I like Apples: how Juncker lured Silicon Valley to Luxembourg

EU investigates whether sweetheart tax deals Luxembourg granted were too sweet

Jean-Claude Juncker had a mischievous look. It was shortly before the 2004 election and Luxembourg’s premier at the time just could not keep the secret that his tiny Grand Duchy was reeling in another big corporate catch.

AOL and Amazon were already moving to Luxembourg amid a flurry of interest from US internet companies. Jeannot Krecké, a rival politician, recalls Mr Juncker furtively hinting at more to come. After a pause, Mr Juncker cracked: "I like apples."

In short order Apple's iTunes division set up its European home in Luxembourg and was then joined by Microsoft, Cisco and eBay, a veritable tech surge. It was hailed as another triumph of economic reinvention for one of Europe's smallest sovereign enclaves. Yet a decade on, the strategy has put its mastermind Mr Juncker under political fire just as he reaches his career zenith as European Commission president.

The EU is now investigating whether sweetheart tax deals Luxembourg granted to two foreign companies — Amazon and Fiat — were too sweet. Thousands of pages of leaked Luxembourg tax rulings have revealed how hundreds of others that moved to the Grand Duchy also managed to pay negligible taxes. Even some allies fear Mr Juncker’s role in his nation’s unlikely rise to the top of Europe’s per capita rich list — a 40-year journey from clapped-out steel producer to booming financial centre, satellite pioneer and ecommerce hub — could prove his undoing.

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During the boom, Mr Juncker was never shy to claim credit. “I have personally lobbied for these companies to choose Luxembourg as a European base and I should neither feel ashamed nor need to justify it,” he told one Revue interviewer in 2004. To Le Quotidien in the same year he boasted: “We attracted AOL, Amazon, Microsoft. Some think that it fell in our laps. There were 200 hours of negotiations with AOL. You must have a taste for hard work and get stuck in.”

Those meeting him remember an accommodating, humorous and accessible leader. “We met (Juncker) once or twice,” Robert Comfort, Amazon’s head of tax, recalled in a candid interview with d’Lëtzebuerger Land detailing the 2003 talks that brought the online retailer to Luxembourg.

In 2000 American companies excluding banks reported $3.4bn in profits from their Luxembourg-based operations, according to US Commerce Department data. A decade later, that number had hit $94.1 billion.

Jean-Paul Zens, Luxembourg’s top tech sector official for almost two decades, says it was a “happy coincidence” that new EU rules on value added tax emerged by 2003, allowing exemptions for electronic services. It caught the eye of Rick Minor, an AOL executive, who established the template for using Luxembourg as a European ecommerce hub. What followed was “possibly the biggest influx of Americans to Luxembourg since the second world war”, Mr Minor said.

Once the potential became clear, Luxembourg hit the road. While Mr Juncker met the likes of Amazon's Jeff Bezos at home, his ministers were busy prospecting up and down the US west coast, visiting Apple, Yahoo, eBay and Microsoft, among others. In 2003-2006 their trade missions were annual or twice-yearly affairs, sometimes with royalty in tow.

One picture from 2006 shows a Luxembourg minister and the hereditary Grand Duke Guillaume at eBay’s California head office. Smiling beside the heir to the throne: eBay’s chief finance officer, head of tax, vice-president for tax and a relatively lowly director for indirect taxation. While many countries deploy royalty to drum up trade, they rarely rub shoulders with a company’s tax practice.

“If you are sitting in Silicon Valley or Seattle or Vancouver and not knowing a lot about Luxembourg, it is more difficult to make a decision about Luxembourg,” said Mr Zens, a regular on the US trips. The Grand Duchy had to do more to make an impact than rivals such as Ireland, which had cultural links to the US. “You have to be more active. All the other countries are travelling and promoting as well.”

In regulatory terms, Luxembourg was a small village where the door of officialdom was always open. PayPal, for example, secured a crucial banking licence in a matter of months. Michael Jackson, a senior manager at Skype, remembers handing over a VAT cheque for €25 million and being personally thanked by a Treasury minister, who told him: “That is the cost of a school.” – Copyright The Financial Times Limited 2014