BY HARALD SCHUMANN
When newspapers and television stations report on EU legislation, it is usually about debates in the European Parliament or the summits of Heads of State and Government. Sometimes the media also mention that the responsible ministers from the EU Member States must somehow reach an agreement before a draft law can become EU-wide law.
But mostly citizens never find out exactly who are the people negotiating the paragraphs of hundreds of laws that govern all our lives every year, and who has taken which position. This ignorance is by no means accidental. The fact is that the bulk of the European Union’s legislation takes place in camera – behind closed doors.
It is not the often scolded bureaucrats of the EU Commission or the Members of the European Parliament who are to blame for this. Rather the national Governments of the 27 EU Member States are responsible (the UK rarely participates anymore). They are the ones who control the central legislative body of the EU – the Council of the European Union. There, in more than 150 committees and the ‘Council of Permanent Representatives’, officials, seconded by their national ministries, negotiate what their respective governments are prepared to make of the EU Commission’s legislative proposals. This is the central legislative process that governments systematically keep secret, to ensure citizens do not know what their governments actually do in Brussels.
Emily O’Reilly, the EU Ombudsperson, who was re-elected by the Parliament in December, found clear words for this system: “It’s almost impossible for citizens to follow the legislative discussions in the Council between national government representatives,” she said and concluded: “The practices that inhibit the scrutiny of draft EU legislation undermine citizens’ right to hold their elected representatives to account.” In other words, EU legislators are constantly breaking a central democratic principle, the transparency of legislation. In so doing, they themselves generate the mistrust of many citizens towards the European Union, which is what drives voters to nationalist right-wing populists.
Secrecy also makes the Council particularly vulnerable to the influence of lobbyists. After all, even a blocking minority is enough to block or water down a bill. All it takes to block or water down legislation is to win over the Government of one of the large Member States, which in turn will then make some of the smaller EU states compliant with offers in other areas. This secret lobbying power has caused well over a hundred important reforms to fail over the past ten years, such as the introduction of a turnover tax on speculation with securities or the securing of rights for employees in the new digital economy, without the public even knowing about it.
That is why the Investigate Europe team will be following the Council’s proceedings closely in future and – whenever possible – reporting on which government is blocking or watering down legislative proposals, and with whom it is in league.
Why, for example, is the law on public country-by-country reporting by multinational corporations not progressing? It is intended to oblige transnational companies to report publicly on how much revenue they generate and how much tax they pay in which country? If this were to happen, all the tricks they use to avoid taxes would automatically become transparent, and policymakers would have to do much more. That would simply be sensible, yet the law has been stuck in Council for almost four years. It is common knowledge that the German Government is leading the blockade, but which governments are helping out? Our colleague Paulo Pena looked into this question and came up with some surprising answers, which you can read for yourself below…
BY PAULO PENA
January 15th, 2020
Country-by-country reporting (CBCR) is a tax transparency tool that aims to force transnational companies to report publicly on how much revenue they generate and how much tax they pay in each country. This would allow EU Member States to know the tax avoidance plans of big companies such as Amazon, Google and Facebook.
The European Commission approved the CBCR in 2016, followed by the European Parliament in 2017, but progress stopped at Council level when several states blocked its approval. The CBCR directive has now been waiting over two years to progress within the European Council’s opaque decision-making process.
Since 2017, the Portuguese Government has not made a decision on whether or not to approve this law to reveal the tax status of large multinational companies with operations in Europe. When Investigate Europe started to ask questions (see The Secrets of the Council), Portugal – one of the opponents to the CBCR being approved via a quick majority vote – a web of secrecy was revealed, leading finally to the Portuguese Government changing its voting position on tax transparency.
Among the Member States blocking the decision are some of the best known “tax havens” in Europe: Malta, Cyprus, Ireland, and Luxembourg. Portugal is also on this list but without a proper explanation. In a short written statement sent in response to questions from Investigate Europe in November 2019, the Ministry of Foreign Affairs stated: “in the context of this discussion, Portugal has taken a stance of attentive observation of the arguments of member states and the Commission, and there has been no position taken so far, nor any matter to which it has been opposed.”
This ‘attentive observation’ had been going on for over two years. But despite this, in October 2019 the Portuguese Government told the Assembleia da República (Assembly of the Republic): “The increasing sophistication and globalisation of tax evasion and avoidance mechanisms make greater European and international cooperation indispensable.”
What’s more, the Portuguese Government has promised parliamentarians “to fight for greater tax justice on a European scale, combating the erosion of tax bases between different states, tax evasion and unfair competition.” So that there was no doubt, it announced that it would “propose, in the European institutions, concerted action at the tax level to reduce the perverse effects of tax competition between Member States.”
Ana Gomes, a Portuguese former Socialist MEP, recalled, in an interview with Investigate Europe, the Portuguese Socialist’s favourable vote on this issue in the European Parliament. “It’s unbelievable that Portugal is boycotting this directive. I have no explanation,” she said. For Ana Gomes, there is a “total contradiction between what was said in the government’s programme and the country’s position in the Council. Either there’s total political insensitivity, or it’s worse… This shows how a fundamental political issue is dealt with by leaving the worst powers to decide.”
The criticism does not stop there. Evelyn Regner, the Austrian member of the Group of the Progressive Alliance of Socialists and Democrats in the European Parliament, is clear: “The Council’s silence on the CBCR directive is deafening. After two years and ambitious reforms adopted by the European Parliament last year, the EU’s Finance Ministers did no more than interrupt the negotiations. It is unacceptable that, following the LuxLeaks, Panama and Paradise Papers cases, some Member States should continue to protect the interests of large multinationals that are evading taxes.’
The puzzle becomes even bigger when, according to reports by Sven Giegold, the prominent German Green Party MEP, Portugal seems to advocate unanimous approval of the CBCR directive in the Council. Unanimous approval is an unrealistic goal, given the well-known position of countries such as Ireland and Luxembourg, which make tax dumping (the practice of competition between member states that gives corporations unreasonable low tax agreements) a strategy to attract multinationals. Because of this, it was more realistic to seek a qualified majority. Sources who followed the debate in the Council, told Investigate Europe that the ‘legalistic’ position taken by Portugal is “just a nice way to prevent the approval of this directive without saying that the country is against it.”
It is a situation that Sven Giegold regrets. In a statement to Investigate Europe, Giegold accused Portugal of “protecting tax evaders.” “With its legal concerns, the Portuguese Government is protecting tax evaders,” he stated. “The concerns expressed about the legal basis are in fact killing the Commission proposal. The unanimity of EU Member States for public tax transparency for large companies will never be achieved and is not necessary. For banks, the EU has already introduced public tax transparency on a country-by-country basis under the majority voting procedure. This transparency has been working for years and has not given rise to any legal problems.”
A very similar mechanism for sharing tax information between countries does indeed already exist for banks and was not unanimously approved in the Council. Parliament has already provided the Council with all the information explaining this legal argument.
Secrets of the Council
Portugal’s political alignment is not justified by an ideological division. While the CBCR directive is defended by the European Socialists, the Greens, and the Left Group, it is also backed by the Vice-President of the Commission, the Danish Liberal Margrethe Vestager, and the Latvian Conservative Vice-President Valdis Dombrovskis. Parliament approved a joint vote on 24 October 2019 by all parliamentary groups, with the exception of the far-right ID, to call on the Council to speed up approval of the directive.
The European Council meetings, where Portugal takes its position, are a well-guarded secret. All the public may know is that it was held on Friday 22 November, 2019, the subject was included under item 6 on the agenda of the meeting of a High-Level Working Group on Taxation, which took place in Brussels in the Justus Lipsius building. Who is in this group? What positions do the countries defend? None of this is made public by the European Union.
This is just one of 150 groups that the Council of the European Union has in place – which makes it the most opaque European legislator, creating decisive rules by anonymous authors, and without any recorded debate.
This accusation was made official by EU Ombudsperson Emily O’Reilly in February 2018: “Public disclosure of Member States’ positions in a timely and accessible manner can help reduce the alienation of citizens from the EU institutions. It can also help clarify that decisions on legislation taken at EU level are ultimately taken by elected representatives and not by so-called faceless bureaucrats.” That is why O’Reilly proposed, in an official report, that “the Council should: systematically record the identities of Member States expressing positions in preparatory bodies.’
Portugal does not seem to share the Ombudsperson’s concerns. Portugal’s Permanent Representation to the European Union (REPER) does not publish who represents Portugal in the meetings about the CBCR directive. We asked, but got no answer.
In Portugal, in this strange case of the blocking of the CBCR directive, it is not known who decides the country’s position – is it a minister? Is it a REPER diplomat? It is not known who decides Portugal’s position, why it is done, and for what purpose.
Portugal changes its tune
When Investigate Europe began to question Portugal’s stance on the CBCR, there was a change in policy. The legal doubts, which led the country to be part of a ‘blocking minority’ in the group of permanent representatives in the Council were overcome. At the last meeting of this group, on Friday 22 November 2019, Portugal voted alongside the countries that defend the directive, or that allow it to be considered and voted on as an ‘internal matter’ – that is, without the obligation to approve it unanimously.
It was a significant change – firstly because Portugal had argued, until that date, for unanimity due to it it being a tax matter. The change allowed the CBCR law to leave its place in limbo and be voted on by the Council of Economic Ministers.
This is one of the reasons that led Portuguese MP Mariana Mortágua (BE) to call for an “urgent hearing” of the government on this matter. Not only because Portugal was not among the advocates of the ‘political’ content of the directive, but also because the ‘method’ of decision-making in Brussels is ‘opaque’.
“To the question of principle there is also a problem of method, since this whole process of (not) taking a position by the Portuguese Government and aligning with the arguments of the countries opposing the directive has occurred in an opaque manner,” MP Mortágua stated: “Since 2017, when the initiative was approved by the European Parliament, the government has not provided any information on this matter or on its position in the negotiations to the Portuguese Parliament or to the citizens. On 22 November 2019, the issue was included on the agenda of a meeting of a Council working group on taxes, without knowing in Portugal who the representatives of the Portuguese government are and what position they defended in the negotiations. This method of acting at European level, guided by opacity, cannot be tolerated in any situation.”
Following Investigate Europe’s questions and the MP’s criticism, the matter was conducted by the Minister of Economy, Siza Vieira. The official guarantee now is that Portugal votes in favour of the CBCR directive. “Portugal supports,” stated Pedro Siza Vieira, Minister of State and Economy of the Portuguese Government, at a meeting of the EU’s Competitiveness Council (COMPET), which brings together the Ministers of Economy of the European Union Member States. Referring to the need for “transparency”, Siza Vieira gave the green light for the next, decisive step of negotiations with Parliament on the final text of the CBCR directive.
With the change in Portugal’s position, which now accepts that decision-making should be by qualified majority the ‘blocking minority no longer exists. The result, however, has not yet been approved by the Council. The Finnish Presidency of the EU considered that it has not been possible to reach a general approach. At the last Competitiveness Council (COMPET) meeting on the 28 and 29 November 2019, not all member states announced how they would vote.
Among those who publicly expressed their position, the votes in favour came from Spain, Denmark, Italy, the Netherlands, Romania, Belgium, France, Portugal, Greece, Lithuania, Slovakia, Poland and Bulgaria. In the opposite direction, Luxembourg, Latvia, Slovenia, Ireland, Estonia, Austria, Sweden, the Czech Republic, Hungary, Malta and Croatia voted against. Germany abstained and the United Kingdom did not participate in the vote.
The future of the CBCR directive, and of corporate tax transparency, is now to be decided by the Croatian Presidency.
* What the CBCR directive means for corporations
- The CBCR law will apply to any multinational company – European or otherwise – which currently operates in the EU single market, has a permanent presence in the EU or has overall revenues exceeding EUR 750 billion per year.
- These corporations will be required to report, country by country, where they make their profits and where they pay their taxes in the EU.
- Multinational corporations will also have to disclose the amount of tax they pay on their activities outside the EU. For tax jurisdictions that do not respect good tax governance rules (so-called tax havens), this information will have to be disclosed across all the component parts of a company.