European Shareholder Rights Directive up for Vote in July
The far-reaching EU Shareholder Rights Directive (SRD) is up for voting in the European Parliament in it plenary session early July with two of its most significant individual measures on corporate tax transparency still needing more MEP votes to get across the line.
A behind the scenes campaign is underway to garner the last votes need for the specific Country by Country Reporting (CBCR) and tax disclosure measures to carry.
Long anticipated, the SRD is designed to lift governance standards and address insufficient engagement between institutional investors and asset managers, insufficient link between pay and performance of directors and lack of shareholder oversight on related party transactions.
It is one of the most far reaching legislative responses to the structural flaws in investment markets and governance arising from the global financial crisis of 2008.
Senior journalist Mark Latham writing in the Scottish Herald Sunday on the 5th of June gave an observant précis of the legislation: ‘new laws which aim to stamp out what is widely seen in continental Europe as one of the worst features of the Anglo-Saxon capitalist model: poor corporate decision-making driven by the pressure to maximise short-term profits.’
Amongst the many provisions Article2 of the Directive contains key Country By Country Reporting (CBCR) provisions, a transparency obligation for large and listed companies to disclose details on taxes paid. An additional provision obligates large companies to disclose the essential elements of any tax rulings from regulators they receive.
Despite being approved by the European Council and the Legal Affairs Committee (JURI) of the European Parliament the two provisions are still short of a majority with lobbying efforts expected to intensify this month, with voting on the Directive scheduled for the plenary session commencing July 6th.
Tax transparency is seen as being fundamental to reducing the tax evasion and avoidance in the EU which is estimated to cost around E1Trillion per year.
There is also a strong view amongst some MEPs that small and medium business are at a competitive disadvantage to large companies that can adopt sophisticated cross border avoidance activities.
The Swissleaks and Luxleaks scandals that revealed corporate tax avoidance on an ‘industrial scale’ have driven further calls to end excessive financial secrecy and aggressive corporate tax planning and avoidance techniques.
Despite moves as part of the OECD BEPS Action Plan and by some individual governments, an end to financial secrecy and improving disclosure is actively opposed by global banks, the major audit companies and business lobby groups.
In contrast, there is a measure of support from corporate CEOs for more transparency.
Passage of the twin measures would place Europe at the forefront of global taxation reform and transparency.
The OECD/G20 reform process would gain additional impetus and the efforts to keep the current wall of secrecy around corporate tax practices would be seriously weakened.
‘A mandatory country by country reporting for cross-border companies, excluding SMEs, in all sectors and in all the countries
in which they operate, including non-cooperative jurisdictions and tax havens, through an immediate revision of the accounting directive.’
The current proposals already have significant support across political and party lines amongst MEPs.
‘When it comes to aggressive tax planning we believe that sunlight is the best disinfectant Improving transparency is one area where the EU, G7 and G20 can make a useful contribution.’
‘It is only human nature that individuals and businesses will seek to minimise their tax bills, but we should shine a light on those multinationals who unfairly distort competition by aggressively dodging anything close to their fair share.’ MEP Morten Messerschmidt, Vice-Chair of the European Conservatives and Reformists Group and member of the TAXE committee said in March this year.
‘Revelations by the press of very contestable fiscal practices have created a political movement that we need to seize to make concrete proposals and put an end to these practices. The task ahead of us is not related to political orientation or the country we represent’
‘We all share the same concern for more transparency and justice.’ Alain Lamassoure, Chair of the TAXE committee in the European Parliament said in support of the proposals.
Advocacy is currently underway with the support of the Financial Transparency Coalition to help gain the vital 376 votes required amongst MEPs at the July plenary session.
The SRD already contains many provisions to improve governance practices and promote long-term decision making throughout the investment chain.
Addressing taxation governance, modernising tax practices and promoting transparency are an integral part of the overall financial sector reforms before the European Parliament
Tax driven arbitrage, financial secrecy and poor disclosure goes hand in hand with short-term thinking.
MEPs have a unique opportunity to change corporate standards for the better. We would urge them to take it.