Two years ago, members of the European Parliament voted to force large multinational corporations registered in Europe to reveal how much tax they pay, how many people they employ and what profits they make in every country where they work.
The transparency measure – known as public country-by-country reporting (or public CBCR) – was first proposed by the Tax Justice Network in 2003 and has gained prominence in recent years following international tax scandals including the Panama Papers.
MEPs approved the introduction of the measure by 534 votes to 98 votes and also mandated that the information should be published by corporations as open data to allow anyone to freely use, modify and share it.
Calls for action on this issue had come from campaigners including the Tax Justice Network, Tax Justice UK and Transparency International and were echoed by politicians from Labour leader Jeremy Corbyn and a cross-party selection of UK MPs to the European Commission’s Taxation and Customs Union. Some large companies and investors also spoke out in favour. 78% of British voters would be in favour of public CBCR for multinationals present in UK, according to a 2017 YouGov poll conducted for Oxfam. Oxfam called on the UK government to enforce comprehensive public CBCR for UK companies by the end of 2019.
But, ahead of the European parliamentary elections due next week, little progress has been made towards introducing public CBCR across the continent, with legislation being blocked by members of the EU Council. So what will it take for public CBCR to become law?
The European Union already requires companies in the extractive, logging and banking sectors to publish public CBCR information on a regular basis, albeit not as open data. These measures were introduced following the 2007/08 financial crash and in line with the Extractive Industries Transparency Initiative.
Using this information, researchers have revealed the extent to which the top 20 EU banks are using tax havens and also to show how CBCR requirements have forced some banks to change their behaviour. But academics have also shown how better data is needed and efforts to understand the data have been hampered by the need to extract, structure and clean it from tables or text in companies’ annual reports.
Since MEPs voted in 2017, the case for the EU to act to introduce public CBCR across more sectors and industries has only grown stronger. The final report of the European Parliament’s Panama Papers committee adopted in December 2017 called for “ambitious public country-by-country reporting in order to enhance tax transparency and the public scrutiny of multinational enterprises” noting that public CBCR is “one of the key measures for achieving greater transparency in relation to companies’ tax information for all citizens”.
Investors and those promoting business sustainability have recognised the importance of understanding more about corporations’ tax affairs as well as structuring this information in more of a standardised way. Some businesses have even gone so far as to publish their own CBCR reports ahead of legislation coming into force.
In February 2017, as part of our Open Data for Tax Justice project, the Open Knowledge Foundation published a white paper which examined the prospects for creating a global database on the tax contributions and economic activities of multinationals as measured by public CBCR.
This found that such a public database was possible and that a pilot could be created by bringing together the best existing source of public CBCR information – disclosures made by European Union banking institutions in line with the Capital Requirements Directive IV (CRD IV) passed in 2013. In July 2017, we took steps towards the creation of this pilot.
As European parliamentary candidates enter the final stretch of campaigning, we urge those elected to return to Brussels in July to arrive with a renewed sense of urgency in this area and to focus efforts on making sure public CBCR becomes law before the public’s trust is rocked by yet another international tax scandal.