Saturday

25th May 2019

Opinion

Tax transparency: Keeping the public in the dark?

  • The Luxleaks scandal revealed an assembly line of 'sweetheart deals' (Photo: R/DV/RS)

I had the pleasure of spending a weekend in Amsterdam recently and, sitting by the historic canals in the late Autumn sunshine, it was hard to imagine the city as anything other than elegant, prosperous, and well-ordered.

But it was not always so.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

In the middle of the eighteenth century, its golden age a distant memory, Amsterdam was in fact a nest of political corruption. Public offices were openly bought and sold and nepotism was rife. One of the city’s regents – the oligarchs of their day – awarded the title of postmaster-general, and the generous annuity that came with it, to his five-year old son.

The officials loathed most intensely by the general populace for their corruption were the tax-collectors. They had paid the city’s regents handsomely for their positions and were zealous about recouping their investments from the public.

In 1748, the public’s barely-contained resentment reached boiling point. A routine fracas between citizens and tax collectors escalated and the local militia stepped in. When one of the demonstrators hitched up her skirts and proffered her flanks to the trigger-happy militia men, she was shot in the buttock for her pains and subsequently died of her injuries.

Four days of frenzied rioting ensued, which saw the wholesale looting of the private houses of Amsterdam’s wealthy merchant elite. The contents of one wine merchant’s cellars – some 32,000 bottles – were completely destroyed, although not before many of the rioters collapsed amid the alcohol fumes.

All of which is to say that the subject of tax and corruption arouses strong passions.

We now live in more enlightened times, of course. Tax authorities are loathed for many reasons, but not for the petty corruption that preys on individual citizens.

These days, we are more likely to be concerned about the deals struck by tax officials with multinational companies that assure them that the baroque and opaque structures they have created to minimise their tax bill are perfectly legal.

Luxleaks revealed an assembly line of ‘sweetheart deals’ in the form of ‘comfort letters’ provided to companies with Luxembourg subsidiaries, but this is common practice all over the EU.

'Transparency' reform hidden from public

This week, finance ministers struck a deal to exchange information on these tax rulings between member states but, curiously, given that it is trumpeted by the Commission as a “transparency” reform, none of this information will be in the public domain.

The same spirit guides the OECD’s much vaunted initiative to curb profit-shifting by multinationals that was agreed on Monday – financial information is to be shared between tax authorities in rich countries and no further.

There seems to be a broad consensus emerging that, when it comes to the tax affairs of multinationals, it is best to “keep the general public out”.

Indeed, that was the plea I heard from an eminent professor of tax law at a recent event. If information about tax payments was more widely known, his reasoning went, there would be huge pressure on politicians and administrators to rescind some of these agreements, and there would be little discretion for negotiations with other countries on technical matters such as transfer pricing rules.

Mob rule would replace the rule of law. The mansions of Luxembourg oligarchs would be pillaged.

This is a familiar refrain from those who believe that there are some matters that are simply too technical and complicated for public scrutiny and best left to the experts.

That is until the experts are revealed to be systematically wrong – think of banking supervision before the financial crisis.

Usually the response to these expert failures is to demand more transparency, and tax policy should be no different. Public disclosure would reduce the risks of ‘group think’ and regulatory capture.

Given the horrendously complicated nature of tax arrangements that span companies and continents, there is a need for more pairs of eyes, not less. Tax authorities have not been immune to swingeing public sector cuts, and despite all the new information available to them, there is a risk they will not see the wood for the trees.

Companies know that officials will only prosecute a small number of cases they are sure to win, so the deterrent effect will be minimal.

In many cases we are not talking about impartial and efficient administration, but painstaking negotiations between opposing legal teams poring over the accumulated loopholes, anomalies and case law that make the application of tax rules such an attractive intellectual sport for some.

In these circumstances, we do not have the rule of law, but the rule of lawyers.

The antidote

Fortunately, there is an antidote to this notion that taxation of multinational companies must of necessity be a black box.

Country-by-country reporting legislation, which requires public disclosure of financial information for each country of operation, is in place for EU banks since last year.

In July, the European Parliament voted for an extension of this measure to all large EU-based companies as part of the review of the Shareholders Rights Directive.

Now the Parliament needs to face down sceptical member states in negotiations that will start later this month, but if successful we would have a basic measure of transparency that would flag up the kinds of special arrangements that companies had with the Luxembourg authorities in other parts of the world.

It would allow an informed public debate on tax policy, rather than a debate that is currently informed by scandal and hearsay.

Resolution of the negotiations between Parliament and Council may fall to Dutch officials as part of their country’s presidency of the EU in 2016.

One rather hopes that they will remember the example of their eighteenth century forbears, for whom the corruption of the tax administration was a potent symbol of a wider malaise.

On such a vital topic, one that goes right to the heart of our conceptions of citizenship and representation, there really is no alternative to transparency and public engagement.

Carl Dolan is director of the Transparency International Liaison Office to the European Union (TI EU)

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

EU sanctions regime cannot be an 'EU Magnitsky Act'

The debate about the choice of name should not boil down to a political muscle show against Hungary, which opposes the reference to Magnitsky because of its political relations with the Russian government.

Voter turnout will decide Europe's fate

European voter turnout is in deep crisis. Since the early 2000s, the share of voters in national elections has fallen to 66 percent on average, which means that the birthplace of democracy now ranks below average globally.

News in Brief

  1. UK's May announces June 7 resignation date
  2. Ireland votes for EU election and divorce referendum
  3. Report: May to announce resignation plan on Friday
  4. Leading politicians: time for EU to have female leaders
  5. Poll: Finland's Green party to surge in EU elections
  6. High demand for postal voting in Denmark
  7. Some EU citizens turned away at UK polling stations
  8. Switzerland unlikely to sign draft EU deal

Press freedom and the EU elections

We are campaigning for the next European Commission to appoint a commissioner with a clear mandate to take on the challenge of the protection of freedom, independence and diversity of journalism.

Stakeholders' Highlights

  1. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  2. Nordic Council of MinistersEducation gets refugees into work
  3. Counter BalanceSign the petition to help reform the EU’s Bank
  4. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  5. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  6. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  7. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  8. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  9. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  10. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  11. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  12. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year

Latest News

  1. EU election results to trigger top jobs scramble This WEEK
  2. Don't tell the Dutch - but Timmermans 'won'
  3. EU says goodbye to May with 'respect'
  4. Strache scandal: how big a hit will Austrian far-right take?
  5. Italy train row exposes competing views of EU
  6. Dutch socialists on top in first EP election exit poll
  7. No usage data kept for EU parliament's 'Citizens' App'
  8. EU sanctions regime cannot be an 'EU Magnitsky Act'

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic commitment to driving global gender equality
  2. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  3. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  4. Nordic Council of MinistersNordic talks on parental leave at the UN
  5. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  6. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  7. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  8. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  9. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  10. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  11. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  12. Nordic Council of MinistersNordic ministers take the lead in combatting climate change

Stakeholders' Highlights

  1. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  2. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  3. Nordic Council of MinistersSeminar on disability and user involvement
  4. Nordic Council of MinistersInternational appetite for Nordic food policies
  5. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  6. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  7. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”
  8. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  9. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  10. Nordic Council of MinistersState of the Nordic Region presented in Brussels
  11. Nordic Council of MinistersThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  12. Nordic Council of MinistersThe Nordic gender effect goes international

Join EUobserver

Support quality EU news

Join us