization has it that multinational companies look out for the best tax schemes available and shamelessly exploit competition among EU nations for their own purposes. Attempts by the OECD and the G-20 to curtail such tax avoidance schemes are still in their infancy.

Fifty countries have recently agreed to automatically exchange their tax and banking data with a view to finding cases of illegal and punishable tax evasion. But right now we're talking about tax avoidance, which is not against the law.

It's morally reprehensible as the nations where the companies in question are active lose billions in tax revenue. ActionAid, a development aid organization, has long pointed out that internationally active companies have also been avoiding taxation in developing nations, with the amount of tax money saved that way surpassing all state development aid.

Given that, the real scandal is not the companies' behavior, but rather that Luxembourg and other nations have tolerated or even supported such practices for decades.

The European Commission, now led by Juncker, last year started investigating several tax avoidance schemes in EU member states, including Luxembourg. It's hoping to find out whether any illegal state aid may be involved.

Tax legislation as such is in the hands of the individual states and is not harmonized in Europe. A credible currency union would also require common tax legislation, including harmonized tax rates. But we're not there yet - far from it.

The question, however, is whether Juncker is the right man at the helm to spearhead further tax avoidance probes. He's promised to not to spare any country, including Luxembourg. But as prime minister he was responsible for the decisions that are under scrutiny now. Can he really be a credible and unbiased figure in the drive for more justice?

Perhaps he should state that he has a conflict of interest in the matter and recuse himself from any current investigations. Juncker appears defiant right now, but he'll have to make a statement one way or another soon so as not to jeopardize the image of the President of the European Commission as the independent guardian of the European treaties. Otherwise Juncker's team will be off to a false start.