German presidency’s broken promises on ‘fair tax’

After years of deadlock in the Council, there is finally a slim majority in favour of a proposal to introduce public 'Country by Country Reporting' (pCBCR) of Europe's biggest companies.

PCBCR would mean that we would know where corporations book their profits and how much tax they pay on it. It is an essential precursor to more effective corporate taxation and, quite frankly, a no-brainer.

The council's majority support gives the German government a unique opportunity to tackle corporate tax secrecy, and in September centre-left finance minister Olaf Scholz said "We will support any debate and a decision-making process [on pCBCR]".

But an important council working group meeting planned for October which could have discussed pCBCR was cancelled without explanation.

PCBCR is subject to an unseemly internal fight within Germany's coalition government with centre-right economy minister Peter Altmaier not only blocking German support for the proposal, but also now apparently refusing to allow it onto the agenda of the council so that other member states can show their support.

Altmaier seems to be acting in line with industry lobbies which have ludicrously labelled this simple tax transparency proposal as "damaging", "unspeakable", and an "attack on the German economy".

Now more than 220,000 EU citizens who want to stop tax dodging and boost public budgets have signed a petition to demand that the German government puts pCBCR on the council's agenda. On Thursday (19 November) the competitiveness council will meet and could sign-off on the pCBCR proposal.

But so far the German presidency has ignored the public and supportive member state allies and refused to table it for a vote.

Financial transactions tax

A strikingly similar pattern is seen on another tax-related issue, that of a proposed financial transactions tax (FTT).

"We are also committed to the introduction of a financial transaction tax at European level" declared the German government in its EU presidency programme.

This tiny levy on financial transactions, also called the 'Robin Hood Tax', would be a public policy win-win. It raises much-needed funds for the public purse and could act as a dampener on the most extreme financial speculation.

A group of 10 member states, including Germany, have been in lengthy discussions to implement such a tax among themselves, and it is on the agenda of the EU's ongoing budget negotiations.

But recently the German presidency has cancelled two crucial council meetings that could have been used to signal that this agenda was moving forward.

As MEPs recently wrote, the German government (alongside France) need to "rise to the occasion" and put an ambitious FTT back on the council's agenda.

Delivering the FTT agreement before the end of its presidency is another crucial litmus test for German ministers.

Taxing corporate giants

Tax policy-making at the EU level is complex and European leaders often wait until agreement has been reached at the global level via the OECD, before seeking to implement tax measures across the EU.

In 2018 Germany and a handful of other member states blocked the European Commission's proposal for an EU tax on tech giants such as Facebook and Google. Centre-left German finance minister Olaf Scholz instead preferred an OECD agreement.

But since then, OECD talks have not made substantial progress on a digital levy and the US is using all available tactics to delay progress. Now the commission has signalled it will resurrect the idea of an EU digital tax in 2021.

Scholz is at risk of putting all his eggs in the OECD digital tax basket. The German presidency needs to signal that it will ensure urgent action to deliver an EU tax if OECD talks fail.

Moreover it is not just Big Tech whose tax bills can be suspiciously low, and the OECD has also been discussing global minimum corporate tax standards which would arguably be more effective than a special tax targeting only digital companies.

But again, progress has been slow.

The European Parliament has signalled strong support for similar EU proposals to ensure that major corporations pay their taxes where they earn their profits, in order to substantially reduce profit-shifting and tax avoidance.

Regrettably the German presidency has failed to progress these files.

Time is running out…

Germany's EU presidency has already squandered several opportunities to deliver progressive tax reform.

At a time of huge pressure on public budgets, this is a massive abdication of duty. Apparently the emperor has no clothes. It's not too late for a change of approach, but swift action will be needed.

Meanwhile, the SPD's finance minister Olaf Scholz is left empty-handed – surely not the best launch pad for his campaign to become chancellor in the 2021 federal elections.