special report - European Voice

COMMENT
30 May 2013
9
On the wrong side of transparency
REUTERS
Carl Dolan explains why companies should not fear new
EU transparency rules
The robust response of
Apple’s chief executive,
Tim Cook, to a US
Congressional hearing last
week that investigated the
tech giant’s use of a complex network
of offshore vehicles to minimise its tax
bill, was: “We pay all the taxes we owe,
every single dollar. We not only comply
with the laws, but we comply with the
spirit of the laws”.
This is, of course, exactly as it should
be. For some reason, however, Apple is
very shy of sharing the good news more
widely. A Transparency International
report published last year showed that
it disclosed precisely nothing about the
corporate income tax it paid in the
various countries that it operates. It
was ranked 91 out of the 105 global
companies that were assessed on their
disclosure practices. Apple may be near
the bottom of the transparency class,
but in terms of publicising the
information about where it pays its
taxes it is merely average. Of the 105
companies we surveyed, 85 revealed
nothing to the wider public about the
corporate income tax they pay to
governments around the world.
Given this state of affairs and the
drip-feed of revelations about the
aggressive tax-avoidance strategies
used by multinational corporations
over the past few years, it should come
as no surprise to Cook that politicians
are unwilling to take statements about
good corporate citizenship on trust. At
last week’s summit on tax evasion,
European Union leaders backed an
initiative that would require the largest
European companies to disclose
detailed information about taxes paid
and other financial information for
every country where they operate – a
mandatory ‘country-by-country’
reporting standard.
Such a standard has long been
advocated by those who believe that a
step-change is required in corporate
transparency. It is now a reality for the
oil, gas, mining and banking sectors,
following hard-fought legislative
campaigns in Brussels over the past
two years. If those campaigns are
anything to go by, we should expect
EU bashing and olive oil
Alberto Alemanno considers
a tale of Euroscepticism,
political opportunism and
a European Commission
‘own goal’
In the aftermath of the last
European Union summit, one of
the many provisions proposed by
the European Commission within
the framework of its action plan
for the olive-oil sector unexpectedly
gained global attention.
The provision, which had already won
member states’ backing, would have
required that restaurants serve olive oil in
sealed, clearly labelled and non-reusable
containers, instead of relying on refillable
containers. The UK’s prime minister,
echoed by his Dutch counterpart, publicly
attacked the Commission’s adopted
proposal by dismissing it as “exactly the
sort of area that the European Union
needs to get right out of”. While Dacian
Ciolos˛, the European commissioner for
agriculture, initially defended the
proposal as a way to promote quality olive
oil and to protect consumers from fraud,
he rapidly withdrew the measure,
declaring that the ban was “not
formulated in such a way as to assemble
widespread support”.
The tale of the proposal captures many
of the misperceptions surrounding the
EU’s work, but also reveals how a rule
that has the member states’ blessing can
be overturned by a minority.
First, it illustrates the lack of
understanding of the scope of the
regulatory authority granted to the EU.
While the Commission proposes around
60-70 legislative acts, it adopts – together
with the member states – around 2,000
measures implementing previously
agreed legislation every year. The olive-oil
proposal fell into the latter category.
Second, it confirms politicians’
tendency to fuel misinterpretations of the
EU to suit their immediate political
calculus. In particular, it shows how easy
it is to turn the public against the EU by
depicting a rule supposedly aimed at
consumer protection as the umpteenth
attempt to over-regulate EU citizens’
lives. As such, it illustrates once more the
cynicism of leaders who blame the Union
for systematically over-reaching the
loud cries of protest from the business
community, pointing to the mounting
pile of red tape, the costs of compliance
and the unnecessary intrusiveness of
the new rules.
This would be short-sighted and
wrong. Assuming that most chief
executives share Cook’s view of their
firm’s compliance on tax matters, they
have nothing to fear from a more
informed debate about corporate tax
policy. Companies collect all this data
in any case for accounting purposes, so
the cost of putting it all together for
public disclosure will not be
significant. More importantly,
companies have the opportunity to
press ‘re-set’ on their relations with
governments, investors and the wider
public, by embracing a new standard of
transparency.
These relations have been soured
lately by the perception – perhaps
unjustified – that companies have not
been shouldering their fair share of the
recessionary burden. While highly
profitable enterprises continue to
stockpile cash reserves – as much as
$1.8 trillion (€1.4 trillion) by US
corporations alone – there is growing
frustration that the benefits have not
been felt more widely, in the form of a
exercises of the very same regulatory
powers that they have entrusted to the
EU.
Hence, the trivial, yet frequent, claim
that the EU, at times of economic
difficulties, had better things to do than
regulating bottles of olive oil carries
limited credibility. Denying multi-tasking
ability to a political system is like
suggesting that when one of us breaks a
leg she should not breathe anymore.
More remarkably, this story teaches us
that even once a rule has gained the
majority support of member states (even
though not a qualified majority vote) and
has been adopted, it is still possible to get
it withdrawn if political leaders of the
countries that were left in minority are
capable of spinning that story as the latest
EU attempt at ‘regulating everything’.
The most pernicious effects of this
approach are made possible by
widespread ignorance and a profound
lack of understanding of the EU’s basic
functioning. Attacked by the disease of
Euroscepticism generated by a few
political leaders, public opinion behaves
like a human body whose immunity
system is deficient. By not having the
right antibodies, public opinion does not
react to the disease, allows it to gain
ground, and even accelerates its spread.
It is the task of the Commission, as the
holder of the monopoly of legislative
higher tax-take, increased investment,
or dividends to shareholders. It is
no wonder that a Eurobarometer
survey published this year reported
that 41% of European citizens felt that
the overall impact of business on
society was negative. More tellingly,
two-thirds of citizens did not feel
informed about company efforts to
behave responsibly.
EU companies have lost the trust of
their heartlands. In aspiring to be
global players they have forgotten that
accountability structures are still
primarily national or regional.
Regaining trust can start with firms
disclosing detailed information about
their local impacts – not just taxes
paid, but also capital investments,
community contributions and
donations to political parties. Only
then will citizens have a more complete
picture of the contribution that a
company makes to society.
It is an agenda that companies
should be happy to embrace, rather
than once again positioning themselves
on the wrong side of a new tide of
transparency.
Carl Dolan is a senior policy officer at
Transparency International EU.
initiative, to promote the development
of the right antibodies against this
manipulation of public opinion.
To do so, the Commission should
systematically engage in EU-wide
stakeholder consultations while
assessing the impact of its proposed
rules.
Unfortunately, in this case there was
no impact assessment of the contested
provision. As Ciolos˛ conceded, the
Commission therefore could not
effectively illustrate the merits nor prove
the possible effects of the rule. What is
more, he could not claim to have
consulted with all relevant stakeholders.
This explains why the Commission,
which proposed the rule and mobilised a
majority of member states in support of
this measure, eventually did not stand
by its own proposal.
Only a highly formalised, evidencebased
and participatory decisionmaking
process could provide the right
antibody against politically driven
Euroscepticism. At a time of growing
disaffection with the EU, this should be
the lesson learned for the Commission
from the olive-oil tale.
Alberto Alemanno is a Jean Monnet professor
of EU law and risk regulation and director of
the HEC-NYU EU Regulatory Policy Clinical
Programme.