Luxembourg: Stepping in it with the right foot?

Gawping out my bathroom window one cold winter morning, toothpaste dribbling down my beard, I witnessed an old woman, bundled against the cold, standing down on the street and puffing away on a cigarette while her fat dog struggled to take a crap on my lawn.

If I remember correctly, I burbled out something in anger as we made eye contact. Down I glared, looking as furious as one can while brushing one's teeth, while she, with complete and utter defiance, squinted up.

She said something – a single word – perhaps to the dog, perhaps to me. And then off they went, the two of them, just like that ... trotting down the street while I fumed, upstairs in my loo, at the barefaced unbelievable shamelessness of dog owners in Luxembourg.

Over the last 12 months (my first year the country), I've recounted this tale to every newcomer who would listen, and I have been pleased to discover that I am not alone in my assessment. Others have had similar experiences – indeed, so many that I have come to the reluctant conclusion that the Grand Duchy – on the issue of dog litter, anyway – has a bad reputation.

To be sure, as problems go, poop pick-up is probably low on the Nation-Branding team's list of 'Things to Do'. They have enough on their plates with Luxembourg's reputation as a tax haven. The Tax Justice Network's (TJN) biennial Financial Secrecy Index, published earlier this week, is just the latest in a seemingly never-ending series of reports – warranted or otherwise – attacking the country on the issue. In rather colourful language, this most recent report claims Luxembourg is one of the world's most important "secrecy jurisdictions", brimming with "incestuously connected élites".  

Even back in 2014, the newly elected prime minister Xavier Bettel was moaning that he was "fed up" with people accusing him of defending a "hotbed of sin" (and that was after holding office for just three months!). Three years later, having proclaimed that Luxembourg has "never been a tax haven" and demanding to know why the country should "have to be less competitive", an older and perhaps wiser Bettel now concedes that, yes, it may be a "challenge" for the Grand Duchy to shake its reputation.

Bettel can argue until he's blue in the face that Luxembourg never was, isn't now and never will be a tax haven – in the end, the question may be moot.

These days, any philosophical argument for a nation's sovereign rights on taxation, any cataloguing of better-late-than-never reforms, any explication of the subtleties of international tax codes are quickly and emphatically trumped by the mere fact that so many people – of all walks of life, the world over – have come to the unshakeable conclusion that Luxembourg is.

It's a question of reputational damage. 

It's safe to say, back when Sigismund of Luxembourg was Prince-elector of Brandenburg, no one was asking the sheep farmers for nuanced opinions on taxation, and today's critics of Luxembourg might still be dismissed as ignorant leftist peasants. But these days, the pitchfork-wielding mob is composed of fickle voters who are conversant in the ways of social media. More to the point, Brussels is finally listening to them.

Whether European lawmakers are true tax-justice warriors swept up in the 'Moral Age' or simply cynical opportunists seizing on populist sentiment, the result is the same. The knives are out.  

Several developments over the last year should send alarm bells ringing. In October 2017, the European Commission ordered Luxembourg to collect €250m in back taxes from US internet giant Amazon. The Commission ruled that Luxembourg had granted undue tax benefits, amounting to "illegal" state aid.

Later that same month, we learned that Luxembourg could lose its ability to veto European-wide tax changes under new rules proposed by the European Commission. The Commission was proposing the use of so-called 'passerelle clauses' to avoid needing a unanimous agreement on, say, taxation. For Luxembourg, that would be bad.

Just a few weeks before then, Jean-Claude Juncker, president of the Commission and former prime minister of Luxembourg (irony forthcoming), proclaimed in his State of the Union speech that he wanted decisions on "important single-market questions" to be taken by qualified majority more often.

"I am also strongly in favour," he added, "of moving to qualified majority voting for decisions on the common consolidated corporate tax base, on VAT, on fair taxes for the digital industry and on the financial transaction tax." This is the same guy who, earlier that spring, expressed his befuddlement as to why Luxembourg "didn't want to remove tax secrecy". It's a mystery.  

Meanwhile, friendly neighbour France has been leading a campaign, together with Germany, Italy and Spain, to increase taxes on digital companies like Amazon and Google through an 'equalisation tax' on revenues, instead of profits.

Neither has the Commission abandoned efforts to consolidate corporation tax across Europe, a project stalled due partly to foot-dragging by Luxembourg, while proposed changes to watchdog ESMA and fund managers' use of 'delegation', although not involving tax, have very much darkened the already ominous clouds hanging over the country's financial services industry. 

Politicians here in Luxembourg, however, don't seem too fussed about what could arguably be an existential crisis for the country. Deputy prime minister Etienne Schneider of the LSAP, in his interview with the Luxembourg Times, said he didn't see the situation so negatively. "Things that are still coming like LuxLeaks and the Panama Papers – those are inheritances from a previous time. Those are all old dossiers."

Claude Wiseler, leader of Luxembourg's main opposition party, the CSV, said he did not "completely agree" that the introduction of clauses passerelles at the EU level would pose a threat to Luxembourg's tax revenues. 

As far as I can see, the only politician who has sought to convey any real sense of urgency on the matter is Viviane Reding, who recently parachuted back into Luxembourg politics after a long career at the European Parliament. She has roundly criticised Luxembourg's governing coalition for failing to protect the country's interests in Brussels, citing "attacks" on its fund industry and decisions being made by the European Commission at the "very last moment" (in other words, without Luxembourg's input).

One would be forgiven for thinking it ironic that the "Brussels" Reding refers to is essentially Juncker himself – the very man who is widely blamed, rightly or wrongly, for orchestrating much of this tax-haven business in the first place.

But it would only be ironic if he were still a Luxembourger first and a European second. Given his recent comments on Luxembourg and taxation – and the complete lack of warning for Luxembourg's politicians that any of this was coming – one might wonder whether he is now a European first and Luxembourger second. 

So what is Luxembourg to do? It could take a puff on its cigarette and trot on down the road with its old fat dog. 

Or it could do what France has done, which is simply decide that stepping in dog crap is actually good luck (but only when you do it with your left foot – if it's with the right, the luck is bad ... obviously). 

Or it could roll up its sleeves and start cleaning up all this dog poop lying about, hither and thither, until every last bit is accounted for. A damn good publicist wouldn't hurt either.