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EU Transparency Proposal Threatened by Imaginary Laws

March 22, 2012

By Alex Marriage

Alex Marriage is an Advocacy and Outreach Assistant at the European Network on Debt and Development (Eurodad) in Brussels.

EU Country-by-country reporting rules are now being discussed by member states and the European parliament. But one of the clearest flaws in the European Commission’s (EC) proposal to increase corporate and government accountability has been ignored. Namely, the EC has included an exemption meaning companies would not have to disclose payments in countries where criminal law prohibits such disclosure. Effectively this poses the question “Should the law apply in places where it is most needed, where governments are determined to pass laws to hide their own wrongdoing?”

However no one has been able to produce evidence that any country in the world has a secrecy  law  that applies to the type of information that would be covered by the EU country-by-country proposal. Opponents of transparency have given examples like Angola, but this is spurious as although there is a confidentiality clause for oil contracts it does not apply where regulators from the country where a foreign company is from demand disclosure. Revenue Watch Institute and Columbia University School of Law studied 140 resource contracts and found in all cases that companies disclosed all information required by regulators in their home country. So the EU’s transparency bill is being knocked off course not by secrecy laws but by imaginary laws. If such secrecy laws don’t exist the EU should not be encouraging countries to create them. Governments can easily be tempted to act quickly to make legal changes. For instance, elements in the South African Government moved to neuter the police anti-corruption unit when it started to unearth high level corruption.

In 2010 USA introduced country-by-country reporting of payments to governments in the extractive sector as part of the Dodd-Frank stock market regulations, introduced after the financial crisis. The US Agency for International Development (USAID) hit the nail on the head when successfully arguing for the removal of exemptions for countries with laws criminalizing disclosure of facts about resource deals,

“If such exemptions are granted, the intent of [Dodd-Frank] will then be easily thwarted by every opaque government seeking to hide some or all of its revenue streams.’

Various influential voices have been arguing that the European Commission’s (EC) proposal for country-by-country reporting of payments to governments by extractive and forestry companies should apply to more sectors and other types of information. These suggestions are welcome because such measures would hold corporations accountable and help identify tax dodgers.

European employee and employer representatives call for more sectors to be covered

The European Economic and Social Committee (EESC) which brings together employers, employees and other interest groups voted to broaden the country-by-country reporting proposal to other sectors beyond extractives and forestry. The EESC argue this law should apply country-by-country and project-by-project reporting to all public-private partnerships or government concessions granted to private companies in areas such a telecommunications, transport, gambling and energy. The EESC also recommend that this directive is backed up with meaningful sanctions for non-compliance.

MEPs’ proposals would help against tax dodging

Before the EC made its proposal the Euopean Parliament voted through a declaration calling for full country-by-country reporting for all sectors. The Members of the European Parliament (MEPs), leading on this issue in the Economic and Monetary Affairs (ECON) Committee have come up with suggestions to strengthen the EC proposal.

Sirpa Pietikäinen MEP who has long been instrumental in promoting strong country-by-country reporting standards has produced an opinion calling for broader disclosures such as profit before tax and staff levels for all publically traded companies. This would help tax administrations to calculate the right amount of taxes and to tackle tax dodging.

Wolf Klinz MEP recommended country-by-country reporting for all sectors where companies have joint ventures and in countries where companies operate but do not have a legal presence such as a registered company. Mr Klinz’s addition would help investors to spot risk and governments or NGOs to detect tax dodging. However, to work out whether a company is paying its fair share of taxes it is important to have a country-by-country breakdown even where companies have a clear legal presence or wholly owned subsidiary. Currently extractive companies and other businesses avoid this question by reporting on a regional or global level.
You can increase the pressure for strong country-by-country reporting standards on either side of the Atlantic by sending these letters and petitions.

Take action!

EU Citizens Consult Eurodad’s lobby pack on country-by-country reporting for further information and template lobby letters

Sign One’s petition the Trillion Dollar Scandal aimed at EU leaders and Tearfund’s petition Unearth the Truth aimed at your local MEPs

US Citizens sign Oxfam USA’s petition Tell oil companies to stop fighting transparency rules

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Disclaimer: Unless specifically stated to be the views of the Financial Transparency Coalition, the opinions expressed on this blog are solely the opinions of the individual blogger and are not necessarily those of the Financial Transparency Coalition.

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