Behind closed doors: secret deals in the Council of the EU

There is no time frame on which the Council is obliged to make a decision on proposed legislation, and presidencies only put proposals to a vote when they…

There is no time frame on which the Council is obliged to make a decision on proposed legislation, and presidencies only put proposals to a vote when they can expect a sufficient qualified majority: 65% of the represented population and 15 Member States. At the same time, a vote on the behalf of 35% of the population or 13 governments is sufficient to block new laws.

Because of this lack of transparency, citizens, journalists and lobbyists don’t know which governments are blocking an issue and so can‘t influence it. There is hardly any pressure on the governments that make up the blocking minority.

At the same time, big lobby groups have the capacity to gather information about what happens in the Council beyond what is available in public documents. And for big lobby groups that want to stop or water-down proposals they don’t like, the blocking minority is the perfect instrument, sources tell IE.

“The secrecy in the council means that there is little or no pressure on individual EU governments, which allow them to put off difficult decisions,” says Emily O’Reilly, giving the recent example of a French environmental NGO which was denied access to member states’ positions on an issue regarding pesticides and bees.

Of the 30 proposals currently ‘stuck’, here are a few that IE believes merit further examination.

Country by country reporting

International companies such as Google, Facebook, Amazon and Apple register their profits in countries such as Ireland, where tax rates are particularly low. They do this despite most of their turnover coming from elsewhere. Although perfectly legal, the EU Commission says such aggressive tax planning costs EU countries up to €70bn a year in lost tax revenue.

For four years, EU governments have been negotiating a draft directive — public Country-by-Country Reporting (pPCbCR) — to make this tax avoidance more visible by distinguishing which activities relate to a specific country.

After making swift progress (adoption of the proposal by the European Commission in 2016, and approval by the European Parliament in 2017), it arrived in the Council, where it was blocked by several states and its progress has ground to a halt.

It has been reported that Germany was the leader of the blocking minority, because the German Minister of Economics sided with the transnational companies arguing that they would lose competitiveness due to the forced publication of alleged business secrets. But for years, the other blocking member states were unknown.

That only changed in October 2019, when German Green MEP Sven Giegold managed to get hold of information that had, until then (and in-line with Council practices) been a well-kept secret: the countries that were blocking the law.

Some of the names came as no surprise: Ireland, Luxembourg, Hungary, the Czech Republic, Malta and Cyprus have rules that attract multinational companies looking to shrink their tax bill. What was a surprise was the appearance of Sweden and Portugal, two countries with Social Democratic governments that had publicly promised to fight tax avoidance.

Investigate Europe wrote about the list in November 2019. Sweden argued that the law about tax transparency should be adopted in the same way as tax law — with unanimity, although IE can show that the Swedish finance minister had opposed PCbCR before the actual legal proposal, thus before the voting procedure was known. But the reaction from Lisbon was less clear. In a brief written statement sent in response to questions from IE, the Portuguese Ministry of Foreign Affairs stated: “in the context of this discussion, Portugal has taken a stance of attentive observation of the arguments of member states and the Commission, and there has been no position taken so far, nor any matter to which it has been opposed.”

But in practice, this ‘attentive observation’ resulted in opposing the draft law in the Council negotiations. This had been going on for over two years, while at the same time the Portuguese government was publicly proclaiming that “the increasing sophistication and globalisation of tax evasion and avoidance mechanisms make greater European and international cooperation indispensable.”

And not only that, the Portuguese Government had promised parliamentarians “to fight for greater tax justice on a European scale, combating the erosion of tax bases between different states, tax evasion and unfair competition.”

For Ana Gomes, a Portuguese former Socialist MEP, there was a “total contradiction between what was said in the government’s programme and the country’s position in the Council. Either there’s total political insensitivity, or it’s worse… This shows how a fundamental political issue is dealt with by leaving the worst powers to decide.”

According to German MEP Sven Giegold, Portugal too seems to advocate unanimous approval of the pCbCR directive — an unrealistic goal, given the position of countries such as Ireland and Luxembourg. “With its legal concerns, the Portuguese government is protecting tax evaders,” he stated. “The concerns expressed about the legal basis are in fact killing the Commission proposal.

The unanimity of EU Member States for public tax transparency for large companies will never be achieved, and is not necessary. For banks, the EU has already introduced public tax transparency on a country-by-country basis under the qualified majority voting procedure. This transparency has been working for years and has not given rise to any legal problems,” added Giegold.

It was only after IE questioned Portugal’s position that the government changed its policy and the legal doubts were overcome. Until then, there had been no national debate about the issue, as the Portuguese government’s position in the Council was not known.

In November last year, Portugal voted alongside the countries defending the directive, but the directive did not pass, and is still “stuck in the council”.

“To the question of principle, there is also a problem of method, since this whole process of (not) taking a position by the Portuguese government and aligning with the arguments of the countries opposing the directive has occurred in an opaque manner,” said Portuguese MP Mariana Mortágua.

This was the point previously made in Emily O’Reilly’s, official report that proposed that “the Council should systematically record the identities of Member States expressing positions in preparatory bodies.” Portugal, it seems does not share this view. In its blocking of the pCbCR directive, it is not known who decided the country’s position, why, or for what purpose.

According to a survey done by IE, there is now a qualified majority for the proposal. And yet, it has not been adopted because the German government, during its position as holder of the Presidency, refused to put the vote on the agenda of the competent ministers’ meeting.

It is the country with the Presidency that decides which proposals to work on or put to a vote in the Council. The future of the pCbCR directive and of corporate tax transparency will soon be in the hands of the Portuguese government, when it takes over as Council president in January.

This post was originally published on Radio Free.

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