Policy recommendations

25-11-2010 A coalition on Country-By-Country reporting between Greens and ALDE?

Tax evasion is a large threat to development, because Multinational Corporations (MNCs) are not adequately paying their taxes, which local governments could use to enhance developent. A solution for this problem would be the introduction of Country by Country (CBC) reporting, which would oblige EU listed companies to disclose their financial reports. This would make tax evasion more difficult. MEPs of both the Greens (Pascal Canfin, Sven Giegold, Eva Joly, and Philippe Lamberts) and ALDE (Sharon Bowles and Louis Michel) asked questions about CBC.

According to the Greens, CBC reports should include a list of all the counties in which a company is active, a list of all their subsidiaries, and a full profit-and-loss account. This should include taxes paid. CBC becomes especially important when recourses are being traded, because of the `resource curse´. Moreover it would be beneficial for many different groups, like employees, governments, and suppliers of capital, as they would then be able to keep the companies accountable. CBC must be part of the International Financial Reporting Standards which are set by the International Accounting Standards Board (IASB). The Greens ask the European Commission if they agree with this analysis, and how they will proceed on this topic.

The ALDE group focuses on the Dodd-Frank Wall Street reform and Consumer Protection Act, which has recently been introduced in the United States (US). Companies enlisted in the US now have to disclose information like earnings and payments, especially in the extractive industries. The ALDE MEPs ask the Commission if they are going to amend the Transparency Directive to include CBC and if they are going to propose it to the IASB. According to ALDE the Commission should have reacted earlier to the economic crisis, by introducing CBC.

Fair Politics welcomes the attention for CBC reporting, since a new policy case study on Fair Taxes will be launched soon. The implementation of CBC reports will make it more difficult for MNCs to evade taxes, because of transparency regulations under CBC. Currently, local governments in developing countries are missing out on billions of tax revenue. To put the loss into perspective, it is estimated that each year up to ten times more money leaves developing countries illegally, than is received by overseas aid. The European Union must act in order to make development work.

For their concerns raised on CBC reporting, MEPs Pascal Canfin, Sven Giegold, Eva Joly, and Philippe Lamberts of the Greens, and Sharon Bowles and Louis Michel of the ALDE group are recognised as Fair Politicians. Both parties each earn a point in our monitoring system. 

Parliamentary questions
O-0161/2010
13 October 2010
QUESTION FOR ORAL ANSWER, by Pascal Canfin (Greens/EFA), Sven Giegold (Greens/EFA), Eva Joly (Greens/EFA), Philippe Lamberts (Greens/EFA)

Subject: Country-by-country reporting

Behind the growing calls for country-by-country reporting is a simple request that multinational corporations do three things: 1) list all countries in which they have operations, 2) list the names of their subsidiaries in all the countries in which they operate, and 3) publish a full profit-and-loss account, including an analysis of tax paid and additional limited cash flow and balance sheet data for each and every jurisdiction in which they operate.
This is accounting for the stewardship of resources, in other words the form of accounting that has largely been lost from the reports prepared using the International Financial Reporting Standards. This form of reporting is vital if the worlds resources natural and human as well as financial are to be used to best effect. That is precisely why such information is needed by all financial markets: if markets are to be efficient, it is crucial for them to have this new, alternative view of what happens within multinational corporations so that those who are dependent upon their actions whether as employees, suppliers, customers, suppliers of capital, pensioners, governments, stakeholders or concerned neighbours can take the right decisions in response to those actions.
Accordingly, it is essential that country-by-country reporting be made part of the International Financial Reporting Standards as promoted by the International Accounting Standards Board; it could be included in International Financial Reporting Standard 8 on segment reporting, which is due to be reviewed by the European Financial Reporting Advisory Group (EFRAG) next year, or required within the European Union alone if such disclosure were imposed by the Seventh Directive on Consolidated Accounts.
Does the Commission agree with this analysis and the measures outlined above? What steps is it taking to advance the case for country-by-country reporting, and when might it become a mandatory disclosure requirement for the accounts of EU-based multinational corporations?

Parliamentary questions
O-0142/2010
7 October 2010
QUESTION FOR ORAL ANSWER, by Sharon Bowles (ALDE), Louis Michel(ALDE)

Subject: Country-by-country reporting for the EU-listed companies

In the USA, the Dodd-Frank Wall Street reform and Consumer Protection Act, has recently reformed thoroughly the rules governing the provision of financial services. These include requiring companies listed on the NYSE to publish certain information. For example, oil, gas and mining companies registered at the Securities and Exchange Commission (SEC) must publicly disclose their earnings as well as their payments. This disclosure will discourage the corruption and illicit flows of capital which have brought profound poverty and conflict to many resource-rich countries. Within the European Union, an amendment to the Transparency Directive (2004/109/EC(1)) requiring country-by-country reporting could have extended this measure to those companies quoted on European stock exchanges.
The Commission Communication of 21 April 2010 noted the increasing interest in country-by-country reporting to help in the fight against corruption and illicit flows of capital. It subsequently committed itself, in its declaration of 22 September 2010, to evaluating the feasibility of requesting certain issuers of shares, whose securities are admitted to trading in a regulated market and which prepare consolidated accounts, to disclose in their annual financial reports key financial information regarding their activities in third countries.
What are the next concrete steps envisaged by the Commission? How does the Commission explain the delay in legislating in this area with regard to the USA? Has the Commission adequately urged the IASB to adopt country-by-country reporting standards?
Furthermore, the Dodd-Frank Act will require companies whose products contain cassiterite (tin ore), coltan, wolframite or gold to disclose to the Securities and Exchange Commission (SEC) whether they are sourcing these minerals from the Democratic Republic of Congo (DRC) or adjoining countries. Companies will have to detail the measures they have taken to avoid sourcing these minerals from DRC armed groups, which are guilty of massacres and other atrocities. The bill also requires that all information disclosed be independently audited. Although Europe has taken the lead since 2008 in coordinating an international task force to stop the Congolese conflict being funded through the illegal exploitation of mineral resources, it has not yet introduced similar legislation.
Why did the Commission not get involved in this way just after the crisis? What measures will the Commission take to regain the initiative in this crucial area? What concrete form will these measures take?
(1) OJ L 390, 31.12.2004, p. 38.