After a year of many political promises to finally take action in the fight against tax dodging, EU leaders met on December 19-20 but missed the opportunity to make progress on tax information exchange by delaying – yet again – the adoption of the savings tax directive, failing to progress the critical issue of country-by-country reporting, and ignoring the passing of the deadline for adoption of the Anti-money Laundering Directive.
The Council of Ministers, representing EU heads of state, kept the political rhetoric high, calling for “further progress at the global and EU levels in the fight against tax fraud and evasion, aggressive tax planning, base erosion and profit shifting (BEPS) and money laundering”. However, given that they called for “rapid progress” on this issue six months ago, the December meeting looked like one of those embarrassing moments where everyone realises the homework hasn’t been finished on time.
Firstly, the Council missed their deadline of adopting the Savings Tax Directive, key to unlocking greater exchange of information between EU tax authorities, which has been under negotiation for years. In May, the Council set “the end of the year” as the deadline for adoption, but it’s no secret which culprits caused yet another delay. While tax haven scandals were raging in the media earlier this year, Luxembourg started showing a significantly stronger will to cooperate on the issue of transparency. However, it is clear that the newly elected government in Luxembourg, together with Austria, has once again folded its arms and blocked progress. Their argument is that Switzerland – a non-EU member – must first agree to similar measures. Although EU leaders said that the directive “will be adopted by March 2014” they left open worrying possibilities of future delays, saying this would be “in the light of” a European Commission progress report on negotiations with “third countries” – which include Switzerland. While it’s important for the EU to pressure other countries to move forward, the adoption of directives that are core to ensuring financial transparency in Europe should not be held up by states such as Switzerland, which is the worst offender on the Tax Justice Network’s Financial Secrecy Index. The pressure must not only be increased on Switzerland, but also on Luxembourg and Austria, for refusing to accept the fact that the era of banking secrets and hidden money has reached its end.
The deadline set for adoption of the Anti-Money Laundering Directive – at the end of 2013 – whizzed passed without remark: it was not even mentioned in the Council’s conclusions. Eurodad and members are part of a strong coalition of European NGOs pushing for the inclusion of public registries of the real or ‘beneficial’ owners of all companies and similar corporate structures in the directive – a key measure to tackle tax dodging by EU firms.
A key reason for the delay has been the European parliament, where many months were lost discussing which committee should lead the issue. The vote in parliament will be on January 22, after which both the Council and the Parliament will have to speed up dramatically in order to adopt the directive before the European elections in Spring 2014. Missing that deadline would cause even further delay and could potentially derail the whole process, with a decision on whether to restart negotiations to be made by a new Parliament and Commission. Therefore, strong political support from governments is needed to get the revision of the directive completed. Since this support did not come from the Council’s conclusions, it must now come directly from capitals. Governments should also pull out the Council’s conclusions from May and remind themselves of their own acknowledgement that “Identification of beneficial ownership, including as regards companies, trusts and foundations, is essential”. In other words, the real owners of companies and similar legal structures have to be identified. We strongly agree with that. It is essential information for the public – not just for tax administrations. The Anti-Money Laundering Directive is the right place to agree on the establishment of public registries of beneficial owners of companies, trusts and foundations, and therefore it is now vital for governments to keep the eye on the ball until the goal is actually scored.
Finally, another promise to make multinational companies’ global operations more transparent, through country-by-country reporting, was defaulted on. In addition to the fact that we don’t know who really owns European companies, we also don’t have basic information regarding their activities on a country-by-country level. For example, we don’t know how many employees they have; what profits they make; what assets they own; and what taxes they pay in the individual countries. This information, known as country-by-country reporting, is key to assessing whether they’re paying a fair share of taxes, including in developing countries, where more resources are currently lost due to tax dodging than are received as aid.
The call by Eurodad and its members for country-by-country reporting was recognised by EU leaders in May when they agreed that “the proposal amending the Directives on disclosure of non-financial and diversity information by large companies and groups will be examined notably with a view to ensuring country-by-country reporting by large companies and groups”. Unfortunately, this proposal never made concrete progress in 2013. However, in the December European council conclusions, the Council invited the Commission to “propose effective solutions” and “report back to the Council as soon as possible”. The obvious effective solution is a strong and ambitious legislative proposal on country-by-country reporting with the appropriate accompanying impact assessments, and The Commission must deliver this as soon as possible, with an aim to seeing such proposal adopted before the end of their term.
When billions of Euros disappear both in Europe and in the world’s poorest countries, we must continue to remind our leaders that every day wasted on this issue is another day in heaven for the tax dodgers. We look to the first quarter of 2014 and expect our governments to take the action they’ve promised to take.