After years of talking, EU leaders seem willing to take action at last on requiring transparency that will shed light on tax dodgers. There are at least two opportunities for concrete legislation that the EU cannot afford to miss this year, although Member States still seem to be dragging their feet.
After a year of negotiations with Member States and the European Commission, and strong involvement by Eurodad and our partners, the European Parliament this week voted in favour of new accounting rules for extractive and logging sectors. The Accounting Directive will require companies in these two sectors to disclose their payments to governments in every country where they operate.
While this is a vital step towards combating corruption, the question now is whether action will be taken to produce the transparency needed to fight tax evasion and avoidance. Knowing a company’s tax payments is not enough to assess whether those payments are fair, as it does not reveal where the real economic activity takes place. Forthcoming research from Eurodad and CIP into a European mining company in Mozambique provides a concrete example of how this lack of detailed reporting prevents citizens and tax authorities from detecting harmful tax practices. Assessing whether a company pays its fair share of taxes requires country-by-country reporting –including country-level disclosure of profits, sales, tax payments, assets and the number of employees.
Movements towards legislation
“But we must go further now and take measures on more transparency on tax for all large companies and groups – the taxes they pay, how much and to whom. I think it should be possible to introduce rules for the publication of the information on a country by country basis, similar to those approved for banks in CRD IV, or in the Commission’s proposal on improving the transparency of certain large companies on non-financial reporting, adopted in April.”
This refers to a statement on 23 May where EU heads of state announced that they would like to see country-by-country reporting for all large companies included in the Non-Financial Reporting Directive, which was launched in mid-April. While the heads of states’ statement was vague, it is good news that Commissioner Barnier wants to include full country-by-country reporting, which is useful for tax authorities and others seeking to shed light on harmful tax practices.
Some Members of the European Parliament are also supportive of introducing country-by-country reporting for all large companies. The Legal Affairs Committee suggested an expansion to more sectors during the negotiations over the Accounting Directive. In order to fight tax evasion, it is crucial that reporting requirements include information on more than tax payments.
While heads of state across Europe have been bold in their statements on cracking down on tax havens following the “offshore leaks” and in response to increasing public anger around the tax affairs of companies such as Starbucks and Google, their willingness to actually put in place transparency laws has been slim. Member States can show they are serious by supporting efforts to put forward full country-by-country reporting in the Non-Financial Reporting Directive over the coming months.
Another opportunity not to miss this year is the review of the EU Anti-Money Laundering Directive. Leaders across Europe have asked journalists to leak information about tax dodgers in their countries. That should not be necessary. When reviewing the Anti-Money Laundering Directive, EU leaders have the perfect opportunity to put in place laws that require transparency of company and trust ownership. This will then reveal who controls and benefits from companies, as well as shedding light on complex structures that can be used to dodge taxes.