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He Tax agreement of G7 finance ministers it is a step on the road to a better global tax system. If we have gotten this far, it is because of the pressure from the citizens who have realized how broken the current system is. That’s why this week’s EU measure to force large corporations to do so publicly break down its benefits by country it is as important as the G7 agreement.
The good news is that country-by-country public reports will now be extended to all larger companies based or operating in the EU. The blog already requires it extractive companies (just like the US) and banks. This is welcome and long overdue.
The bad news is that the new rules are so full of holes as to embarrass the sieves. The € 750 million revenue threshold for reporting is too high; and companies have too much leeway to dodge rules by claiming commercial sensitivity. Worst of all, companies only have to break down profits and taxes by EU member states and a handful of listed tax havens, an invitation to regulatory arbitrage by adding profits into entities of conduct from uncovered countries.
Some lobbyists argue that it is not necessary to make public what the prosecutor knows in confidence. But as the G7 deal shows that public exposure to dubious fiscal maneuvers has created a political impetus to address it. global tax rules, the tax authorities of resources properly and take legal action against abuse.
What about the claim that greater transparency makes European companies less competitive, supposedly because they lose bargaining advantage if the disaggregated profits are publicly known? Leaving aside the unhealthy notion that corporate Europe should seek advantages by keeping its customers in the dark about how to get bad deals, there is no proof that this has happened when country-by-country public reports are already being implemented.
I find these arguments so poor that I can only conclude that they are made in bad faith. In some cases, they probably reflect the desire to persist with the dirty game. For the most part, they are simply trying to defend a deep-rooted attitude that their own business is not for anyone but the public.
But time has passed for this worldview, due to the much larger change of which this limited advance in fiscal transparency is a small part. We are experiencing a remarkable change in what democratic societies expect in terms of openness.
Corporate profits and taxes are far from the only example. Climate change is driving extraordinary pressure for companies to collect and publish data on the impact of their activities on the environment.
Until recently, this type of demand was limited to investors with special reasons to worry, such as Norway’s sovereign wealth fund, which has a mandate to invest responsibly. See invest based on climate change preparedness it has become the mainstream, with governments and the financial industry in a race over who will define the criteria for measuring this readiness. In fact, G7 finance ministers are also calling for mandatory climate-related financial disclosures.
In another example, countries are starting to report on companies human rights in its supply chain, and an EU EU rule is imminent. From wherever you look, the direction of travel is toward what was once considered private business information that was put into the public domain, often by legal force.
And how could it be otherwise? The digital revolution has made information much easier to find, share and process: just look at the public engagement with the Covid-19 pandemic data. This inevitably raises the hope that if data of social importance exist, they should not be hidden. Citizens are learning that the corporate sector treasures data about them; they will demand to know at least what companies do. And everything that can be thought of in unauthorized leaks, from the WikiLeaks and Snowden government secret repositories to a series of exposed tax haven activities, reveals the futility of thinking that most of the institutional activity can be keep out of public view.
An era is emerging in which most of what can be known will be known. Resistant institutions will prepare for this future. This means delimiting very narrow areas, such as personal privacy and genuine corporate and governmental secrets, where confidentiality is necessary while accepting, even accepting, that most information does not fall into this category. Successful companies will be those that can do their business both outdoors and in the dark.
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