Why is Germany siding with the tax havens against corporate transparency?

Germany’s supposedly left-wing new finance minister, the Social Democratic Party’s Olaf Scholz, is in the process of sabotaging European efforts to make companies be more transparent about their financial affairs. Specifically, he has just indicated that he favours a procedural approach to Country-by-country reporting (CbCR, see below) that could be subject to veto by companies and by tax havens. As Scholz said:

 “We need to create an efficient system, but one that is accepted by the companies and the countries that we need to have on board. We need to take a very cautious approach.”

Scholz seems to favour an old European procedural trick: to move the agenda and discussions for CbCR away from accounting forums, where it would be subjected to majority voting, to the tax forum, where it would require unanimous approval.  With unanimous voting required, Luxembourg, Malta or Cyprus or any other corporate tax haven can shoot the whole thing down, while the Social Democratic Party (SPD) and Germany can continue playing the indecisive role. That seems to be Scholz’ plan.

What is country-by-country reporting?
Public CbCR is a tax transparency tool to provide the public with a global picture of the activities, structures and taxes that multinational enterprises pay on their corporate income. If implemented correctly, it would dramatically improve corporate transparency, reveal how much money multinationals are parking in tax havens, and help ensure that corporations pay tax where it is due.

Which raises a big question. Why would any responsible politician or country want to give tax havens a veto over measures to improve transparency and tackle tax haven activity?  (Imagine if people fighting against colonialism had been told by their leaders that they wanted to continue fighting for independence, but they would grant the colonial powers a veto over any decisions to do so.) Most of recent achievements in the area of transparency have not been the result of unanimity and consensus, but of public outrage after huge scandals of tax evasion and avoidance, corruption and money laundering. Automatic exchange of banking information, for instance, started out as a unilateral measure by the United States. They never asked Switzerland if it would accept its actions.

Background

Public CbCR in Europe gained momentum in 2016 when the European Commission published legislative proposals to this effect, and by July last year the European Parliament had adopted it with its amendments. But the proposal got bogged down, with some countries playing delaying tactics, and others sitting on the fence, waiting for someone – in effect, Germany – to take a lead. Germany took its time, following delays caused by coalition negotiations inside the country, and at the last relevant European Council meeting in June 2018, the German government said it would need more time to define its position.

Under the previous German government, the nominally left-wing SPD had been able to hide it pro-corporate sympathies by claiming that it was Finance Minister Wolfgang Schäuble, from the right-wing ruling Christian Democratic Union of Germany (CDU), who was blocking progress.  That excuse is now gone – and Scholz has now made his and Germany’s position clear. He has acted like the Roman emperor giving the thumb-down to the defeated gladiator. Scholz backs corporate financial secrecy, and by implication higher inequality and corporate skulduggery across Europe.

Various civil society organisations tried in recent weeks to meet with Scholz, including the Tax Justice Network and members of the German Netzwerk Steuergerechtigkeit, part of the Global Alliance for Tax Justice, to discuss his position. Scholz refused to meet any of us. However, you can see below how Ernest Urtasun from the Greens asked Scholz for his position on public CbCR, and reminded him that German Social Democrats had included it in their electoral programme. This was Scholz’s devious response:

What he said, in full, is:

CbCR: “it works when everyone is aboard, that applies to countries but it also applies to companies. A situation where we have no reports, that is no progress either, so we do have to find a solution which works in reality. If we were to destroy the basis for receiving the info that we need then we haven’t won anything. So we have to be very cautious in our approach, we need to create an efficient system but one that is accepted by the countries and the companies we need on board. I would state very clearly what we need to take a cautious approach.”

Scholz seems to have forgotten one small thing: law enforcement is not about getting criminals and thieves to agree to be subject to the law, but to abide by it, or face punishment.

Why is Scholz listening carefully to the tax havens, but refusing to meet with civil society groups? We suspect, among other things, the baleful influence of the big four accountancy firms.

For further context, here is what Alex Cobham, chief executive at the Tax Justice Network, had to say: