A need to know basis, and the public really needs to know

February 3rd, 2016

It’s been a busy week for the issues of tax and transparency in the European Union.

It started with a bombshell announcement that Google would pay about $185 million in back taxes to the UK government (and other reports that Italy is seeking unpaid taxes from Google, as well). However, there was much discussion about the deal Google negotiated with HMRC, and whether it was anywhere close to the amount that should have been paid by the tech giant.

So was it enough?

Due to the fact that there is little transparency regarding the operations of multinational corporations (MNCs) like Google in the first place, it’s almost impossible to say. Because rather than disclosing information on profits, revenue, number of employees and other information on a country-level—as banks and the forestry industry already do in the EU—most MNCs publish bundled reports that tell very little about their actual operations.

With all this talk of tax avoidance at the week’s beginning, it was fitting that toward the end of the week the European Commission (EC) released its long awaited Anti-Tax Avoidance Package (ATAP). The package aimed to make it easier for European governments to cut down on tax avoidance by multinational corporations. Unfortunately, by many accounts, it looks as though the ATAP will do little of the sort, and could even make things worse.

Perhaps one of the most disappointing outcomes in the document is the failure to embrace public country by country reporting, especially at a time when more and more European politicians are signaling their support. Without letting journalists, developing country governments, and the general public see this data, many questions will go unanswered and the overall effectiveness of the reports may suffer as a result; last week’s Google deal shows us first hand how much scrutiny is levied when we can’t dissect a company’s true obligations due to a lack of disclosure.

Another reason the EC’s position on public reporting misses the mark is because we’ve seen a flurry of support for public country by country reporting by European politicians. Last July, the European Parliament signaled its support, and since then, Finance Ministers from a number of European countries have warmed to the idea, most recently, George Osborne of the UK.

Others, including Commissioners Margrethe Vestager, Pierre Moscovici and apparently the Commission’s own President, Jean Claude Juncker, have put their support behind public reports as well. But despite growing support, this EC proposal would simply implement the OECD BEPS reporting requirements, which would keep the workings of multinationals out of the view of those that should really care about them—citizens and journalists.

From an analysis of the package by our colleagues at Eurodad:

The Commission also sticks to the OECD’s proposal about only applying the reporting requirements to businesses with a revenue of a minimum of €750 million, while recognising the fact that 85-90% of the world’s multinational corporations will then not have to report. On a positive note, the package says: “This proposal does not preclude that the Commission decides in the future to propose imposing public disclosure obligations on companies”. We welcome this because public country by country reporting is a very crucial missing link in the Commission’s current tax effort. We certainly hope to see the European Commission come out in support of public country by country reporting soon.

But that’s not the proposal’s only weakness.

Another piece of the proposal that was quite disheartening involved the Commission’s guidelines on the creation of a ‘blacklist’, compiling jurisdictions that, in their view, perpetuate harmful tax policy. While this idea certainly has merit, the EC’s implementation is unfortunately void of the same credibility.

Instead of acknowledging the tax havens that exist within the borders of the EU, the list of uncooperative jurisdictions will only include those outside of the EU. This hypocritical approach would mean that many full fledged European tax havens would not come under the same level of scrutiny as a developing country, like Liberia, who was added to the EC’s initial list.

It would also mean the two jurisdictions responsible for implementing policies behind two of the biggest tax stories last year (LuxLeaks & SwissLeaks) would go untouched. If the Commission is unable or unwilling to examine jurisdictions in its own backyard, some of which are notorious for their harmful tax policies, there is a huge credibility gap to the entire listing process.

While the European Commission’s efforts to tackle tax avoidance are laudable, it’s important that they get it right. Public country by country reporting would be a start, and there’s already legislation working its way through the EU law-making process that would do this called the Shareholders Rights Directive. The Commission should take the Google tax deal as a warning that the public needs, and demands, to know more about what multinationals are getting away with within their borders.

To read a further analysis of the package in its entirety, click here.

Written by Koen Roovers & Christian Freymeyer

Koen is the FTC's EU Lead Advocate. Follow him on Twitter @k_roovers. Christian is the FTC's Press & Digital Media Officer. You can follow him on Twitter @cfreymeyer.

Image used under Creative Commons licensing / Flickr User European Peoples Party

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