Following a consultation earlier this year, the European Commission will give recommendations on country-by-country financial disclosures by September and is likely to publish a working document in June, proposing further steps to improve financial transparency by companies.
This initiative follows action by the European Parliament on this issue and the July 2010 Dodd-Frank financial reform bill, which has now passed into United States law.
The Dodd-Frank Bill included a provision obliging US-listed companies engaged in oil, gas or mineral extraction to report how much they pay to governments in an annual report to the Securities and Exchange Commission. The reforms will help combat corruption, but a more ambitious proposal from the EU could also help to combat tax avoidance and evasion.
Almost half of the population of sub-Saharan Africa live in oil, gas or hard mineral resource rich countries.
Yet in Zambia the copper exploitation tax payments contribute only up to 4% of total tax revenues, while 50% of copper exports are going “on paper” to Switzerland.
Only one out of the twelve foreign companies exploiting copper is paying tax on its corporate profits.
Last year’s African Economic Outlook report highlighted the problems of ‘tax evasion and fraud, including the mis-use of transfer pricing techniques, the difficulty of taxing extractive industries and overuse of tax preferences’. All of which could be combated using country-by-country disclosures.
It is important that the Commission’s conclusions consider the potential for country-by-country disclosures to contribute to the fight against tax avoidance and evasion.
Rather than emulating the US, the EU should be ready to go beyond disclosure of payments to governments, to include a further breakdown of taxes paid by type, and financial information such as profits, sales, assets and staffing.
ActionAid is working with Eurodad and Publish What You Pay to push for this, in Brussels and European capitals.
