The German Justice Ministry told Lisa Paus, a member of the German Parliament, that it is unlikely the government will discuss public tax reporting in the September meeting of the European Union's relative ministers. (AP)
"The indicative agenda for the meeting of the competitiveness council ... currently doesn't foresee a discussion on the publication of tax information," said a letter sent from Germany's Justice Ministry to Lisa Paus, a member of the German Parliament from the country's Green Party. The letter was dated Aug. 10 but hasn't been widely reported.
The EU's competitiveness council brings together ministers from all the bloc's member states — who are responsible for sectors including trade, research and innovation — to debate and vote on proposed legislation.
Widely adopted guidelines from the Organization for Economic Cooperation and Development require companies with annual gross revenue of more than €750 million ($891 million) to report to governments the amount of taxes paid and profits earned in each country of operation. The OECD also recommends safeguards for keeping the information out of the public.
The letter added that opinions on the matter have not been made final within the EU's council of member states, which Germany chairs for the remainder of the year.
"The federal government is aware of the role of the council presidency as a 'neutral mediator' and is currently coordinating its further course of action," the Justice Ministry said.
The ministry told Law360 through a representative that the government's consultations on further proceedings are ongoing.
The letter comes as a disappointment to Paus, who co-signed a letter late last month calling for the German government to put public country-by-country reporting on the policy agenda for the council of member states. Public country-by-country reporting failed to garner the needed qualified majority vote in the council in November.
Germany's decision not to put public country-by-country reporting on the council agenda presents a missed opportunity for the country to use its weight as Europe's largest economy, Paus said in a statement. Moreover, she said, public country-by-country reporting is needed now because of the novel coronavirus pandemic and the large rescue packages companies have received.
"It cannot be that we continue to look on quietly as companies optimize their tax burden," she said.
Members of the European Parliament approved draft proposals in 2017 requiring businesses with worldwide turnover of €750 million or more to report their tax bills country by country. They did so by a 534-98 vote, but the vote still must be approved by an EU council of ministers from member countries for it to become law and this has yet to happen.
In November, the debate in the council centered mostly on a dispute over the proposal's legal basis, with supporters arguing that the measure was a transparency measure rather than a tax measure. That would require only a qualified majority vote to pass rather than the unanimity required for tax issues.
Advocates of voting again argue that Austria would now change its vote to support the measure, rather than oppose it, which, if all other things were equal, would give the measure just enough votes to pass. The Austrian Finance Ministry told Law360 this month that it was following guidance issued by the country's Parliament in December, which called on the government to support public country-by-country reporting.
Under qualified majority voting, a measure passes if it receives the votes of 15 out of 27 countries representing 65% of the population. If Austria were to support the measure and the other countries voted as they did in November, then the measure would receive 15 votes out of 27, representing 71% of the population, and thus would pass.
However, Germany is itself split on the issue and abstained from the vote in November, essentially causing it to fail.
Last September, the Social Democrats — the party of Finance Minister Olaf Scholz, its lead candidate for elections due to take place in about one year — said they supported public country-by-country reporting.
The party, known as SPD, hasn't answered multiple requests for further comment on the issue.
By contrast, the center-right Christian Democratic bloc of Chancellor Angela Merkel, who has said she won't seek a fifth term next year, opposes public tax reporting, arguing that international norms call for the sharing of data only between tax authorities and not with the public.
"We reject putting sensitive business information online as part of country-by-country reporting," the party said in a statement provided to Law360.
One analyst was not optimistic about the possibility of progress on the matter before the German election.
Niclas Frederic Poitiers, an analyst with the research group Bruegel in Brussels, said the Christian Democrats aren't likely to put forward an issue that would lead the public to side with the SPD. He also said Germany probably would hesitate to present an issue that could pit southern European countries against northern neighbors, particularly the Netherlands, even though that country voted in favor of public country-by-country reporting in November.
"Corporate taxation has become a divisive topic," Poitiers said. "I would expect the public discussion to be along the lines of general 'tax justice.'"
Some economic sectors already are required to publish tax data under EU law, and researchers have used data from banks, which must publish tax data as part of the bloc's Capital Requirements Directive, to study the extent to which publicizing data might prompt companies to change their behavior.
Verena Dutt, a tax researcher at the ZEW economic research institute in Mannheim, Germany, said that while there isn't enough data to draw firm conclusions, some evidence indicates that financial companies change their behavior when they have to publish data on where they pay taxes.
In any event, she said, nothing indicates that banks increase their activities in tax havens after country-by-country reporting requirements take effect.
--Editing by Neil Cohen.
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