Financial Transparency Coalition

Photo: JLogan, Wikimedia Commons*

On 9 December 2010, the European Parliament’s Committee on Development will vote on the Draft Report on Tax and Development led by Member of the European Parliament Eva Joly.

The report aims to present the European Parliament’s views on the initiatives set forth by the European Commission in the Communication on Cooperation with Developing Countries on Promoting Good Governance in Tax Matters. This report is good news for civil society organisations such as Eurodad that are advocating to effectively clamp down on tax havens and stop more than USD 600 billion of tax-related illicit flows bleeding the finances of poor countries every year.

Groundbreaking report sets high ambitions for the Parliament

The report confirms the Parliament’s political leadership on tax and development and its commitment to put an end to tax dodging by multinational companies. Eurodad strongly supports the following points in the draft report:

• the recognition that “trade mispricing is one of the most prominent drivers of illicit financial outflows” from developing countries, and the call for “the EU to work upon concrete proposals to ensure that the G20, the OECD, the UN and the WTO consider a broader set of indicators and methods for tackling trade mispricing”;
• the call on the G20 and the OECD to set up mechanisms of automatic exchange of information on tax matters following the model of the EU savings tax directive, as a way of curbing illicit financial flows in secrecy jurisdictions;
• the call to the International Accounting Standards Board (IASB) to set up a country-by-country reporting standard that would require all multinational companies to report on the profits made and tax paid in each of the countries in which they operate to ensure financial transparency;
• the call to improve the international architecture to combat tax havens beyond the OECD framework, namely by revising tax treaties in order to include the possibility of granting the primary right to tax in the source country where real economic activity takes place.

What could be further strengthened?

Despite the high ambitions set by the report, some aspects could be further strengthened, such as:

• a call for legally binding mechanisms at the European level establishing a country-by-country reporting standard that applies to all multinational companies from all sectors;
• the inclusion of concrete measures to address the shortcomings of the OECD framework on transfer pricing by multinational enterprises and tax havens, with the Financial Secrecy Index promoted by Tax Justice Network as a reference;

Civil society groups applaud the ambition of the Parliament and anticipate widespread support for the report at the vote on the 9^th December 2010. This report could set high standards in support of financial honesty, which we hope all European institutions, including the European Commission, will uphold in drafting forthcoming communications on these matters.

Miguel Carapeto is a research, events and communications assistant at the European Network on Debt and Development (Eurodad).

María José Romero is a policy and advocacy advisor at the European Network on Debt and Development (Eurodad).

* Photograph by JLogan | Creative Commons Attribution-Share Alike 3.0 Unported License