1606 Why the EU Transparency Directive does not do (Tax) Justice to Africa

tl_files/aefjn-images/im_epas/im_csr/DSCN0244.JPGEvery year Africa loses a great amount of income through tax avoidance and illicit money outflows. Tax justice could ensure that Africa retains the economic value that is created on the continent, increase the resource base of African governments, allowing for more investments in education and infrastructure as well to process natural resources at home. In other words, these large amounts of revenue, if properly registered and fairly taxed, could enable the development of Africa and diminish the dependence of certain regions to donor countries.copyright euobserver


The issue of tax avoidance and evasion is increasingly gaining attention on a global scale, due to the strengthening of the international trade networks and also due to some of the recent tax scandal leaks, such as the Lux Leaks, the Swiss Leaks and the Panama papers. On the European front, politicians have become more aware of the severity of the problem and the amount of money that developing countries, as well as Europe itself are losing out due to lack of a strong international tax regime. In their plenary session of July 2015 the EU Parliament advocated for such a tax scheme because of its potential to put an end to tax havens and help developing countries.  On April 2016 the European Commission adopted a proposal for a Directive that would require large, EU or non-EU, multinational companies that are currently active in the EU’s single market, with a turnover of EUR 750 million or more, to disclose its economic activities and tax information publicly, on a country-by-country basis. Essentially a multinational with activities in EU’s single market would have to disclose information about the nature of its activities, number of employees, turnover, tax information and accumulated earnings. They would have to provide this information for every EU country in which they operate as well as the-agreed-upon list of tax havens. For other operations of tax jurisdictions in the rest of the world, aggregated figures will have to be provided.


Now, while this proposal is indeed a step forward to more transparency for companies, it still contains a number of loopholes that could be exploited by companies and it certainly leaves us high and dry when it comes to the development and independence of Africa. This is mainly due to three reasons.


Firstly, companies will not be required to publicly disclose a global country by country report, which would contain all information on their activities worldwide, including developing countries. This is already an odd start to a scheme that MEPs called for to benefit exactly those countries. Or as Tove Maria Rydingn, tax justice coordinator at the European Network on Debt and Development, formulates: “As long as the proposal doesn’t cover all countries, multinational corporations will still have plenty of opportunities to hide their profits. So instead of solving the problem, this proposal would be moving the problem from one country to another, with multinationals still able to avoid taxes.” 


Secondly, the EU will prepare a list of all the countries that are considered “tax havens”. That list will reportedly be ready in the next 6 months. However, since there is no clear definition of what a tax haven is, the defining itself is likely to become a political game. Moreover, in the past the EU has been criticized for its “tax haven” list that excluded countries like the US and Switzerland.


The third and last concern is debatable to a certain extent, as it is in regards to the minimum turnover that is expected from a large company before it has to comply. The threshold of 750 million per year has been copied from the OECD Base Erosion and Profit Shifting (BEPS) project to combat tax optimisation, with the reasoning that the cost for the disclosure would be too big for small and medium enterprises (SMEs). While this reasoning for SMEs certainly holds ground, it is once more, the defining of categories that remains tricky. Officially, according to the European Commission, an SME is a company with a turnover of maximum EUR 50 million , which is 15 times less than what is proposed in the scheme. This threshold is believed to target about 90 per cent of the total revenue of multinational companies. However, 85 to 90 per cent of other “smaller” multinationals will be excluded from the scheme, which often supply to these bigger MNEs. While these companies may not always have a large impact worldwide, they may certainly have a substantial regional power. Thus, targeting only the largest multinationals risks on excluding a considerable part of large companies that have an undeniable impact on certain African regions. One of those large companies, with regional power, that would be excluded from the scheme is Sipef, a Belgium oil plantation enterprise that has been criticised for its large scale land acquisitions and possible land grabbing activities.  Other examples are Socfin, a palm oil and rubber extraction company that is active in numerous African countries, and has been criticised for human rights and ecological violations more than once, or Unibra, a company that holds the licence to the Skol beer on the African continent. The two latter companies have been named for their activities of tax avoidance in the Lux Leaks of 2015. 


To conclude with the words of Tax Justice Network director of research, Alex Cobham: “Everyone understands that as soon as loopholes are created in tax, loopholes are exploited” . If it is truly the intention of the European Commission to do tax justice to Africa, then it is an absolute necessity to rethink the current Draft. Country-by-country reporting should be global, without any exceptions, the quality of disclosure should be the same for activities in Europe, in Africa or elsewhere, the list of tax havens should be thorough and complete and the threshold to comply for large companies should be lowered. At least, it would be a decent start.


Eva Demaré

AEFJN Policy Intern

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