Global Tax 50 2016: Transparency International

Transparency International is a new entry this year

A new entry for this year's Global Tax 50, Transparency International has been important in pushing European Union policymakers to increase global tax transparency by lobbying for beneficial ownership registers and public country-by-country reporting (CbCR), among other issues.

Transparency International operates through an International Secretariat in Berlin and more than 100 independent chapters across the world. Its EU office, based in Brussels, has been the main entity that has been working on tax transparency campaigns since 2014 because of the political climate and political momentum at the EU level on tax issues following scandals such as the LuxLeaks.

Although Transparency International traditionally focusses on corruption issues, tax has recently become a part of its work.

"Transparency International is a global anti-corruption and transparency movement, but over the course of the last 25 years, the political landscape and the channels and methods for corruption have also changed and evolved and so we have recently seen multiple areas of overlap between corruption and abusive tax practices," Elena Gaita, the NGO's EU policy officer for corporate transparency, told International Tax Review. "This confirms what, at global level, has been said by, for example, the World Bank president – that aggressive tax planning and aggressive tax avoidance are a form of corruption."

In the EU, Gaita said the European Commission and EU member states have been re-thinking potential measures on fighting against tax avoidance and this has been an important time for Transparency International's advocacy work.

In particular, Transparency International has been working to push for public CbCR, beneficial ownership registers in the context of the 4th Anti-Money Laundering Directive and also, recently, extending oversights of professional services, i.e. those that enable tax avoidance and evasion.

"I would say that the most interesting campaign that we have been working on is public CbCR," Gaita said. "We have been working on this over the past year and a half and we are particularly proud of that because it seemed like a mission impossible at first."

Transparency International was only one of two NGOs that was invited to a roundtable discussion with EU commissioners in the debate on public CbCR. Finally, in April 2016, an important milestone was reached when the European Commission released proposed legislation to introduce public CbCR.

Although this was a big achievement for the NGO, its work is not complete on this campaign.

"We are not 100% happy with the Commission's proposal. There are, from our perspective, several shortcomings and loopholes that we're trying to address in our work. So the work is not finished on this campaign, but already the fact that we have this opportunity is great for us and we're very proud of this campaign."

In addition, Gaita believes that although EU Competition Commissioner Margarethe Vestager's efforts to tackle unfair tax practices among EU member states and multinationals are commendable, they are not enough and public CbCR could potentially end the need for state aid cases on tax rulings.

"We commend Commissioner Vestager's efforts to tackle these sweetheart deals, but at the same time, we think that these rulings have a limited deterrent effect as the Commission is not going to be able to investigate every dubious deal and companies know this, so state aid decisions are not the right tool for countering tax avoidance. We think that what we need is an efficient ex-ante legal instrument that would require companies to be transparent about their operations, their structures, their whereabouts and their tax payments, such as public CbCR, which would allow citizens and society at large to assess the economic activities of multinationals. And I think this the only way to ensure the type of permanent transparency that would end the need for these investigations by the European Commission."

In 2017, Transparency International will be pushing for the public CbCR proposals to be passed into law. "This is going to be a top priority for 2017 for us as part of our priority to tackle financial crime and financial flows, which includes public CbCR," Gaita said.

Transparency International has also been the first organisation to potentially disprove the arguments of big corporations that public CbCR could damage competition. A report in July looked at the arguments of the main opponents of public CbCR and examined the impact on 28 companies. The main findings of the report suggested that there was no evidence of negative impacts from public CbCR on standard measures of competitiveness and the majority of companies examine maintained or improved their revenue performance during the assessment period.

"Not even the business world has come up with something like these findings," said Gaita. "Now the burden on proof is on them [opponents of public CbCR] to show how it will affect competitiveness in a negative way.

Separately, Transparency International has also been very vocal on the debate for beneficial ownership registers. It has been working on beneficial ownership in the context of the EU 4th Anti-Money Laundering for quite some time as European standards fall short of achieving full transparency over beneficial ownership. However, the Panama Papers have been a game changer and helped raising awareness and to convince many people that there is a need for such registers.

"We've closely engaged with the Commission and with the European Parliament until now on this and we think that what we have now on the table is a very promising text because it would require public disclosure of company beneficial owners and for some commercial trusts. However, the current proposal still falls short of ensuring full coverage for beneficial ownership registration of all trusts somehow connected to the EU even when managed by a non-EU resident trustee. Only by granting such extraterritorial reach to the measure, could the latter serve to address the loopholes exposed by the Panama Papers. Nevertheless, we think this is a major step forward and the adoption of these legislative measures in the EU is one of our priorities for 2017 and we will continue working on this."

In addition, Gaita pointed out that with the LuxLeaks scandal and other leaks, if measures for public CbCR and beneficial ownership registers were introduced, this would end the need for whistleblowers and there would be no need to rely on leaks.

However, the NGO doesn't plan to stop at the EU level over the coming year on its efforts for better beneficial ownership measures. It wants to address the issue of beneficial ownership at the global level and will be looking the Germany's presidency of the G20 to see if it will agree to a high-level review of beneficial ownership.