The French parliament has finally rejected country by country reporting for the activities of the biggest French companies, refusing to get tough on tax optimisation without the involvement of their European partners. EurActiv France reports.
MPs have backed the government and rejected the publication of country by country reporting on the activities of French-based multinationals yesterday (16 December).
In a vote on the draft amending budget for 2015, French MPs abandoned the measure, which would have forced all multinationals based in France to publish detailed accounts of their activities in each country where they operate. This information would include details of sales, the number of employees and the taxes paid in each different location.
The adoption of this measure, which had already successfully passed through two readings in the National Assembly (the French parliament’s lower house), looked assured. But opposition from the Secretary of State for the Budget Christian Eckert mobilised broader resistance from MPs.
“The National Assembly had twice voted in favour of this system, which was finally refused because of pressure from the government. It’s scandalous,” said Lucie Watrinet from the development NGO CCFD-Terre Solidaire.
Denounced by several NGOs from the Tax and Legal Havens Platform as “muscle-flexing”, the French government’s opposition is not an isolated case. Despite the succession of scandals that have erupted over companies’ tax practices, European countries have shown no great will to increase tax transparency.
The idea of public country by country reporting for the activities of multinationals is nothing new in itself. Long supported by civil society, public reporting has recently gained credibility as a possible solution to the underhand tax practices of many big businesses.
Public oversight would in theory increase the pressure on multinationals to be transparent about their activities. “But also to redress the balance between big businesses and SMEs, which are at a disadvantage because they cannot afford these tax practices,” Watrinet said.
French Green MP Eric Alauzet said, “It is vital that this information is accessible to the public, to associations, to investigative journalists, in order to discourage companies from transferring their profits.”
And this measure has already been applied to European banks. Introduced in France in 2013, public reporting for big banks was also made compulsory on a European level shortly afterwards
“At the time, the adoption of this obligation was facilitated by the banking crisis. And the big banks also rose up against the measure, saying that it would damage their competitiveness compared to other banks that were not subjected to such an obligation,” Watrinet said.
Two years on, the European Commission’s evaluation report on the economic repercussions of the measure silenced these claims.
But despite this initial success, public reporting has not become common practice in Europe’s other sectors, even after the numerous recent tax evasion scandals (Luxleaks, Swissleaks, etc.).
The BEPS effect
According to Watrinet, “Everyone thinks the OECD’s BEPS project has solved the problem of tax evasion.”
The OECD adopted the base erosion and profit shifting (BEPS) project in November, and is laying the foundations for a global fight against the damaging tax practices of big multinationals.
The text obliges multinational companies to produce country by country reports on all their activities. But these reports will only be available to national tax authorities, not the public.
Details on tax rulings, the secret deals passed between tax authorities and multinational companies to reduce their tax liability, will also be subject to country by country exchange, but again, will not be accessible to the public.
“States always agree that this information should be available to the tax authorities, but they are incredible obstructive on the issue of publication,” the CCFD-Terre Solidaire representative said.
Rapidly transposed into EU law, the BEPS project has also been included in France’s 2016 budget bill in the form of non-public country by country reporting.
France’s Secretary of State for the Budget Christian Eckert said France was in favour of increasing the transparency of these reports, but that the country would refuse to do so in isolation. The French government fears damaging the country’s competitiveness by progressing on the issue while other countries drag their feet.
The question of country by country reporting will soon resurface at the European level, with the revision of the Shareholder Rights Directive. At the first reading MEPs inserted a requirement for “large undertakings and public-interest entities” to publish country by country information on profit or loss before tax, taxes on profit or loss, and public subsidies received.
The text is currently under discussion with member states, which are awaiting the results of a European Commission study on the impact of public reporting.
“We call on the Minister of Finance Michel Sapin to keep his promise and to commit to real tax transparency and country by country reporting at a European level. This measure already applies to European banks, and there is absolutely no valid reason why it should not be extended across other sectors,” said Friederike Röder, the director of One France.
The unanimity rule
But in spite of the French promises, public reporting looks well and truly blocked at the European level. For the last year, the European Parliament’s attempts to push this measure forward have been undermined by a lack of support from member states.
Last July, the European Parliament called for the rapid establishment of public reporting, with a view to supporting developing countries in their fight against tax evasion and illicit financial flows. Supporters of the system had hoped the cry would be taken up at the International Conference on Financing for Development in Addis Ababa in July 2015.
But, as Watrinet recalled, “The question of reporting didn’t even make it past the first round of the negotiations.”
The Special Committee on Tax Rulings (TAXE committee), which spent six months investigating the Luxleaks scandal, had also demanded greater transparency in the reporting system. But it, too, failed to rally the support of European countries, which must agree unanimously on any laws regarding tax.
On the same day as French MPs rejected transparent reporting, the European Parliament once again proclaimed its support for reporting on Wednesday (16 December), adopting a non-binding resolution by a large majority.
International tax law has not always kept up with changes to the global economy, and globalisation has increased the necessity for countries to cooperate to protect their fiscal sovereignty.
To deal with the recent wave of tax scandals, the leaders of the G20 asked the OECD to propose a common framework to fight these practices, which are often legal, and to ensure that revenue is taxed in the country where it is earned.
The final reports of the base erosion and profit shifting (BEPS) project were published in October 2015, two years after its launch in 2013. This is the most important change of the international tax rules in a century.
Country by country reporting for the activities of big businesses was introduced as part of the BEPS project, but with no obligation to publicise the information.