On Tuesday, the European Commission will present its final proposal for public country-by-country reporting, alongside its impact assessment. We know quite a lot about this proposal, given that it was leaked a few weeks back. It is based on the OECD BEPS template for country-by-country reporting, but has key differences from the rest of the recommendations. In particular:
- The CBCR report is to be made public. (BEPS recommendation is only to file with tax authorities, who can then exchange the report.)
- 3rd country (non-EU) data is to be aggregated, rather than broken down country-by-country. (BEPS recommendation is for data broken down country-by-country).
- Other smaller changes
Tons of reactions have ensued, covering every range of the positive-to-negative spectrum. Here, I will try to formulate my own thoughts on the leaked proposal, from the perspective of someone who has closely studied the evolution of country-by-country reporting and its policy processes over the past few years:
My overarching impression is that the proposal is in somewhat of a no man’s land.
I will explain what I mean below, but first I should note that the leaked EC proposal is exactly that, a proposal. And an unfinished one at that. It’s a draft. That means there is still scope for changes before the publication. In fact, the leak might be purposeful on side of policy-makers, in order to manage expectations and get a better grasp of the reactions of stakeholders, as a basis for potential changes before or after publication. The Commission may also have used the opportunity to flag a real or carefully constructed position in order to guide the direction of the policy debate going forward. (This was a tool used, for instance, by OECD policy-makers in the BEPS process).
But back to the no man’s land:
In terms of political support, we know there is backing from some EU Member States and certainly from EU institutions (EC and EP in particular) for the type of transparency proposed in the draft. However, we also know there are reservations among key EU Member States for publication of the data contained in the country-by-country report.
And we know that this proposal is directly opposed to the hard-fought OECD/G20 BEPS Action 13 consensus, agreed and endorsed by OECD members and G20 countries – many of which are EU states – just one year ago. It also sticks in the opposite direction, in terms of publicatioon, from the EU non-public country-by-country reporting Directive, which was presented just two months ago(!).
And we know the Treasury of the US, the EU’s largest trading partner and key partner in the OECD BEPS project and other international tax reform efforts, is strongly against publication of the country-by-country report.
We also know that NGOs and tax justice campaigners, are wildly unhappy with public country-by-country reporting, a priority campaign point for years, being restricted to the EU zone (they’d want to see activity broken down for countries deemed tax havens, etc.).
And we might say that developing countries would not have much use for a report that aggregates 3rd country numbers (which includes, of course, both developing countries, smaller financial centres and large economies), as it would not reveal much detail on the activities pertinent to developing countries. (Although you might also argue that developing countries care less about public CBCR than, e.g., tax administration capacity-building and other issues.)
Businesses, meanwhile, largely favour (relatively) narrower reporting requirements and certainly not public reporting, as the OECD BEPS Action 13 process and recent years’ EU-level debates have shown. So the proposal does not seem to come close to their interests either.
And I think it is fair to say that, generally, tax lawyers and other tax professionals have not been particularly positive towards public reporting.
Now, the European Commission is, of course, not in the business of legislating based on US or OECD interests, developing country interests, NGO interests, business interests nor tax lawyer claims as such. First and foremost, it is tasked with proposing legislation by and for the group of EU Member States. However, it would be wrong to assume that businesses, NGOs, developing countries, key trading partners and tax experts are considered EU rule-making.
This is, I concede, to simplify things greatly. The actors concerned with public country-by-country reporting are not inherently cut into neat categories – there are shades of grey all along the spectrum. But I it is a fair conclusion to say many of the actors involved in the country-by-country reporting debate would find the EC proposal unsatisfactory.
So is it all just a big compromise – hitting the middle ground, so to say? Maybe. Or maybe hard, perceived, material interests are not all that matter in EU rule-making. Ideas might matter too, in the tax arena. As Martin Hearson discussed recently, the power of rhetoric should not be underestimated in international tax. And neither should the expertise and networks of professionals involved in the technical policy process. Could these explain the EC public CBCR proposal? Is the European Commission on the right track in the ideational battleground of international tax transparency? Maybe. It can certainly ride along on the transparency wave, most recently boosted by the #PanamaPapers. It may work, although there’s not a strong connection between the Panama leak and CBCR. And has the EC public CBCR proposal been brokered successfully by well-connected and knowledge experts? Maybe, but my impression is “probably not”. The EC usually do their groundwork well, but this time it doesn’t seem to align with the BEPS Action 13 consensus, which I would argue was successfully negotiated in the technical community.
So, can a proposal seemingly in such a political no man’s land succeed? Or could the analysis above be wrong on key points, and the proposal will smoothly sail to implementation? The proposal is still to be formally presented, negotiated, amended, agreed, enacted and implemented, so there is a long way to go. I am looking particularly forward to following its route.