Financial Transparency Coalition

Last week, a draft of the European Commission’s proposal to address country-by-country reporting (CBCR) was leaked to the press. The official proposal, scheduled to be released publicly on April 12th, marks the first time the European Commission has come together collectively in support of public CBCR, and was considered a major breakthrough by tax justice groups.

However, the leaked legislation draft revealed what the FTC and many others feared. Its core tenets address public CBCR, but do not go far enough in terms of creating transparency that will truly influence multinational corporations’ (MNCs) underhanded tax practices.

Although this proposal is indeed a step in the right direction, it is not a measure that will ensure MNCs are held responsible for their shady behavior.

There are two major issues with the leaked draft.

First, the draft only calls for public disclosure of turnover, profits and numbers of employees for tax jurisdictions “within the EU”. This means that companies doing business within the EU, but with operations outside of the 28-member bloc would not have to disclose specific information to the public on their operations outside of the EU.

According to The Guardian, corporations with branches in places like Switzerland and the Cayman Islands—not to mention in developing countries where tax abuse by MNCs is rampant—would not be required to reveal any specific information on those jurisdictions; they would continue publishing aggregate data on branches outside of the EU, which will continue to distort the true picture of their operations.

The second main issue is that only MNCs with an annual revenue greater than €750 million would be required to reveal their financial information. This would encompass just 10-15% of EU-based companies, allowing the majority of corporations to bypass the transparency measure.

A recent Financial Times article addresses the EU’s justification of these shortcomings. Legislators claim that instituting public CBCR outside of the EU bloc is unrealistic, and that complete publicity of this basic information would somehow place corporations at a disadvantage in the marketplace, particularly with competitors in other parts of the world.

But interestingly enough, two years ago, it became EU law for financial institutions in the EU to disclose financial reports on a country-by-country basis for all their subsidiaries around the globe. In fact, a recently published report from Oxfam France, CCFD-Terre Solidaire, and Secours Catholique took a look at this new wealth of information about the financial industry, specifically paying attention to the country-by-country reports submitted by French banks. They found that tax havens are particularly profitable for banks, and subsidiaries in tax havens are on average 60% more lucrative than those anywhere else.

Manon Aubry, Advocacy Adviser at Oxfam France, addressed the report’s findings:

“It was shocking to realize the sheer volume of money that banks are routing through tax havens to maximize their profits…We are sure that banks and big businesses in other European countries will be doing the same.”

If the EU requires banks to disclose financial information on a country-by-country basis, why should the requirements for other EU-based industries be any different?

Tove Maria Ryding, Tax Justice Coordinator for the European Network on Debt and Development (Eurodad), a group of 46 NGOs fighting for a fairer global financial system, recently commented on why it’s so vital to have these reports each jurisdiction where an MNC operates:

“According to conservative estimates, the EU is losing €50-70bn per year because multinational corporations are not paying their taxes. Hopefully, the European commission will soon start to take this problem seriously and propose real solutions.”

Much work is still to be done. It’s clear that public CBCR is what the global community needs. But this will only become a reality when those drafting the legislation are interested in creating a truly transparent and sustainable financial system, rather than pushing forward with a half-hearted hybrid approach.

For more information on public CBCR, check out this website created by Eurodad, a Coordinating Committee member of the FTC.