By Javier Pereira
EU Trade Ministers missed the opportunity to tackle tax dodging and corruption at EU’s Competitiveness Council on 20 February. The meeting was held to debate new EU directives on transparency and accounting which could have immense positive impact on developing countries as well as on European economies. This can still be the case if the EU includes country-by-country provisions in the new transparency and accounting rules. However, Member States said they were concerned about “the impact that the proposed legislation will have on the competitiveness of European undertakings […and] about reporting on a ‘project’ level”.
Eurodad research shows that country-by-country reporting is essential to increase the accountability of multinational companies in developing countries and ensure that governments get their fair share of taxes. It has been estimated that developing countries lose between seven and ten times more money to illicit flows than they receive in aid. Developed countries also lost hundreds of billions of dollars in taxes every year from tax evasion.
The EU Council does not seem to realize the importance of this directive. Not only is it crucial to reduce capital outflows from developing countries, European countries would also benefit. The European Commission has estimated that tax evasion costs the EU 3% of its GDP. Moreover, better information about the companies’ operations, structure and corporate practices will allow investors to make better informed investment decisions. Strong country-by-country requirements will also help to reduce the advantage of large companies over small and medium sized enterprises that is the consequence of the former’s greater capacity to avoid taxes.
It is also important that the current definition of ‘project’ is strengthened, rather that weakened as the Council proposes. Country-by-country reporting needs to ensure that information is relevant to citizens and local governments. Aggregated information at the country level is simply not enough to improve accountability as operations in many countries are simply too large and complex to assess.
The opinion of the Council is just another attempt to weaken legislation which is already much weaker than the ambitions of the European Parliament. In a resolution passed in 2011, the European Parliament agreed that Country by Country reporting should be broad based, include pre- and post- tax profits and should cover all sectors and companies.
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