EU backs off from clamping down on corporate profit shifting to non EU tax havens
The inexorable approach of country by country reporting
The full publication of multinational companies’ country-by-countryreporting took a step closer today. A begrudging step, which as it
stands would negate most of the benefits; but an important one
nonetheless, because of the direction of travel.
A long road travelled
A little background. Public Country by Country Reporting or CBCR, as
proposed by Richard Murphy and John Christensen for TJN way back in
2003, is a tool for accountability:
- First, by making public the distribution of companies’ activity, and
that of their declared profits and tax paid, public CBCR makes
multinationals accountable for the extent of their profit-shifting and
tax manipulations. - Second, public CBCR makes jurisdictions such as Luxembourg
accountable for their role in siphoning off profits from elsewhere
(without the underpinning economic activity). - And third, public CBCR makes tax authorities accountable for their
ability and willingness to ensure companies pay an appropriate rate of
tax on their activities.
After ten years of building the case for public CBCR – including the
crucial support of international development NGOs such as Christian Aid
and ActionAid and our partners in the Financial Transparency Coalition,
and the emergence of a global network of civil society organisations,
the Global Alliance for Tax Justice – success! The G8 and G20 groups of
countries mandated the OECD to produce a standard as part of the
international tax rules.
Private CBCR: A measure for tax injustice
Then, a setback:
aggressive lobbying led to the OECD taking its broadly robust standard
and making it as unhelpful for accountability as possible.
Specifically, the decision was taken to make the reporting private to
tax authorities – at a stroke, eliminating all the accountability
benefits with the exception of multinational accountability to tax
authorities. (This, of course, is the accountability that was by far the
strongest beforehand, since tax authorities could already demand very
substantial additional information from corporate taxpayers; and hence
the benefit arising is likely to be the smallest).
This move also reversed the development direction. Among tax authorities, public CBCR would disproportionately benefit those which are:
- politically least able to demand information, i.e. those from lower-income countries; and
- technically least able to resource long, technical battles over
transfer pricing and other elements of the international rules where tax
manipulation is common, i.e. those from lower-income countries.
As such, public CBCR is a measure that challenges the major
inequality in the global distribution of taxing rights – an inequality
that means the resulting tax losses may be several times larger as a
proportion of existing revenues in non-OECD countries, on the basis of IMF research findings.
The OECD reversal was exacerbated by a decision that reporting would
only be provided to headquarters country tax authorities, i.e.
overwhelmingly to those in OECD countries and not elsewhere. This
necessitated the development of resource-consuming, additional
instruments to provide that information to other tax authorities; along
with various criteria to exclude those that might have the temerity to
make the data public, or to use it for non-OECD-approved tax approaches.
At this stage, then, the overall effect has been to worsen rather than to curtail the global inequality of taxing rights – exactly the opposite of what public CBCR would ensure.
