The tax deals offered to major companies by Luxembourg during Jean-Claude Juncker’s time as prime minister are being investigated by his own organisation as illegal state aid – and have outraged the nations he is supposed to unite

“When did any book I purchased ever get to Luxembourg?” a furious Margaret Hodge, chair of parliament’s public accounts committee, asked the hapless junior director dispatched by Amazon to Westminster two years ago to answer MPs’ questions on the group’s tax affairs.

Before he could get an answer out, she had another question: “Do you have books in Luxembourg?” The answer was no. “So you are telling me that the bills are printed in Luxembourg?” inquired an increasingly incredulous Hodge. The bills, the sheepish director explained, were printed in one of Amazon’s UK warehouses.

But yes, all sales to British customers on the amazon.co.uk website were, for tax purposes, transactions that technically took place in the grand duchy.

The equally impatient Conservative MP Stephen Barclay waded in. “So what is the effective tax rate that you pay in Luxembourg?” he asked. That proved too tricky to answer. Barclay seized on other figures: sales of €9.1bn that generated only €20m of profit “suggests you are stripping out the profit in Luxembourg”.

Two years on, the outgoing commission vice-president Joaquín Almunia revealed he had launched a probe into exactly the matter Barclay had raised. That was three weeks before the new president of the European commission took office – Jean-Claude Juncker, Luxembourg’s former prime minister.

Investigators are examining whether a 2003 tax ruling secured in Juncker-run Luxembourg was so generous to Amazon as to amount to illegal state aid on the part of the tiny nation. Had news of Almunia’s investigation been rushed out for fear that the incoming Juncker would otherwise have sought to kill it?

Certainly, back in 2003, as Luxembourg’s prime minister and finance minister, Juncker had proudly taken the credit for having successfully courted Amazon investment — though in recent weeks he has claimed he had nothing to do with the 2003 tax deal.

His latest defence of the tax culture he created, transforming Luxembourg into a honey pot for multinational corporations, has gone further and he now says that the grand duchy’s past courtship of big business was no different to that of other nations. Moreover, all Luxembourg tax rulings given to multinationals were within the law — a claim that appears uncomfortably close to prejudging the Almunia-instigated inquiry into suspected illegal state aid.

If the Amazon investigation were not enough of a headache for the new commission president, a host of similar spectres from his past have returned to haunt him. Days after he took office The Guardian and more than 20 publications in other countries, working through the International Consortium of Investigative Journalists, simultaneously published investigations and hundreds of confidential tax rulings secured for multinationals by tax advisers at PricewaterhouseCoopers. In many cases it was clear that these private deals rubber-stamped highly aggressive tax avoidance structures, sapping the tax receipts of other nations.

Once again, Hodge had a simple question: “How can we know he’s working in the interest of Europe when as prime minister in Luxembourg he has exploited populations in every European country and elsewhere for decades?”

Back in Strasbourg there was criticism from both left and right, though when it came to a censure motion last month, critics on the left eventually refused to join calls from a band of far-right parties for him to go. Juncker assured MEPs he was “no friend to big capital”, insisting the “problem is not peculiarly Luxembourg, it is Europe”.

Finance ministers of France, Germany and Italy, meanwhile, were so outraged that they wrote to the commission demanding an urgent tax avoidance crackdown. “Since certain tax practices of countries and taxpayers have become public recently, the limits of permissible tax competition between member states have shifted. This development is irreversible.”

It was an unpleasant episode so early in Juncker’s tenure, but within a fortnight the storm appeared to be easing. Until last week, when, on his 60th birthday he received very unwelcome gift: a fresh batch of investigations were published, along with yet more leaked tax rulings. Again the rulings had been during his time as Luxembourg PM, this time by tax engineers at Ernst & Young, Deloitte, and KPMG.

Tax deals for well-known firms Shire, Icap, Skype, Ikea, Fedex, GlaxoSmithKline, Accenture, Reckitt Benckiser, Disney, Pearson, Taylor Wimpey and Burberry have all been published. In many cases the elaborate artifice of the corporate structuring was told pictorially in head-spinning organograms.

The truth about the industrial scale of tax deals rubber-stamped by Luxembourg’s tax office during the Juncker administration was becoming harder to ignore.

Ironically, investigators in Almunia’s former department were still struggling to get copies of such agreements through official requests, and have been forced to take the grand duchy to the European courts, where infringement proceedings are ongoing.

Once again Juncker was forced into a round of media interviews to justify his past. “I don’t think I should be treated in isolation, detached from the actions of others,” he told Libération. “This is not a noble excuse, but everyone was at fault.” Speaking to The Guardian, he said: “I am not naive, not a village idiot, and I have to objectively take on board that many people in Europe now have doubts about the honourable side of the new commission president. I have to live with that.”

Particularly damaging were reports that in 2003 he had personally met a team including Amazon’s then main tax negotiator, Bob Comfort. Comfort, recalled in an interview with the Luxembourg newspaper d’Lëtzebuerger Land: “His message was simply: ‘If you encounter problems which you don’t seem to be able to resolve, please come back and tell me. I’ll try to help.’”

In 2011, more than two years before Juncker stepped down as prime minister, Luxembourg appointed Comfort to the curious-sounding role of the grand duchy’s “honorary consul for the Seattle area”. An unpaid job, the tax expert explained, this role was “to help attract business to Luxembourg”.

Asked about his past meetings with such figures considering investments in the grand duchy, Juncker said: “I had contact with several, but not all of the firms mentioned. But I never interfered in the special tax rulings because under the law a Luxembourg finance minister is not allowed to. He is not allowed to influence the form of a specific tax file.”

Reflecting more philosophically on his time as Luxembourg prime minister, the commission president has, on occasion sought to remind critics of the historical context in which he led efforts to attract inward investment.

“Tax decisions were taken by the tax administration and not by the government. But of course we were promoting this and we were negotiating with these companies, as others did – the Irish, the Dutch; to some extent the Belgians.”

The son of a steelworker, Juncker had seen at first hand the crisis that could engulf a tiny country reliant on one industry when in the 1970s the steel sector crashed. “We tried with all means – but not with illegal means – to diversify our economy,” he said.

Persuading Goodyear and DuPont to set up European headquarters in the grand duchy were among the first big inward investment wins. Ernst & Young tax practice leader Marc Schmitz writes in his book Luxembourg in International Tax Planning: “Since Luxembourg has traditionally been open to foreign investment, its tax authorities have developed a tradition of being open to dialogue, and of understanding investors’ underlying business needs”.

This model has brought considerable success to the grand duchy’s population of just 550,000 — 45% are foreigners — as well as the many tens of thousands who commute to work there every day from Germany, Belgium and France.

One of the first Luxembourg-based firms to gain access to UK markets remotely — a precursor to the Amazon model — was Radio Luxembourg, later RTL. It was able to circumvent UK laws designed to give the BBC a monopoly of the airwaves, while at the same time reaching huge audiences thanks to what was then the world’s most powerful privately owned transmitter.

Later Luxembourg was found to have played a crucial role in the scandalous collapse of the fraud-riddled Bank of Credit and Commerce International (BCCI), which left behind debts of $10bn. The lender had enjoyed explosive growth in the UK in the 1980s, with regulatory supervisors at the Bank of England washing their hands of responsibility right up to its failure in 1991. Though run from offices in the City of London, the bank was officially headquartered in Luxembourg – albeit with little more than a letterbox presence.

As early as 1982, one internal memo by a supervisor at the Bank of England described BCCI as “on its way to becoming the financial equivalent of the SS Titanic!” Another said its status as a Luxembourg bank “has always been something of a fiction … I believe it would be wrong for us to continue to allow a large international banking group to carry on business on a largely unsupervised basis”. Ultimately, their views were not acted on.

On its immediate borders too, Luxembourg has found innovative ways to draw in custom from neighbouring states. Low duty on petrol, cigarettes and alcohol have for decades seen hordes of shoppers hopping over the border for a bargain.

While many in Luxembourg share Juncker’s sense that the nation is being unfairly singled out, there has been the occasional dissenting voice. Attracting particular controversy was a comment article in the Luxemburger Wort, a paper traditionally supportive of Juncker. “We’ve been living at the expense of others. Not just other states, but other people, like ourselves, who have been paying their taxes, while corporations in their own countries have been dodging them,” wrote the authors, an academic and a diplomat. “It is no longer possible to pretend that the Luxembourgish model has no negative consequences for other countries.”