European Commission CBCR proposal: Long awaited but insufficient to end tax avoidance practices

As a European trade union confederation representing several national tax administration trade unions, CESI in principle welcomes the Commission’s proposal as a step towards less tax avoidance. It goes beyond action 13 of the OECD’s base erosion and profit shifting (BEPS) plan in that it requests multinationals in the EU to make information public on where they make profits and where they pay taxes (‘country-by-country reporting’ – CBCR). CESI has for long advocated more transparency requirements in this area in order to help overwhelmed tax administrations perform their role: collecting taxes.

Nonetheless, despite the recent Panama Papers, which after LuxLeaks and SwissLeaks once again revealed the enormous scale of tax avoidance in Europe and beyond, the Commission’s proposal falls short of CESI’s expectations in a number of important aspects and appears, in sum, insufficient to bring down all tax avoidance practices for good.

Shortcomings in the proposal

First, the scope of application of the proposed transparency requirements is in CESI’s view too narrow as it only concerns firms operating within the EU. Companies outside the EU would only have to publish an aggregate figure of total taxes paid outside the EU. This will not help identify money being transferred to tax havens outside the EU, such as Panama, although most of the world’s tax havens are actually not in Europe. The proposal will incentivise multinationals to move their tax activities to countries not covered by strict transparency obligations. To be effective, these should be extended to ALL countries.

Second, the reporting threshold is too high. The proposal’s transparency requirements target only multinationals with an annual turnover of at least €750 million. This means that only a small minority of multinationals will actually be concerned. CESI calls to extent the scope of the Commission’s proposal to all multinationals as defined in the EU’s Accounting Directive.

The EU can do more

CESI believes that the EU can help bring the solution to the global problem of tax avoidance. However, objectives must be more ambitious and include full public CBCR obligations (as called for by the European Parliament in the context of the Shareholder rights directive) coupled with effective enquiries, penalties and broad blacklists.

To reinforce its voice towards the Commission, CESI recently also co-signed a joint letter of 46 trade unions and civil society organisations to Commission President Juncker, asking to finally take action on an effective disclosure of tax information by multinational corporations. The same was asked for by CESI in its response to a consultation by the Commission on corporate tax transparency in September last year.