EXCLUSIVE: Forcing banks in the EU to publish their turnover and taxes will help the economy, according to research for the European Commission that will strengthen the case for public disclosure of the information from next year.
Publishing turnover, staff numbers, taxes paid and subsidies received in every country banks operate in, could boost competitiveness, increase lending and bolster financial stability, the independent study by auditors PwC will find.
It will fight tax evasion and not harm investment or result in excessive compliance costs for banks, the report will say once published.
The report, which has not been finalised, will significantly influence a Commission assessment, that will ultimately decide whether annual country by country reporting data is public from 2015.
Supporters of the measure say it will expose any profit-shifting between countries to avoid tax and hold banks to greater account for their behaviour. Banks have argued it will be an additional regulatory burden.
Public country by country reporting for banks is part of the fourth revision of the Capital Requirements Directive (CRD4). Any bank working in the EU will be affected and have to disclose information about its activities anywhere in the world.
CRD4, adopted by the European Parliament and European Council in 2013, requires banks to give the information to the EU’s executive in 2014. This year the information will not be made public.
But Article 89 of the law states that banks must publish the data from 2015. But the article also stipulates that the Commission must assess the economic effects of the public disclosure.
If that assessment, to be submitted to the Parliament and Council by 31 December this year, shows a significant negative economic impact caused by making the data public, the Commission can delay publishing further.
The Article 89 deal was struck by all three main EU institutions to secure the adoption of CRD4. The Parliament, backed by the Commission, introduced the public reporting as an amendment during the legislative process.
Because it was introduced after the original proposal, no impact assessment was carried out. Member states in the Council wanted the Commission assessment on the economic impact, in return for backing the law.
The PwC report will feed into that final assessment, which will be written by the Commission.
PwC will find country by country reporting for banks working in the EU, will have a positive, or no impact, on the economy.
The findings are particularly persuasive because PwC had lobbied hard against the measure. Campaigners and MEPs had called for the auditor to be sacked over fears it would not be impartial.
According to documents seen by EURACTIV, PwC analysis will say the increased rigour of reporting would give a better picture of the true economic situation of a bank.
This would make it easier for regulators to oversee it, resulting in more financial stability.
PwC analysis also suggests increasing transparency will reduce the manipulation of earnings in order to pay less tax.
Banks will have to pay more tax because they will not be able to massage the figures to their advantage and will be deterred from doing so.
Reducing manipulation could have a positive impact on firms’ competitiveness, according to the preliminary findings.
Calculations by economists found the reporting was unlikely to hurt banks’ ability to access capital markets, where long-term finance can be raised.
Because investors in those markets could be attracted to more transparent banks, the reporting could result in banks having cheaper access to capital.
Those savings could be passed onto businesses and households in the form of lower lending rates, but the analysis will say any impact would be small.
That finding could be influential, as access to finance for business is a priority for both the outgoing and incoming Commission, as they look to reinvigorate the EU’s economy.
European businesses are heavily dependent on bank finance to grow. But since the crisis, that source of finance has dried up, leading policymakers to look elsewhere.
Economists also found the reporting was unlikely to hit investment, which is vital to get the economy going again.
PwC will warn that CRD 4’s reporting requirements had been transposed into national law by member states in varying ways. That risked undermining the benefits of data disclosure, their analysts said.
Backing from Barnier
EURACTIV understands that outgoing Internal Market Commissioner Michel Barnier is keen to get the assessment finalised before Jean-Claude Juncker’s new Commission takes over in November. He is a supporter of making the data public and backed similar initiatives in EU transparency and accounting legislation.
After an inter-service consultation, the assessment must be adopted by the full College of Commissioners before going before the other institutions.
Given the College agreed the Article 89 deal, it can be expected to back the assessment when Barnier presents it.
As well as the PwC analysis, EU officials will consider data already submitted by global systemically important financial institutions (G-SIFI). A G-SIFI is a large multinational bank, which could trigger a financial crisis if it failed.
A public consultation and other discussions with business, the banking industry and civil society organisations, including one this morning (2 October), will also influence the final assessment.
But the PwC report was a significant step forward in the right direction, campaigners told EURACTIV.
Jean-Claude Juncker’s new Commission has made fighting tax evasion by multinationals one of its priorities, choosing France’s Pierre Moscovici to oversee taxation and customs.
If it comes into force, responsibility for enforcing it, and other corporate governance issues such as the cap on bankers’ bonuses will move to DG Justice.
The current Commission has repeatedly stressed the need to fight tax evasion, which robs much-needed revenue from governments at a time of financial downturn.
The fourth revision of the Capital Requirements Directive is largely concerned with increasing banks' resilience to financial shocks by compelling them to hold greater reserves of capital but it also will increase banks' disclosure requirements.
Public country by country reporting for EU banks is part of the fourth Capital Requirements Directive. Data from banks regarding their turnover, staff numbers, taxes paid and subsidies received in each country they operate in must be made public from 2015, unless there are significant economic disadvantages to its publication. In that case, the Commission can delay publication.
The Commission has employed PwC to carry out an impact assessment study on the possible economic consequences of the public reporting. But civil society organisations and MEPs believe the auditor, which has opposed the initiative and is employed by large European banks, cannot be neutral and should be replaced.
- November: New Commission takes over
- December 31: Deadline for Commission assessment
- 1 January 2015: Possible date for banks' country-by-country reporting to be made public
- Website: Country by country reporting