8 April 2016.
Commissioner Jonathan Hill
Dear Commissioner Jonathan Hill,
Ahead of the vote on the European Commission’s proposal on public tax transparency by the College of Commissioners on April 12th, we wish to highlight the importance of such a measure and call on you to make sure the final proposal is fit for purpose.
This is a crucial moment in the fight for inclusive and equitable growth and against extreme inequality and poverty both at home and in developing countries. In the last year, the European Commission has strongly committed to tackle tax evasion and tax avoidance. It has now a major opportunity to turn this commitment into reality by adopting public country-by-country reporting (CBCR) as soon as the impact assessment on corporate tax transparency is finalised.
The recent Panama Papers confirm once again how a well-organised tax-dodging industry makes wealth and profits disappear in tax havens. This is a problem for all of us, because it means states are lacking the resources for essential services like education and health. Already a problem for relatively rich countries in Europe, this is even more damaging for developing countries with more fragile economies.
However, the draft proposal published in the media on March 21st contains several worrying elements. Firstly, the obligation for multinationals to report on a country by country basis only inside the EU, while publishing aggregated data from all third countries, would effectively allow multinationals to continue shifting their profits out of the EU while still keeping citizens in the dark.
Secondly, setting the threshold for companies covered by the reporting requirement at €750 million in annual consolidated turnover would, according to OECD’s estimates, exclude 85-90 per cent of multinationals from the reporting requirement. And thirdly, the disclosure elements should give a clear picture of whether taxes are paid where the profits are generated. The current Commission’s proposal includes a very limited set of reporting information and leaves out many key elements, such as list of subsidiaries, sales, assets and public subsidies received by companies.
Corporate tax avoidance has a huge impact on the lives of citizens in the EU and around the world. One of the most efficient measures to address this issue is tax transparency. The current proposal of mandatory CBCR aiming to implement Action 13 of the guidelines on Base Erosion and Profit Shifting (BEPS) by the Organisation for Economic Cooperation and Development (OECD) is a first step. However, the proposed CBCR model foresees the sharing of information only between tax authorities.
Transparency means that information is publicly disclosed and accessible to citizens, journalists and policy makers. Moreover, the EU’s internal market will also benefit from publicly available information, exposing possible unfair advantages of multinationals over small and medium enterprises (SMEs). Most importantly, public disclosure would have a stronger deterrent effect for multinational companies to engage in questionable tax planning practices.
As the Commissioner in charge of this impact-assessment, you have been confronted with this issue extensively. In order to ensure that financial markets are properly regulated so that they are stable, competitive and transparent, investors need to make informed decisions. At a time when reputational risks related to aggressive tax planning are growing, investors would greatly benefit from access to companies’ country by country reports.
Recent state aid rulings by the Commission against Belgium, the Netherlands and Luxembourg show the existence of secrecy jurisdictions within the EU and a worrisome tax competition between EU Member States. Public CBCR would shed a light on multinationals’ use of their subsidiaries as well as on special tax arrangements between companies and the tax authorities in particular countries, which may be the outcome of collusion.
Ending the opacity surrounding the activities and tax payments of multinationals is a crucial step towards curbing corporate tax avoidance and re-establishing public trust in our tax systems, while helping flag corruption risks. We believe that citizens, including those in developing countries, have the right to have access to key financial information on the activities of the companies that operate in their territories.
There is currently a proposal on the table to include public CBCR for all sectors in the Shareholders’ Rights Directive. Adopting this directive would ensure greater time saving and simplification of the legislative process.
If the EU seeks to lead by example on this important matter, as recently highlighted, we urge you to show your strong support for the transparency of multinational companies’ activities and tax practices by supporting the introduction of public CBCR for all sectors, by all big multinationals, with data for all countries included in the reporting.
Roman Borisovich, Committee Secretary, CLAMPK
Alex Cobham, Director of Research, Tax Justice Network
Manzoor Hasan, Chair, UNCAC Coalition
David Haslam, Chair, Methodist Tax Network UK
Mark Goldring, Chief Executive, Oxfam GB
Ben Jackson, CEO, Bond
Miles Litvinoff, Coordinator, Publish What You Pay
Girish Menon, CEO, ActionAid UK
Laura Taylor, Head of Advocacy, Christian Aid
- COM(2016) 24 final – Communication from the Commission to the European Parliament and the Council, on an External Strategy for Effective Taxation