There’s good news from Strasbourg. Overwhelmingly, the European Parliament yesterday has adopted the revision of the accounting and transparency directives (1). Corporations engaged in the exploitation of natural resources and primary forests are obliged now to reveal their profits and tax payments on a country-by-country basis. Since a long time country-by-country reporting is a central demand of development organizations, Transparency international and Attac. For fighting corruption, environmental destruction, the violation of human rights, and capital flight from resource-rich developing countries it will be an effective and important tool.
Furthermore, the European Commission has presented a proposal to expand automatic exchange of information within the European Union to all kinds of capital income including dividends and capital gains (2). Thereby, an another important demand of Attac and the Tax Justice Network will be anchored in European law. I’m pleased about that indeed.
Country by country reporting: Breakthrough in combating corruption, forfeiting the chance of fighting tax avoidance
Whereas the transparency directive contains regulations only for listed companies, the accounting directive is applicable to all corporations. Last year, the Committee on Economic and Monetary Affairs has voted in favor of broad country-by-country reporting. All internationally active European corporations should be obliged to reveal profits and tax payments of all countries they are active in. The committee for legal affairs has restricted this postulation to commodity and forestry companies. Against strong resistance in the Council this compromise was finally adopted. The German Ministry of Justice (led by a member of the liberal Party, FDP) was on the forefront of the long lasting blockade in the European Council.
In the run-up of these processes, together with our informal cross-party working group “Friends of transparency”, I succeeded in landing a coup: We convinced the European Commission to publish its proposal to extend the country-related obligation of disclosure for resource and forestry firms also to non-listed firms. Thus, the commission copied its proposals for the Transparency directive to the Accountancy directive. This survived the whole legislative process.
Country-by-Country reporting is a key instrument to stop tax avoidance and corruption. The obligation of transparency for big companies that are engaged in commodity and forestry industry is a great success for the European Parliament. However, it would never have been realized without the activism and campaigning by civil society.
Unfortunately, the chance to launch comprehensive measures against tax avoidance by transnational corporations was forfeited. This is a hard setback because for the revision of the accountancy and transparency directive unanimity in the Council is not needed. Very often important and necessary progresses in common European tax legislation are blocked by the requirement of unanimity in the Council.
Particularly since the debate on aggressive tax avoidance schemes by Apple, Google, Amazon, Starbucks and others, European rules for transparency would be a potential leverage in combating tax avoidance by transnational firms.
Thus, to sum up: Much remains to be done. Country-by-Country reporting for banks, which was painfully eked out by the European Parliament, must be extended to all large corporations that are active cross-border. The announcement by the heads of governments in May to do so, has to be taken seriously. The obligation for Country-by-Country reporting must be extended to all sectors via the non-financial reporting directive which is now in the legislative pipeline.
Automatic exchange of information regarding income from capital
The pressure on governments to tackle tax evasion and tax avoidance grew strongly due to “offshore-leaks” and the American FACTA initiative. As a reaction the Commission today presented a proposal for the revision of the 2011 directive on administrative cooperation in tax matters. Thus far, the directive only required information exchange regarding income from five categories, such as employment, compensation for executive and administration board members, life insurance products, etc (compare art. 8). Income from capital was vetoed during the negotiations because of banking secrecy rules in some Member States (such as Austria and Luxemburg).
Yesterday, the Commission proposed to extend the exchange of information between the concerned authorities to all kinds of capital income. This is a milestone for tackling tax evasion and a considerable step towards more tax transparency and tax justice. The broader scope helps tax investigators to receive credible and comprehensive data about taxable capital invested abroad. During my campainging for Attac and the co-founding of the International Tax Justice Network, the demand for universal automatic information exchange was one of my main claims. Hence, it is a great personal satisfaction for me that this demand of non-governmental organizations is now finding its way into European law.
Finally, after the broad announcements of recent weeks, the finance ministers must take action and swiftly adopt the revision. France, Germany and their partners may no longer accept the attempts by Austria, Luxembourg and other tax havens in the EU to block progress in the field of tax justice.
The initiative by the commission is also an important sign for the G8 summit next week in Belfast. In addition to international trade, the British presidency has put taxes and transparency high on the agenda. Automatic exchange of information on all kinds of income and a country-by-country reporting must become the new global standard.
Nonetheless, until these objectives will be adopted in Europe and internationally, civil society need to uphold their pressure. Recent developments show, change is possible, activism is effective and Europe can improve international financial regulation!
(1) The accounting directive as voted can be found here.
The tranparency directive as voted can be found here.
(2) The Commission proposal as regards mandatory automatic exchange of information in the field of taxation can be found here.