Monday

28th May 2018

MEPs dispute details of corporate transparency bill

  • Paris's La Defense business district. Companies operating in the EU will be required to report about their activities all over the world, country by country. (Photo: Florent Le Gall)

MEPs from the economic affairs and legal affairs committees adopted a draft directive on Monday (12 June). It will force all multinational companies in the EU to disclose information related to their activities in each country where they operate.

The so-called country-by-country reporting will require companies operating in the EU, with a turnover above €750 million, to publish a number of details regarding their activities – such as profits before tax, turnover and the amount of paid taxes.

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The goal is to shed some light on every company's internal arrangements, showing whether they use tax optimisation schemes.

The reporting will also require all companies operating in the EU to disclose information on their activities in non-EU countries – also on a country-by-country basis.

In the original proposal presented by the European Commission in 2016, companies were required to report country by country on their activities in the EU, but were only obliged to publish "aggregated" data on their activities outside the EU.

The extension of country-by-country reporting to non-EU countries was pushed forward by left-wing, green and liberal MEPs.

They argued that "aggregate" reporting would seriously undermine the rules regarding country-by-country reporting, and prevent citizens from knowing whether companies are shifting money out of the EU.

Liberal U-turn

The text adopted by MEPs on Monday, which will have to be adopted by the plenary and then negotiated with member states, also introduces a "safeguard clause" within the scheme.

The clause will allow companies to "temporarily omit" some information when disclosure could be "seriously prejudicial".

Companies will be able to ask national authorities to exclude activities in some countries or some information from the reporting, on the grounds that it is "commercially sensitive". If approved, the exemption lasts for one year, and can be renewed an unlimited number of times.

"This is disappointing, we need full transparency", Elena Gaita, a policy officer at Transparency International, told EUobserver.

"The clause is too broad, and it will lead to jurisdiction shopping".

The "safeguard clause" was proposed last week by liberal MEPs as a compromise, so that conservative MEPs would agree to the provision on non-EU country-by-country reporting.

However, the safeguard clause has proved controversial in talks ahead of Monday's vote, with left-wing and green groups opposing it.

"The EU parliament is always claiming that it will fight for tax transparency, but when it can actually do something, it proves even less ambitious than member states", a source from a left-wing group told EUobserver, referring to previous parliament reports that asked for full tax transparency.

But Spanish MEP Enrique Calvet Chambon, who is following the file for the Liberal group, described the provision as a good bargain – somewhere between the right-wing MEPs, who wanted an "unlimited" safeguard clause, and the left-wing ones, who were initially in opposition to any at all.

"We maintain the obligation to disclose information for every country, in and out the EU – this is paramount," Chambon told EUobserver before the vote.

He stressed that the exemption will be reviewed four years after entering into force, in order to check whether there has been any "abuse".

"We will know which companies applied, and whether the exemption has been granted or not. We will also know how many exemptions have been granted by each member state", he added.

But left-wing and green MEPs regret that the Liberal group did not support a previously proposed compromise, which was negotiated at the end of May.

The previous proposal incorporated a different safeguard, allowing multinational national companies to omit the publication of information for 2 years, and only for countries in which it was starting new activities. But the omission was only valid for two years, and the omitted data had to be retroactively published after this period.

"This was better, because the non-publication was more carefully framed, was limited in time, and because the information had to be published at one point", said Elena Gaita, from Transparency International.

Council's disarray

After Monday's vote is confirmed by a plenary vote in the parliament, MEPs will start negotiations with member states to reach an agreement on a final text.

But discussions have been stuck at the Council of the EU, where the representatives of member states sit, with several countries, such as Germany and Malta, trying to block the proposal.

The council's legal service also criticised the legal basis of the proposal. It said that it is a tax-related issue, rather than an internal market issue, and that it should be dealt with only by member states on the basis of unanimity – requiring all EU countries to agree in the council.

Happy banks

Public country-by-country reporting is also opposed by companies, which are reluctant to disclose information that could be commercially sensitive.

"Implementation of this proposal would damage the attractiveness of the EU as an investment destination for foreign direct investment, ultimately reducing overall levels of corporate tax receipts and growth in the EU", BusinessEurope, a corporate lobby, said in a letter to the chair of the parliament's economic affairs committee.

However, Gaita from Transparency International pointed out that full transparency per country, without any "safeguard clause", already exists for EU companies in the extractive and logging industries, as well as for banks.

"A few years ago, banks were saying that full transparency will undermine their competitiveness. But now that it is in place, they don't complain anymore", she stressed.

In a 2014 report on bank reporting, private consultants PricewaterhouseCoopers (PwC) said that such measures were likely to "have some positive impact on the transparency and accountability of, and on the public confidence in, the financial services sector."

The company also said that "public disclosure of such information" would not have "noticeable negative economic consequences".

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