Financial Transparency Coalition

Earlier this year, those of us advocating for increased financial transparency and an end to tax-dodging by multinational corporations were excited about the European Union potentially implementing some of the most progressive, pro-transparency regulations the world had ever seen. Beginning in 2016, the European Commission launched a draft directive to implement strong, uncompromising country-by-country reporting (CBCR) requirements, which would reveal how much multinational companies were paying in different jurisdictions – and just how much tax havens, including those in Europe, were benefiting.

After last week, though, it’s clear that our hopes were misplaced – and that European officials would rather pander to multinational corporations than implement meaningful reporting requirements for where, and how, these corporations structure their tax payments.

As we now know, the EU has failed to introduce any kinds of real CBCR mechanisms. Riddled with exemptions, the final proposal is so watered down that it can hardly even be called CBCR. Instead of disaggregating the data, multinationals will only have to reveal their activities in a select range of countries. Moreover, companies will be able to delay reporting for years. Nor is the agreement permanent – instead, it will be subject for review after only four years.

Or put another way: The EU may applaud itself for leading the fight for CBCR. But the only ones applauding alongside are the multinationals who watched Brussels wilt in the face of their lobbying.

The EU may applaud itself for leading the fight for country-by-country reporting. But the only ones applauding alongside are the multinationals who watched Brussels wilt in the face of their lobbying.

“It is profoundly disappointing to see European legislators wilt in the face of this historic opportunity to implement real, clear CBCR requirements,” FTC Director Matti Kohonen said. “We know that CBCR requirements remain some of the best tools available to shine a light on tax injustice around the world, and to finally bring about an end to tax havens as we know it. Instead of pursuing that goal, though, it appears the EU Parliament and EU Council of Ministers are more interested in catering to the whims and desires of the multinationals pleading for more financial secrecy, and for continued access to as many tax havens as they can find.

“The logic on this deal is nowhere to be found, and the premise of country-by-country reporting hasn’t been followed through at all,” Kohonen continued. “Aristotle would be turning in his grave.”

Common refrains

Nor is the FTC alone in pointing out just how porous the EU’s new reporting requirements will be. As Tove Maria Ryding, Tax Coordinator at FTC member Eurodad, said:

“It is a sad day for the EU’s fight against corporate tax avoidance. The only thing worse than taking over five years to agree on public country-by-country reporting is to take five years and then fail to deliver. Unfortunately, this is what the negotiators from the European Parliament, Commission and the Council have done today. The fact that today’s agreement includes a review after four years is completely absurd – we obviously cannot wait that long to repair this failure. In our opinion, the European Parliament and Council should vote no to this deal and send the negotiators back to do the job they were supposed to do – namely fight corporate tax avoidance.”

Or take it from Transparency International EU (TI-EU), which issued its own statement following the news. As TI-EU wrote,

After years of deadlock, EU Member States eventually achieved a breakthrough on the issue in February this year. However, the final watered-down text negotiated by delegations from the European Parliament and the Council contains massive loopholes that would still allow companies to keep most of their tax arrangements secret. “The proposed legislation as it stands is almost meaningless, as it would only require multinational companies to disclose their tax payments made in the EU and in countries on the deeply flawed EU tax havens list,” said Elena Gaita, Senior Policy Officer at Transparency International EU. “This means that companies’ operations in most of the world will still be exempt from public scrutiny.”

“The European Union wasted this opportunity…  This is a missed opportunity for a true fight against transparency and accountability.”

Other FTC members echoed similar sentiments. “The European Union wasted this opportunity,” Luis Moreno, director of Latindadd, said. “Allowing a clause that allows companies to postpone the publication of information for five years and establishing limitations on access to information to authorities in developing countries, and issuing public reports that only cover the EU’s so-called ‘black list’ of tax havens, is insufficient. There are tax havens in the European Union that are not included. This is a missed opportunity for a true fight against transparency and accountability and for obtaining resources that can, among other things, strengthen social protection systems.”

Unified front

Remarkably, European legislators’ willingness to water down the CBCR proposal comes in the face of a clear, unified front of organizations and advocates pushing for airtight reporting requirements. Dozens and dozens of civil society organizations and trade unions have called for tight CBCR requirements in the EU, as have investors representing over $5.6 trillion in assets.

Then again, perhaps we shouldn’t be overly surprised by European legislators’ recent decision. After all, the EU remains home to some of the world’s leading tax havens, including multiple members of the “axis of tax avoidance.” Decision-making in the EU also requires a majority of votes, and while outright secrecy jurisdictions are in a minority, there is a plethora of representatives of countries where tax dodging is still considered sound policy.

“The tax havens, and those doing their bidding, may think they’ve won this round of negotiations – but that hardly means they’ve won the war for financial and tax transparency.”

“We know that public CBCR remains the key tool when it comes to unearthing where, and how, the world’s biggest companies structure their taxes – and how they drain state coffers dry by searching out the lowest tax rates they can find, regardless of the cost for the rest of us,” Kohonen added. “While the EU’s decisions are clearly a setback – especially after negotiating for five years – we will not be deterred in advocating for public CBCR, both in the EU and around the world. The tax havens, and those doing their bidding, may think they’ve won this round of negotiations – but that hardly means they’ve won the war for financial and tax transparency.”