Politics of Poverty

The desperate rear-guard battle of corporations against transparency

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European Parliament in session. (Photo: Creative Commons)

The global tax justice movement must stay mobilized after this week’s important vote of the European Parliament on public country-by-country reporting.

In Europe, like in the United States and the rest of the world, voters increasingly feel they’re being given a rotten choice: either back mainstream candidates who will do little else than manage the status quo and let the global financial system rule, or back populist candidates who rhetorically attack global finance and its ills but may unleash chaos.

Europe faced a test earlier this week. It had a chance to demonstrate that it is possible to take concrete steps to tame the global financial system in a responsible manner. It flunked it. And that is a missed opportunity for America, too.

Among the many gripes of ordinary voters, one scandal after another has attracted attention to tax dodging by wealthy individuals and multinational companies. They include the Panama Papers that surfaced offshore companies facilitating tax evasion by individuals; the LuxLeaks revealing the sweet deals with which Luxembourg enticed multinational companies to set up shop in her territory; the EU state aid cases that struck Apple and other flagship companies with mega fines; and more.

In response to these scandals, the European Commission set out to do the right thing: mandate companies to publish where they do business and where they pay taxes. (At this time companies only have to publish global financial results.) Such public country-by-country reporting would shed light on accounting shenanigans multinational companies use to shift profits to tax havens. This transparency would not only act as a deterrent for reputation-minded companies from dodging tax, but also enable an informed public debate to fix tax loopholes once and for all.

Sovereignty is a core theme of populism. Whatever your attitudes toward economic globalization are, democracy is exercised at the national level. The ability of foreign multinational companies to operate across national boundaries is a privilege, not a right. The ability of citizens to know headline financial data of the companies that operate in their country ought to be a right, not something to beg for.

Obviously some folks in corporate Europe did not get the memo. They lobbied committees of the European Parliament to insert a giant loophole in the otherwise good country-by-country reporting bill: companies will be able to omit reporting on any countries (including tax havens) if they deem the data commercially sensitive – a notion lacking a legal definition and hence hard to enforce.

This rear-guard battle against transparency reeks of desperation. It only invites more public outcry.

Precisely because the stakes of public country-by-country reporting are orders of magnitude lower than the stakes of this year’s national elections in the Netherlands, France, and Germany, it was a good opportunity for the mainstream parties that control the European Parliament to show that a middle ground exists, that it is possible to take on the multinational corporations in a responsible manner.

Alas, the message voters now get is: if we cannot even get this small progress – merely transparency of high-level financial data, for crying out loud – what hope is there left in our political system?

Conservative and centrist Members of the European Parliament chose to succumb to the multinational corporations’ dodgy argument: publishing trade secrets could hurt companies’ competitiveness. By definition, information that must be published by law ceases to be a trade secret. As every economist knows, competition – the basis of European integration – requires a level-playing field of transparent information. The more of it, the better. It is precisely because public country-by-country reporting will improve competition that companies do not like it: they prefer the excess profits that secrecy enables, at the expense of consumers.

The bill would not penalize the competitiveness of European companies compared to their foreign competitors. It applies to all companies doing business in Europe – and that is where Americans have a stake.

The US government in cahoots with big business has blocked a previous attempt to adopt public country-by-country reporting as a global norm. The EU law would apply extra-territorially to large US companies doing and benefiting from business in Europe. Since it is hard to compete globally without a presence in Europe, it would basically apply to most large multinational US companies. Those US companies would then have an interest in Congress enacting a similar law such as to even the playing field with their competitors that do not do business in Europe. American consumers and voters would win, too. (We know from experience that laws in one jurisdiction can inspire others. The US passed tax payment disclosure for oil and mining industries in 2010 and this was followed by laws in the EU, Norway and Canada.)

Members of the European Parliament have another chance to restore public trust and make globalization work for ordinary folks when they vote in plenary this summer. Then the Council will take up the matter.

If the bill is adopted with the loophole intact, it will only prolong the public opprobrium against multinational companies. Once public country-by-country reporting becomes law, it will become even easier for organizations like Oxfam to hold both tax havens and companies that take advantage of the loophole accountable. We will continue the fight for transparency company by company, industry by industry. Until the penny drops.

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