As published on maltatoday.com.mt, Thursday 18 November, 2021.
Labour MEP and head of delegation Alfred Sant has put into question the legitimacy of a law compelling large multinationals to financial transparency, due to its having been approved by qualified majority voting.
The law adopted by MEPs lays down public country-by-country reporting (pCBCR) for multinationals by forcing them to publish in which countries they make their profits and where they pay their taxes.
The law, proposed by the European socialists, has long been coming since 2016 when the European Commission that multinationals with an annual turnover of more than €750 million must publish an annual public report disclosing where they do business, make profits and how much they pay in taxes and other payments, for each country where they operate.
In July 2017, MEPs entered trilogue negotiations with the European Council and Commission, but for five years, the Council was blocked by a number of countries opposing the proposal.
The Portuguese Council Presidency finally managed to break the deadlock, which led to a political deal on public country-by-country reporting in June 2021.
Yet in his reaction Sant emphasised that tax matters should remain subject to the national and not the EU competence.
Sant said the genuine need to fight tax evasion and avoidance, and enable public scrutiny on tax between authorities was imperative. But he sounded a cautious note on the extent to which information should be openly obtainable and acceessible. “Legitimate questions arise about whether the release of such information would be of detriment to European undertakings by undermining their competitiveness,” he warned.
Sant also warned that the CbCR Directive should not lead to tax harmonisation that would only be beneficial to larger, higher-spending member states.
“On tax matters, which remain the competence of member states, full unanimity on decision making should be retained. The CbCR initiative is being adopted on a qualified majority basis and a unanimous agreement was not reached in this regard. This makes its legitimacy shaky.”
As part of their tax justice campaign, the Socialists and Democrats led the drive for public country-by-country-reporting.
After the dossier had been blockaded by some member states in the Council for five years, in June 2021, S&D MEPs and Parliament negotiators Evelyn Regner and Ibán García del Blanco closed the successful deal under the Portuguese Presidency.
This law is the first of its kind globally that will make currently undisclosed information publicly available.
Evelyn Regner, S&D MEP and Parliament negotiator on pCBCR, said the law would boost investors’ appetites, but also empower public scrutiny of known tax-dodgers such as Apple and Amazon.
“Thanks to the new rules, we will know which companies are free-riding and which are contributing their fair share to society.
“As we managed to include publication requirements for third countries listed on the EU’s grey or black lists of tax havens, the new law on public country-by-country reporting will boost our fight against tax havens.
“I am proud that we have managed to close a loophole through which non-European companies could have escaped the new rules by simply filing an explanation. On EU soil, the same rules must apply to EU and non-EU companies.”
Co-rapporteur Ibán García del Blanco, (S&D) said the tax data must be fully available and easily accessible.
“We fought for and obtained that the data will be free of charge, in an open format and in a common template.
“The Pandora Papers have again proven that we urgently and rapidly need public country-by-country reporting... we did manage to include a strong review clause to continue the battle on global disaggregation of the information and limit the effects of the safeguard clause, which will allow companies to avoid reporting to protect their commercial interests.”
As usual, an array of opinions coloured the reaction to the law.
Mick Wallace (The Left) said real, transparent country-by-country reporting should force companies to report their profits on tax paid in every country they operate in, not just EU countries. “Not one of the world’s worst 15 tax havens is on the EU blacklist. The fact that the reporting requirement will only apply to companies with an annual consolidated turnover above €750 million, will exclude 85-90% of multinationals. Yet the deal is better than nothing, but it does not make the EU a global leader in a fight against tax avoidance.
Heidi Hautala (Greens) hailed the deal as a very important accompaniment to the OECD deal on a global minimum effective tax rate for multinationals. “So, we are on the right track, and we will use the review clause in this outcome to the full in four years to secure global disaggregation and many other things.
Marek Belka (S&D) said that after five years, “we can finally say you can run, you can hide, but you can’t escape tax.”
“With this in mind, the Council should take further steps in assuring tax transparency. First, reform the tax haven blacklist. Second, Member States must use ambitious sanctions towards those who do not publish relevant information. Tax havens cannot remain some kind of a Club Tropicana where drinks are free.”