Photo by Jamie Street via Unsplash

Dear EU, make corporate tax transparency your resolution for 2016!

Lucinda Pearson
21 December, 2015

The last couple of weeks have been busy for those advocating for more transparency and accountability in the private sector around the globe.

It started in Washington DC. The US Securities and Exchange Commission (SEC) proposed new rules which would require companies in the extractive sector, listed on US stock exchanges, to disclose payments made to either the US or foreign governments on a country-by-country and a project-by-project basis. Similar disclosure rules already exist for European extractive and logging industries in the EU Accounting and Transparency Directive.

Regrettably, French MPs, tasked with the second reading of a tax transparency measure mandating public country-by-country reporting (CBCR) for large French multinationals, were less ambitious.

On Tuesday night, after lengthy discussions and negotiations, the French government reversed the positive result of the Assemblée nationale’s vote in favour of public CBCR, which took place on 4 December.

Fortunately, another Parliament not too far from Paris took a stronger stance on corporate tax transparency. On Wednesday in Strasbourg, the European Parliament (EP) adopted with a large majority (500 to 122) a legislative report on corporate tax policies, also known as the Dodds-Niedermayer report.

Although the report is non-binding, it makes concrete recommendations inviting the European Commission to adopt the measures into legislative proposals within one year. If the Commissioner responsible fails to do so, they must explain the reasons why before the EP.

We at Transparency International EU welcome this report. It includes at least three fundamental issues to advance corporate transparency and accountability in Europe, on which the Commission will have to state where it stands:

  1. Mandatory and public CBCR for all sectors: what this means is a legal obligation for all EU-based multinationals to publicly disclose key financial information including: profits, turnover, taxes paid and a list of all their subsidiaries, in every country they do business. This way it would be possible to shed a light on potential tax rulings granted by governments to some corporations or on opaque tax planning practices aimed at reducing companies’ global tax bills. Currently, multinationals publish their financial data on a consolidated basis in one single aggregate report, making it impossible to distinguish between the contributions they make in each country of operation.
  2. Improved transparency of the Council’s Code of Conduct Group on Business Taxation: this group was set up by EU Member States in 1998 as a top secret forum to discuss harmful tax practices and, ideally, resolve them. Since the LuxLeaks scandal broke, the EP has demanded to see the minutes and documents of the meetings of this group. Member States and the Commission have been reluctant to grant the EP access to these documents. The secrecy around the group continues. The EP report, calls on the Commission to make the Code of Conduct Group more transparent and accountable by making the Commission and the Parliament official observers of the group’s meetings.
  3. Protection of whistleblowers: the EP calls on the Commission for a legislative proposal to protect whistleblowers who report misconduct, wrongdoing, fraud or illegal activity in relation to corporate taxation in any Member State. If such legislation was already in place, in April 2016 then Antoine Deltour would not be on a trial for revealing that the government of Luxembourg had signed off over 300 ‘sweetheart deals’ with multinational corporations.

This is the third time that the European Parliament votes for public CBCR this year. No other Parliament, both inside or outside of Europe, has done more to promote tax transparency.

Public CBCR is currently under debate in another draft piece of legislation, the Shareholder Rights Directive. But it looks like Member States wish to avoid discussing this measure. The European Commission is slowly carrying out its impact-assessment on CBCR, which should lead to a legislative proposal due in March 2016.

The road to improved and more effective corporate tax transparency in the EU seems to be a long and bumpy one. But the global transparency movement is on the right track. 2015 ended with some positive results. In 2016, transparency advocates will continue their work to finally achieve binding legislation on CBCR and an EU where corporations are accountable to the societies they operate in.

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