When Antoine Deltour revealed that the Luxembourg authorities had over 300 “sweetheart deals” with multinational corporations, it sent shockwaves through the EU. The leaked “comfort letters” demonstrated the true extent of Luxembourg’s cosy tax arrangements with multinationals. November 5 marks the one year anniversary of LuxLeaks and yet in this time little progress has been made in changing the way the game is played.
So far the most swift and decisive response to these revelations has been the prosecution and upcoming trials of Antoine Deltour and the journalist Edouard Perrin. Not exactly the response we at Transparency International EU welcome as an organisation that supports openness and accountability.
While there has been limited action from the EU in the twelve months since LuxLeaks, the institutions now have a rare opportunity. Today, the European Parliament, Council and Commission will meet behind closed doors in Strasbourg to discuss introducing mandatory tax transparency rules for multinational corporations as part of the Shareholders’ Rights Directive.
Country-by-country reporting
Just last week the European Commission announced that Starbucks and Fiat received illegal state aid through tax rulings granted by the governments of the Netherlands and Luxembourg, which breached EU competition law. These arrangements are vulnerable to collusion and the abuse of power and yet they are hidden from public scrutiny.
If public reporting by multinationals had been in place, it would have been impossible for these deals to go under the radar. Curious anomalies – such as the fact that in 2013 Amazon’s Luxembourg subsidiary paid taxes of €75m on a turnover of over €13 billion – would have emerged a long time ago without the need for a 12-month Commission investigation.
This summer, despite strong opposition from some parties, the European Parliament inserted new transparency requirements into a Commission proposal on corporate governance rules. These requirements would mean the public disclosure of key corporate financial data which is currently secret, such as profits, taxes paid and a list of subsidiaries, in every country where they operate or what is known as ‘country-by-country reporting’ (CBCR). This requirement already exists for banks, yet its extension to other sectors appears to be rather controversial for Member States, who are now backtracking from their own Council conclusions of May 2013.
The current opacity of multinationals’ structures and operations may lead to corruption risks. There have been examples of companies using subsidiaries based in offshore jurisdictions for the purpose of money laundering of stolen assets.
With no mandatory framework companies tend not to opt for profit reporting. We’ve shown this with our 2014 report Transparency in Corporate Reporting, where 50 out of the 124 companies we assessed scored zero per cent for CBCR, which means they provided no information at all. The average was just six per cent.
So far it seems the Council has been dragging its feet on reform. The processes behind improving tax transparency have been beset by delays, technicalities and postponements without even getting anywhere near discussions of substance. The Commission’s 2014 impact assessment on CBCR for banks found that it would not have a negative impact on business and the financial system. Quite the contrary, the assessment claims: “it seems that there could be some limited positive impact.” Nonetheless, the Commission is currently working on yet another impact assessment on the same issue, which was preceded by a public consultation (to which we have contributed with our own submission).
The consultation’s first provisional results show that 66% of respondents think the EU should go beyond the current initiatives at international level and expand the current requirements to publicly disclose tax information to all economic sectors.
In the meantime, the Council paraded over its recent agreement on the automatic exchange of cross-border tax rulings, defining it a “milestone step towards greater transparency in tax matters”. But the Commission seems to have a peculiar definition of transparency. The information will be shared only between Member States’ tax authorities and will remain strictly confidential. The public will know nothing about it. While the European Commission will have limited access to the data but won’t be able to use it to investigate tax avoidance and check whether EU competition law and state-aid rules have been violated.
If the only consequences of LuxLeaks are the lawsuits against Deltour and Perrin instead of concrete measures to achieve real transparency, it will inevitably lead to a huge loss of credibility for the Commission and the EU as whole. Today, the EU has an opportunity to prove that it is serious and credible in its commitment to tax transparency.