Why are European countries against fiscal transparency?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

After three years of blocking negotiations, the European Council finally voted on whether to secure fiscal transparency in the EU. True to form, they voted against it, writes Luis Garicano.

After three years of blocking negotiations, the European Council finally voted on whether to secure fiscal transparency in the EU. True to form, they voted against it, writes Luis Garicano.

Luis Garicano is the leader of the Spanish liberal party Ciudadanos in Europe and the Vice President for economic affairs of Renew Europe.

The European Parliament estimates that almost €200 billion are lost in tax revenue every year through lawful tax avoidance techniques. Last Thursday (28 November) the European Council voted against ensuring fiscal transparency to help the EU get this money back.

How? By voting against Public-Country-by-Country Reporting (CBCR), which would have mandated multinational companies to disclose key fiscal financial information of their subsidiaries by country.

In 2017, The Parliament voted for a version of CBCR that was straightforward. We proposed that it apply only to companies with more than €750 million in revenue (about 5% of multinationals) and that it oblige them to publicly disclose their number of employees, revenue, tax expense, and profits by country of operation. In the Council, after three years of blocking talks, the Finnish Presidency forced a vote on our proposal.

They rejected it.

The EU has been fighting tax avoidance for years, with measures such as the Anti-tax Avoidance Package. However, well-funded multinationals have invested ample resources to find the loopholes around them, often with the implicit support of the tax havens that stand to benefit. Because of this, the strategy had to be different – when facing corruption and impunity, the EU had to respond with accountability and transparency.

After Thursday’s vote, crucial information on multinational’s tax contributions will remain secret. Were it to have passed, we would have been flooded with stories such as Amazon’s – which nominally generated billions of revenue in Luxembourg, while generating peanuts in countries like the UK and Spain – or Apple’s – which stashes billions of dollars in profit in tax havens while it maintains an estimated effective tax rate of 5%.

CBCR has been in place for the financial sector for years, and research has shown that the public disclosure of fiscal information by country has not hurt their competitiveness. In fact, it has done the opposite. By having more information, investors have more trust in the companies they are investing in; their reputation is improved, and their competitiveness does not suffer.

How could it be that the Council voted against this? They argued that discussing CBCR through its Competitiveness Council Configuration undermined their tax sovereignty. Instead, they demanded that CBCR be approved with complete Member State unanimity through the Working Party on Tax Questions.

This legal argument, however, was baseless, and the financial sector’s case proves it. Throughout the many years it took to pass the measure for the financial sector, the Council never put forward the argument that debates on the Competitiveness Council Configuration undermined their tax sovereignty.

European nations cannot continue ignoring their duty to meaningfully combat tax avoidance; they cannot stay in the side-lines of similar international initiatives calling for transparency. They must work with the Parliament to ensure fiscal transparency in our Union, and to vote again to pass CBCR.

We must assure our citizens that their efforts to guarantee spending on healthcare, education, and social services is matched by multinational’s due efforts. There have been enough scandals to blow away all ingenuity, and all cynicism. The security of our welfare systems and our citizen’s trust on the fairness of our fiscal system is at stake.

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