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 center, satellite pioneer and e-commerce 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.
"[Juncker's] message was: 'If you encounter a problem that you think you cannot solve, come see me. I'll try to help you'." A year before retiring from Amazon in 2012, Mr Comfort was made Luxembourg's honorary consul to the U.S. state of Washington. He did not respond to Financial Times requests to comment.
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For his part, Mr Juncker remains defiant and unapologetic. Last month, he said accusations of impropriety were "disgusting questions". So far no wrongdoing has been proven. Luxembourg was far from alone in courting multinationals with an appealing tax regime and it has never been short of envious rivals, including Ireland, the Netherlands, Belgium, Britain, Switzerland and even Delaware in the US. "They are all criminals if we are criminals," Mr Juncker once remarked.
But on some fronts Luxembourg stands out. In 2000 American companies excluding banks reported $3.4 billion in profits from their Luxembourg-based operations, according to U.S. Commerce Department data. A decade later, that number had hit $94.1 billion. Hundreds of leaked Luxembourg tax rulings, or comfort letters, have revealed the complex structures that enabled multinationals to avoid tax. While many countries provide such comfort letters, few offered them as liberally as Luxembourg or demanded as little evidence from companies.
Behind the numbers was Mr Juncker's obsession with economic diversification. In the 1970s, the Grand Duchy pivoted from steel to finance through shrewd tax breaks and nifty regulatory footwork. Since the 1930s Luxembourg has cannily deployed its rights to radio frequency and later satellites to host Europe's top broadcasters, from RTL to Radio Luxembourg, the station that launched The Beatles.
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For Mr Juncker the dangers of over-reliance were personal and visceral: as a young minister he forced his steelworker father into early retirement as Luxembourg's industry crumbled. To him, the internet age posed both threat and opportunity. "I said to myself . . . we cannot replace one dependence [steel] with another [finance]," he told the FT. "We tried with all means — but not with illegal means — to diversify our economy against the strong opposition of some of our neighboring countries."
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 e-commerce 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 U.S. 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.
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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.
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"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 U.S. 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."
Former ministers and e-commerce executives insist tax was just one of many factors. Talks were as much over regulation, logistics — even school places. Over lunch with Mr Krecké, eBay's Meg Whitman said she ruled out Luxembourg because of some weaknesses in IT infrastructure — prompting an immediate promise of investment. "We are not tax consultants. We are focused on industry," said Mr Krecké, who as economy minister led some U.S. trade missions.
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Indeed Luxembourg's great strength was its agility. Mr Juncker oversaw concerted efforts to attract new tech players — from changing retail laws, to improving internet connections, to near-constant refinements to the tax code, which Luxembourg would, on request, readily interpret for multinationals. "As we say in Luxembourg: 'Schnellboot gegen Tank [the speedboat takes on the tank]'," Mr Juncker told the FT as he prepared for the tech boom.
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 check for €25 million and being personally thanked by a Treasury minister, who told him: "That is the cost of a school." Governments rarely changed — either in personnel or business-friendly outlook.
"As an internet company, you look out and see that there are 196 independent nations in the world. All 196 have potential customers and all 196 want to tax you," said Chuck Stoops, eBay's former head of tax. "To survive, you need to set up defenses quickly; perhaps by establishing a principal trader in one or two countries. Luxembourg, being at the heart of Europe, is a logical place to do that."
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Facing an external regulatory assault, Luxembourg is now shoring up its own defenses. Advance tax rulings — so vital to multinationals worried about potential liabilities — are being overhauled to make them harder to secure and more legally sound. Mr Juncker is urging the Grand Duchy to begin sharing them with other governments automatically.
"The flexibility and case-by-case discussions with the tax administration we have known in the past are now finished," Olivier Van Ermengem of Linklaters told clients. "Rulings are now granted on the basis of analysis of the law and the facts . . . We will have to get used to the fact that when you apply for a ruling, it may end up on the desk of a tax inspector anywhere in the world."