Can transparency exist behind closed doors?

March 20th, 2015

Lately, we’ve had quite a few reasons to get outraged as global citizens, especially when looking at the financial system, which seems all too well rigged in favor of a small, wealthy elite. We’ve learned of secret tax deals undoubtedly concocted in ominously tall office buildings between some of the worlds biggest companies and a tax haven; and we’ve also learned of billions of dollars that were being held by a Swiss bank for the world’s wealthiest, amid claims that the bank was helping many of these people evade taxes in their home countries.

But there’s an important caveat to all of this.

Without leaked documents from a few whistleblowers, we would have never known about any of it in the first place. I bring all of this up because this week the European Commission (EC) unveiled a new proposal aimed at stemming tax avoidance, dubbed the “Tax Transparency Package“. The plan was the EC’s direct response to the LuxLeaks investigation by the International Consortium of Investigative Journalists, which exposed “sweetheart” tax deals that let hundreds of multi-national corporations (MNCs) shift profits to Luxembourg, in some cases to be taxed at less than 1%.

Their plan was largely heralded by much of the media as a “crackdown” on tax avoidance:

Bloomberg News

EU Seeks to Stamp Out Tax Loopholes So Firms Pay Fair Share

Wall Street Journal

Europe Could Broaden Scope of Tax Transparency Rules

Associated Press

EU Unveils Draft Laws to End Sweetheart Tax Deals


EU Seeks Clampdown on Tax Avoidance After LuxLeaks

And while the package is certainly a welcome initiative—and one that will hopefully result in more government scrutiny of aggressive tax avoidance and outright tax evasion—is it really the “transparent” proposal that the European Commission’s document title would suggest?

Our colleagues at the European Network on Debt and Development had quite a smart opinion on this very question:

While governments will begin sharing information on tax rulings automatically, none of this information will be in the public’s purview under the current proposal. This is completely counter to the very definition of “transparent”, which describes something that is “open to public scrutiny”. It’s more than fine if the European Commission wishes to call the proposal a “tax avoidance package”, but to tack the word transparency on at the end is to imply that Europe’s citizens will be privy to the information, which they won’t.

This is even more curious when you look at the Communiqué released alongside the package, which admits that the initiative “has been fueled largely by the public demand” and was due in part to “recent public revelations” (LuxLeaks). Here, the EC basically acknowledges that they are reacting to the public’s outrage at these deals being secret, and that action has only come because some of the deals saw the light of day and became transparent.

Luckily, this proposal is just a starting point. There’s a chance to convince Europe’s policymakers that this sort of information should be made public by June 1st, when they revisit the issue. And from their own Communiqué, the European Commission has at least left this option on the table:

The Commission will consider whether additional public disclosure of certain corporate tax information should be introduced, in a way which goes beyond administrative cooperation and provides public access to a limited set of tax information of multinational companies.

The question of transparency requirements on aggressive tax planning arrangements, which are part of the OECD BEPS work also needs to be considered, taking into account, for example, the costs and benefits of transposing such rules into EU law.

While there are lots of hypotheticals and considerations in the EC’s Communique above, the fact that they are even exploring public disclosure is a start. However, it’s vital that we continue to stress the importance of public disclosure to policymakers so that their title of “transparency” can ultimately reflect what’s within the actual text.

Image used under Creative Commons License / Flickr User Lorenzo G

Written by Christian Freymeyer

Follow @FinTrCo