Country-by-country reporting: ONE reaction to the EU commission proposal
Today, the European Commission has presented a legislative proposal on the public disclosure of country-by-country reporting by multinational companies. The disclosure requirements will only apply to the largest multinational companies with a turnover of more than €750 million. They would only have to disclose limited information about their activities in Europe. As a reaction to the Panama Papers, the Commission has also suggested extending the disclosure of the reporting beyond the EU, but only to “tax havens”. However, this extension will only be implemented once the EU has adopted a so-called black list for “tax havens”.
Diane Sheard, interim Europe Executive Director at The ONE Campaign, said:
“The proposal outlined today misses the point. The only way to fight illegal tax evasion is to disclose full country-by-country reporting which covers the activities of European multinationals everywhere in the world, in line with the existing reporting requirement for European banks.
“Every year, developing countries lose more than a trillion dollars in illicit financial flows; if even a portion of that money was taxed and the revenues invested in services and systems, it could help finance developing countries’ own fight against extreme poverty.
“While we welcome that the European Commission recognises the power of public scrutiny in the fight against illegal tax evasion for developed and developing countries, the proposal of limited public access is insufficient: the restrictions mean that it won’t cover developing countries which urgently need this information to stop capital flight.
“The Commission’s proposal also limits disclosure to certain information and only to the largest companies. Without the bigger picture, this partial reporting will create loopholes and won’t put an end to illicit financial flows, either in Europe or in developing countries.
“This proposal is therefore only a first step. European member states, together with the European Parliament, need to raise the bar if they are serious in combating illicit financial flows worldwide.”
ONE’s Analysis of the proposal:
- No full country by country reporting – reporting on activities in EU member states and possibly a limited set of tax havens (still to be defined) only:
The major weakness of the proposal is that it doesn’t require companies to disclose their reporting for all countries in which they have activities, contrary to the reporting requirements that already apply to EU banks that cover the activities of European banks anywhere in the world.
It won’t show activities of the European multinational companies in developing countries in which illicit financial flows account for at least $1 trillion every year, money that properly taxed could be invested in essential services such as education and health.
Even though the Commission suggests to extend the public reporting to tax havens (based on a black list that would first have to be defined and adopted), this is not sufficient, neither for Europe nor for poor countries. Countries today not covered by this partial reporting could emerge into new tax havens and illegal tax evasion would then be only diverted to these places, but wouldn’t be stopped.
- High threshold – coverage of multinationals with a turnover of more than 750 million euros only:
The EU proposal doesn’t capture a sufficient number of companies: it only captures multinationals with a turnover of more than 750 million euros which leaves out 85% of multinationals internationally and would set the wrong precedent. Especially in developing countries ‘smaller’ multinationals can have a huge impact, as the example of the company London Mining shows. The company has a global turnover of ‘only’ 226 million euros but its activities in Sierra Leone represent 10% of its GDP. Other transparency regulations in the EU apply to all “large undertakings”, i.e. all companies to which two of the following criteria apply: a turnover of more than 40 million euros, a balance of 20 million euros, and/ or more than 250 employees.
- Limited list of information to be disclosed
The proposal doesn’t include crucial information that needs to be part of the public reporting in order to be able to assess whether a multinational company has a real economic activity in a given country or not: the reporting should also encompass the list of subsidiaries and activities per country as well as the sales and assets.
- The rules apply to EU companies but also foreign companies with subsidiaries in Europe
Applying the rules not just to EU companies, but requiring any large multinational with subsidiaries in Europe to report on their taxes as well is a very good step. It ensures a level playing field between EU companies and non-EU companies (many of which have subsidiaries in the EU). This level playing field helps build a global standard of transparency, because it incentivises the creation of similar laws in other jurisdictions.