On the morning of 5 November 2017, exactly one year ago this week, people around the world woke up to yet another shocking tax scandal. The Paradise Papers – released by the International Consortium of Investigative Journalists – included 13.4 million leaked files from the law firm Appleby and others. The documents revealed the tax dodging strategies of more than 100 multinational corporations, including Nike and Apple, as well as the offshore activities of more than 120 politicians and world leaders.
Overnight, big companies, politicians and celebrities found their dirty laundry exposed on front pages around the world. But 12 months later, what has changed? The answer is: not enough. We’re still stuck in the murky waters of corporate secrecy. Big companies can still hide money and avoid paying their share of taxes.
The secrecy scandal has not been treated with the urgency and political ambition that this multi-billion euro scandal deserves. Many European Union (EU) governments are still more focused on protecting their multinational corporations and financial service industries than cooperating to solve the problem.
The good news, however, is that a solution has been found and is already on the table. In fact, EU governments have the opportunity to make progress on this front later this month. But instead they are blocking efforts towards creating greater transparency.
The solution is clear, but EU governments aren’t taking action
Public outrage at the flagrant large-scale tax avoidance by multinational companies catalysed a campaign for real transparency among large multinational companies: this was called “public country by country reporting”. It’s a simple concept – the idea that multinational companies should provide an annual report disclosing basic information including their profit, tax paid and number of employees on a country by country basis for every country they operate in. In theory, this should make it possible for citizens, journalists, policy-makers and civil society to spot instances of large-scale tax avoidance.
In 2016, the European Commission opened up the debate at the EU level with a draft directive on public country by country reporting for the largest companies operating in the EU. Right now, this hugely important proposal for corporate transparency is on the table of the Council of EU Member States, but governments are blocking progress.
As with all legislation of this type, the European Parliament and Council of European Member States must adopt their positions before the three institutions enter negotiations for a final outcome. But two years on from the proposal and one year after the Paradise Papers, EU governments are still unable to reach agreement. In fact, draft agreements have revealed that some Member States are trying to water down the proposal by reducing the number of corporations covered and introducing loopholes to help many of the worst offenders delay or avoid reporting altogether.
There are also clear indications that Europe’s tax havens are blocking progress. EU governments must reach agreement at the Competitiveness Council, the working group of the Council of European Member States. But the proposal wasn’t even on the table for the last meeting. And with their final meeting of 2018 coming at the end of November, time is running out. If Member States fail to make progress before this meeting, a decision looks increasingly unlikely before the European elections in May 2019.
Paradise lost? We’re all losing out, especially developing countries
In the midst of the heated debate about large corporate tax avoiders exposed by the Paradise Papers, one important consequence is often overlooked. When secrecy helps large companies avoid paying their share of taxes, we’re all losing out. While local businesses pay higher taxes than their multinational competitors, estimates suggest that the public purse loses US$500 billion to tax avoidance every year – money that is desperately needed for public services like schools and hospitals. This form of tax dodging not only affects countries in the EU, but also some of the poorest countries in the world.
Despite its name, the Paradise Papers have shown how very far our global tax system is from being perfect. The aftermath of this scandal has shown how transparency is a powerful tool for exposing the tax dodging practices of large multinationals and wealthy individuals. But real transparency is equally powerful for disincentivising these practices, as well as helping us identify and address the weaknesses in our tax rules that allow this happen.
Citizens should have the right to know where multinational corporations are doing business and how much they pay in taxes in each country where they operate.
Paradise Papers have highlighted that there is no lack of money in this world. But for every year we sit back and ignore this issue, billions more euros will disappear into tax havens. We cannot afford to lose any more time – our governments urgently need to support proper country by country reporting.