#Luxleaks scandal highlights urgent need for corporate transparency

24 November 2014, by Pam Bartlett Quintanilla, Access Info Europe.

The #Luxleaks scandal is still making headlines after the International Consortium of Investigative Journalists published hundreds of secret tax agreements signed between Luxembourg and large multinational companies when Jean-Claude Juncker, the new president of the European Commission, was finance minister and prime minister of Luxembourg.

The agreements allowed companies like Ikea, Deutsche Bank and British American Tobacco to pay effective tax rates as low as 0.25%, despite the destructive effects of the financial crisis on Europe’s public purses. Prior to the leak, the EU Commission began investigating Luxembourg’s tax agreements with Amazon and Fiat to determine whether or not they violated state-aid rules, but throughout that investigation Luxembourg defended its tradition of secrecy, stating that it would only provide the EU institutions with information about specific agreements as requested, and not on the full set.

What the Luxleaks scandal makes clear is that opacity is a pre-requisite for corruption and immoral behaviour. Government transparency is therefore crucial, but so is the recognition that the right of access to information can and should apply to private actors such as multinational companies, who should be required to report on their activities.

The fact that the scandal involved Luxembourg is perhaps not surprising. The Duchy is well-known for its culture of banking secrecy and for its past refusals to cooperate fully with tax transparency initiatives launched by the EU and other inter-governmental forums such as the UNCAC, G8, G20 and OECD. It is also one of only two EU countries that have not adopted an access to information law (the other is Cyprus, a country regularly accused of being a haven for money laundering[1]).

Opaque ownership structures permit immoral and illegal business conduct to occur without public or even government scrutiny. Transparency around the ultimate owners of companies is therefore essential and a large number of groups, including Access Info Europe and the UNCAC Coalition, have been campaigning for the creation of public registers of beneficial owners to tackle this problem. But to date, only the UK and EU are moving forward with legislation to fulfil promises made at the G8 in 2013, though Denmark has recently announced similar plans.

For its part, the G20 issued a set of “High-Level Principles on Beneficial Ownership Transparency”, after the summit in Brisbane this month, in which there is no mention of the utility of making these registers public. The G20 also completely failed to commit to country-by-country reporting on sales, profits, subsidies received and taxes paid by multinationals, despite calls from transparency campaigners. This is despite advances by the EU, which has adopted country-by-country reporting in the financial and extractives sectors.

The leaked Luxleaks tax agreements have strengthened calls for greater fiscal transparency and accountability in the European region, where citizens have bailed out failing banks while companies exploited legal loopholes to minimise tax payments. The scandal also represents an opportunity for networks such as the UNCAC Coalition to increase pressure on UNCAC signatories to secure robust commitments on preventative measures to combat corruption.

  1. See eg. Leaked report damns Cyprus on money laundering, euobserver, 5 May 2013