Accountants, journalist face tax leaks trial in Luxembourg

LUXEMBOURG (Reuters) - Two former employees of accountancy giant PwC go on trial in Luxembourg on Tuesday along with a French journalist, accused of leaking details of corporate tax deals that have fuelled global demands for reform.

The case, coming 18 months after revelations dubbed LuxLeaks sparked accusations the Grand Duchy conspired with multinational companies to deprive other EU states of tax revenue, has drawn strong criticism from civil rights and media groups who argue the men are whistleblowers in need of protection.

Analysts say the Luxembourg authorities face a dilemma between defending confidentiality within financial institutions on whose customers the tiny state's economy depends and avoiding damage to its public image that could discourage business.

Antoine Deltour, a French citizen like the other defendants, is accused of passing data on PwC clients to journalist Edouard Perrin for a French television broadcast made in 2012.

Prosecutors say that data, as well as material allegedly supplied by the second former PwC employee Raphael Halet, was later used in the LuxLeaks revelations of November 2014 by the International Consortium of Investigative Journalists.

ICIJ Director Gerard Ryle called Perrin's indictment an affront to press freedom.

"For a founding member of the EU to bring charges against a journalist in relation to reporting that is clearly in the public interest shows a lack of respect for the important role journalism plays in holding the powerful accountable," he said.

"For a country to also charge two alleged whistleblowers shows Luxembourg has not yet caught up with public opinion."

The charges carry a maximum penalty of five years in prison and fines of 1.25 million euros ($1.4 million).

Luxembourg has a law protecting whistleblowers but it is limited to exposing illegality, such as corruption and money laundering. The government and companies involved say that the practices in this case were legal.

Luxembourg, with a population of just 540,000, has come to depend heavily on financial services since the decline of the coal and steel industries on which it previously relied.

Michel Maus, professor of tax law at Brussels university VUB, said judges in the case would need to strike a balance between upholding secrecy laws and protecting Luxembourg's reputation as a financial centre in the long term.

"If they come down hard on the defendants, they will deter future whistleblowers," said Maus. "But it is in the interest of Luxembourg financial system to be transparent, otherwise it will become internationally isolated in the longer term."

Jean-Claude Juncker, who was Luxembourg's prime minister for 19 years and is now president of the European Commission, has rejected criticism of his country's past practices and has backed new EU rules to make corporate taxation more transparent.

Luxembourg is one of several EU states whose special deals with major multinationals is being investigated by the EU's antitrust watchdog for favouring certain companies.

(Reporting by Michele Sinner in Luxembourg and Robert-Jan Bartunek in Brussels; Editing by Alastair Macdonald and Tom Heneghan)