This 5 November will not just be the anniversary of an attempt to destroy the Houses of Parliament, but also the anniversary of Luxleaks, write Elena Gaita and Alex Johnson.
Elena Gaita is a policy officer for corporate transparency, and Alex Johnson is an EU policy and communications officer, at Transparency International.
Visitors to the UK in early November will encounter a rather odd tradition. The dark cold nights and orange leaves are joined by the scent of smoke hanging in the air on 5 November. Bonfire Night, or Guy Fawkes Night is a rather morbid celebration where young and old gather to watch firework displays and light a huge bonfire. The tradition celebrates the capture, torture and gruesome death of Guy Fawkes, who planted explosives beneath the Houses of Parliament in an attempt to overthrow the government and monarchy back in 1605. School children make paper mache ‘Guys’ which are burnt atop a large bonfire for all the village to see.
5 November marks another anniversary. It’s been one year since the Luxleaks revelations showed us how the government of Luxembourg had been arranging ‘sweetheart deals’ with multinational companies to help them lower their global tax bills.
Agreeing special deals to cut tax bills can hardly be compared to sneaking barrels of gunpowder into the cellars and tunnels under Big Ben in an attempt to blow up Parliament. But Luxleaks demonstrates how a lack of transparency undermines the very foundations of corporate accountability. Special deals for multinationals agreed with authorities in one country can have repercussions for other countries that see their tax bases eroded. This results in less funding for public services and can exacerbate deficits for countries facing economic crisis. Citizens have the right to know about these consequences and to hold the perpetrators accountable for the impact they have on their communities.
Without transparency, we can’t see the whole picture. We don’t know how much tax companies are paying and where. We don’t have information about companies’ organisational structures and where they locate their subsidiaries around the world.
This opens the door to the possibility of illicit financial flows, money laundering and even corruption. There have been examples of companies using subsidiaries based in offshore jurisdictions for the purpose of laundering stolen assets. A US investigation in 2010 found that Daimler AG (the parent company of Mercedes) and its Russian subsidiary made over €3 million in improper payments to Russian government officials or to third-party shell companies. These in turn passed the funds on to officials and made improper payments to the bank accounts of 27 companies registered in seven different jurisdictions.
Transparency International is calling on the EU to put an end to the opacity of multinationals’ activities and tax rulings granted by governments to corporations.
At the moment this information is made public only through leaks and the work of whistle-blowers and journalists, who risk prosecution just for exposing the truth. The EU must take concrete action to achieve real corporate tax transparency. This is a cross border problem and can only be fixed through concerted Europe-wide action.
Public country-by-country reporting, whereby multinationals disclose key financial data, such as their profits and taxes for each country they operate in, is one simple measure the EU can take right away. It already exists for banks and the extractive industries, so why not extend it to all areas? The Commission’s own investigation into public reporting for banks found that it can have a positive impact for business. The Council recently agreed on the automatic exchange of this information but only between tax authorities. It would not be made available to the public.
If public reporting by multinationals had been in place, it would have been impossible for sweetheart deals to go under the radar. In 2013 Amazon’s Luxembourg subsidiary paid taxes of only €75m on a turnover of over €13 billion, but it took months of investigation by the Commission for these details to come to light. This would have emerged a long time ago if public reporting had been in place, as would the recent state aid cases with Starbucks and Fiat.
There’s a rhyme that British children sing to mark Bonfire Night which goes: “remember, remember the fifth of November: gunpowder, treason and plot.” This 5 November will not just be the anniversary of an attempt to destroy the foundations of the British state, but it will also be remembered, at least by transparency campaigners, as the anniversary of Luxleaks. The day we learnt the true extent of the consequences of opacity surrounding multinational tax deals.