Luxleaks: EU finance ministers must act on tax transparency

Exposure of secret tax deals shows all multinationals must disclose tax country-by-country

EU finance ministers should commit to an immediate review of tax rules to ensure that publicly-listed multinational companies pay their fair share of taxes in every country they operate in.

At their meeting in Brussels tomorrow, EU finance ministers should look into tax disclosure rules for European companies also known as country-by-country reporting rules. The EU was due to discuss in 2018 the extension to all sectors of the economy country-by-country reporting rules that are in place for the financial sector, but this discussion should be brought forward in the wake of the latest tax avoidance scandal.

Leaked documents published today by the International Consortium of Investigative Journalists reveal that 343 companies “have secured secret deals from Luxembourg, allowing many of them to slash their global tax bills” from 2002 to 2010.

“We all have a right to know how much tax companies pay to EU governments,” said Carl Dolan, head of Transparency International’s EU office in Brussels. “EU Ministers must now take action to end the secrecy of corporate tax deals in Europe. The Luxleaks deals could not have been kept secret if all companies were required to report details of their tax payments in every country where they operate.”

Yesterday Transparency International issued a report showing that the tax deals in Luxembourg may only be the tip of a global tax iceberg. The report showed that the world’s biggest companies disclose little or no financial details about their operations outside their home country. Many of the companies include those alleged to have made deals with the Luxembourg authorities.

• Ninety of the 124 companies assessed by the Transparency International report do not disclose the taxes they pay in foreign countries.
• Fifty-four of the companies in the report said they operate in Luxembourg, but apart from ArcelorMittal which is based in the country, none of them disclose tax payments, revenues or pre-tax revenues in the country.

The report, Transparency in Corporate Reporting, analysed 124 companies from the Forbes list of the world’s biggest publicly-traded companies. It called for companies to disclose financial data such as tax payments on a country-by-country basis.

Country-by-country reporting rules essential

Country-by-country reporting is essential to show citizens how much big companies pay their governments, the contribution of companies to their societies and highlight special agreements such as those exposed by the Luxleaks scandal.

Several reports have shown that special tax arrangements allow multinational companies to shift their tax burden across borders to reduce their tax bill. Trade-related tax evasion may cost developing countries US$150 billion a year, according to Christian Aid. Tax evasion and tax avoidance are estimated to cost the EU economy 1 trillion per year, according to Tax Justice Network.

Oil, gas, mining and logging companies will be obliged to disclose financial data for each country and project from July 2015 under the revised Accounting and Transparency Directives.

These regulations require extractive companies to report payments such as taxes to governments on a country-by-country and project-by-project basis. Financial institutions will also have to disclose financial information country-by-country under Capital Requirements Directive IV from January 2015.

“Let’s remember that tax deals for multinationals agreed with authorities in one country can have repercussions for other countries who see their tax base eroded. This results in less funds for public services and can exacerbate deficits for countries facing economic crisis,” said Dolan.

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