What next for Public CBCR in 2018?

By Simon Burns, January 23, 2018

The subsequent wrangling following last September’s German elections may be nearing its culmination. With that, much needed clarity could be forthcoming on several of the European Commission’s outstanding files in the field of taxation. The stakes are high on the Brussels front, as the fate of legislation such as European Commission plans for Public Country by Country Reporting (CBCR) in particular, hangs on the final complexion of the Government that will be formed in the EU’s largest economy.

How did we arrive at this point? The proposal for Public CBCR was launched back in April 2016 only to run head first into a seemingly interminable debate over whether or not the file should in fact have been classified as a taxation, rather than an accounting matter.

This holds particular significance as proposals negotiated under the ordinary legislative procedure – accounting dossiers (including Public CBCR, at least for the Commission) – require a qualified majority of support within Council, and for the European Parliament (EP) to take up its role as co-legislator. Taxation matters however require unanimity behind any given file among Member States (far more difficult to achieve), while the voice of the EP is relegated to that of an advisor, as per the Special Legislative Procedure.

Cue intense debate over which mechanism should be used to negotiate this file. The Commission and EP – co-incidentally where most support for greater corporate disclosure resides – see this an accounting matter which should naturally be negotiated as such.

Member States are however somewhat more divided; the Council Legal Service, via a verdict delivered in December 2016 stated that as a taxation issue, it should only be national representatives negotiating the terms of this initiative. Yet, such objections have thus far fallen on deaf ears as if the legal base of a proposal is to be changed, it be must be backed by the unanimous support of the Member States.

Recognising that such a move would essentially sound the death knell for a proposal that certain countries within the EU would still like to see realized, this level of support has not yet been forthcoming. A cold war has thus ensued on the Council side with this unresolved matter put on ice. It would appear that whichever negotiating mechanism is ultimately used to effect reform in this regard, a legal challenge will be awaiting from those parties left disgruntled.

This obstacle, while difficult to negotiate may not be insurmountable (notwithstanding the possibility of future legal action). What has however proven the more intractable problem relates to the position of the German Government up until now.

Prior to last September’s domestic elections, this key Member State had refrained from taking an overt position during discussions. This has left the package in legislative stasis so to speak, as the pro and anti factions are so finely balanced within Council in their numbers so as to make the position of Germany even more important than usual.

Their fence-sitting has resulted from the fact the centre-right CDU / CSU had been opposed to the notion of publicly disclosing country-by-country reports from the outset. Their partners in Government however – the Socialists – which held the crucial Justice Ministry, were supportive. A stand-off was the outcome; Council Working Parties have come and gone throughout 2017, with little discernible progress to speak of.

For their part the EP duly began negotiating the file in early 2017, ultimately succeeding where Member States have thus far failed in finding a common position in Plenary on US independence day: 4 July.

For those Public CBCR enthusiasts it had been hoped that the outcome of the German election would put an end to the paralysis, one way or another. Events however, as they so often do, have conspired otherwise.

What would a continuation of the Grand Coalition – the same one responsible for much of the inertia last year – mean for the file moving forward? Naturally, a lot will depend on the divvying up of relevant portfolios that is part and parcel of forming any new administration.

There is some speculation that the SPD leader Martin Schulz might be in line for the Finance Ministry – under CDU / CSU control previously – in a new Government. If that were to happen this would provide the EU’s plans for Public CBCR a real shot in the arm. This is however, only speculation at this stage.

The outlook therefore as we approach the business end of this Commission mandate remains somewhat opaque for this key piece of tax transparency reform. If this file were being negotiated as a taxation rather than an accounting matter, the position of Germany would likely not be so significant as other Member States would no doubt have exercised their veto rights.

As we know, this is not the case. All eyes therefore will remain on Berlin for any clues to where this surprisingly fraught proposal will end up, but do not rule out this initiative staying bogged down in a legislative quagmire for the foreseeable future.