On Wednesday European Commission President Jean-Claude Juncker addressed the European Parliament in Strasbourg to give his first annual ‘State of the European Union’ address. The growing refugee crisis, the Eurozone and talk of ‘Brexit’ and ‘Grexit’ were understandably the main points of the speech. However, corruption, the undue influence of lobbyists and a lack of corporate transparency all serve to weaken the state of the Union. This landmark address is a chance to review just how far the new EU Commission has come in bringing about greater transparency and accountability.
This year is the first State of the European Union by Juncker. The Commission team behind the speech are pulling out all the stops to encourage debate online, with a flashy website and social media hashtag #SOTEU. So with such a buzz here in Brussels we thought we’d contribute our deux centimes into the mix and describe what progress we have seen from the Juncker Commission since it began ten months ago in some of the areas we focus on.
There are areas where the Commission’s commitment to transparency seems questionable. A recent controversy over the highly redacted correspondence between the Commission and tobacco lobbyists surrounding the TTIP negotiations is one shining black example. However, on two areas that we work closely on, transparency on tax and in decision-making, the Commission has made some bold statements. But to what extent has the Commission followed through on its promises?
At the start of the Juncker Presidency the Lux Leaks scandal broke, revealing major flaws in the current EU tax arrangements. Under the current system, EU-based multinational companies are not required to disclose information regarding their activities and the taxes they pay to each country they operate in.
As the Lux Leaks revelations confirmed, many European companies have been engaging in profit shifting and relocation. They have been systematically over-reporting their profits in low tax jurisdictions or tax havens whilst under-reporting them in high tax jurisdictions, where they are usually based or have major centres of operation. This deprives the countries where companies operate from major sources of tax revenue.
In light of Lux Leaks, one of the Commission’s priorities, as highlighted in Juncker’s speech, is for a fair and efficient corporate tax policy. As part of this action plan they launched a consultation on corporate tax transparency.
In our response to the European Commission’s consultation on corporate tax transparency, TI calls for public disclosure of tax-related information on a country-by-country basis by all EU-based multinational companies from all economic sectors. This is already the case for financial and credit institutions. We also call for the EU to go further than the OECD BEPS model (which foresees disclosure only to tax authorities) as suggested in the consultation, by making disclosures public.
“The country where a company generates its profits must also be the country of taxation.” – Juncker, SOTEU 2015
Country-by-country reporting is essential to show citizens how much big companies pay their governments, the contribution of companies to their societies and highlight special agreements, such as those exposed by the Lux Leaks scandal.
Transparency in decision-making
Ahead of the SOTEU address the Commission released a short progress report into the ten areas they consider priorities. Under the heading a ‘Union for Democratic Change’ the document states that one of the first steps the Juncker Commission took was to “be transparent about who we meet”, noting improvements to the Transparency Register and commitments by the Commission.
Since December 1st 2014 Commissioners must declare all meetings with lobbyists and are not able to meet with lobbyists who are not on the Transparency Register. Commission Vice President Frans Timmermans has put forward a proposal for a mandatory register by the end of 2015.
The Commission also pledged to “ensure an appropriate balance and representativeness in the stakeholders they meet”. A welcome pledge, but one that has yet to be fulfilled. Between December 2014 and June 2015 more than 75% of meetings with top-tier Commission officials were with corporate lobbyists. This compares to 18% with NGOs, 4% with think tanks and 2% with local authorities.
Over half the entries for lobby organisations on the EU Transparency Register contain factual errors or implausible numbers as we published on Monday, brining into question the quality of the Register. The Transparency Register Secretariat needs to be provided with the necessary resources to better check the declarations for possible errors. The Canadian Office of the Commissioner of Lobbying has 28 staff members, whereas the EU’s Transparency Register Secretariat has only four.
Although we applaud the Commission for their progress so far on lobby transparency, it is somewhat strange that the entire negotiating team for TTIP, for example, is excluded from the provisions. It should be crystal clear that unregistered lobbyists are not welcome in any of the EU institutions.
The Commission is about to start negotiations with the Parliament and the Council on reforming the current lobby transparency regime. We see this as an opportunity for reforms that will bring about proper monitoring and sanction mechanisms for organisations that do not respect the rules.
To increase transparency in decision-making the Commission needs to move forward on providing a ‘legislative footprint’ and opening up the process of law-making to public scrutiny. A legislative footprint is a comprehensive public record of lobbyists’ influence on a piece of legislation or public decision. The Commission has started both but the measures need to be extended to everyone involved in the decision-making process.
In the closing remarks of his speech, Juncker said: “when we see the weaknesses of a method, we have to change our approach.” We have highlighted some weaknesses in EU methods and provided possible solutions. The new Commission has made some encouraging statements but more concrete action is needed.
By the 2016 SOTEU address we would like to see a mandatory transparency register, public country-by-country reporting and greater transparency in the decision-making process. These are all commitments the Commission has already pledged, so now is the time for action. The Commission, the Council and the Parliament should work together to make these pledges a reality, for a democratic, transparent and accountable European Union.