Against a backdrop of calls for corporate transparency by the Austrian EU council presidency, country-by-country reporting (CBCR) has been compromised by member states seeking to muddy the waters in favour of multinational companies’ nebulous tax practices.
When opaque business practices help large companies avoid paying their share of taxes, we’re all losing out. While local businesses pay higher taxes than their multinational competitors, estimates suggest that the public purse loses more than €400 billion to tax avoidance every year – money that could instead be used to fund public services such as schools and hospitals. This form of tax dodging not only affects rich countries in the EU, but also some of the poorest countries in the world.
A decade of leaks and unprecedented public outrage at flagrant large-scale tax avoidance by multinational companies catalysed the CBCR campaign, which is based on a simple concept: that multinational companies should provide an annual report disclosing basic information including their profit, tax paid and number of employees on a country-by-country basis for every country in which they operate.
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In 2016, the European Commission opened up the debate at EU level with a draft directive on public CBCR for the largest companies operating in the EU.
But the Commission’s proposal has several serious loopholes. For example, instead of corporations reporting on each country they operate in, the proposal demands that they report on their operations in the EU and a few blacklisted countries. Most of the activities outside the EU can be reported in general numbers. Therefore, this can still be used to conceal tax avoidance.
Furthermore, only the largest 10-15 percent of corporations would be required to report. This would mean business as usual for the other 85 percent.
The onus will therefore be on EU governments to improve and strengthen the Commission’s proposal to ensure that the directive has the effect of exposing and preventing large-scale corporate tax avoidance.
"The onus will be on EU governments to improve and strengthen the Commission’s proposal to ensure that the directive has the effect of exposing and preventing large-scale corporate tax avoidance"
However, member states have been unable to reach agreement. In fact, draft agreements have revealed that some member states are trying to water down the proposal even further, by shrinking the number of corporations covered and introducing loopholes to help many of the worst offenders delay or avoid reporting altogether.
Moreover, there are clear indications that Europe’s tax havens are blocking progress. For example, the proposal was not even on the table for the last meeting of the Competiveness Council.
If member states fail to make progress on this before the November meeting of the Competitiveness Council, a trialogue and decision looks increasingly unlikely before the European elections in May 2019.
But while progress is urgently needed, it is incumbent upon EU capitals to ensure that all large corporations properly implement and adhere to CBCR without loopholes, if this crucial proposal is to meaningfully affect change.