TJN has, since its establishment in 2003, led the way in developing and promoting the idea of public country-by-country reporting (CBCR) for multinational companies. Open Knowledge International, who partnered with TJN in establishing Open Data for Tax Justice (#OD4TJ), are pioneers in using open data to achieve tangible policy results and human progress. The Financial Transparency Coalition (FTC) has championed public CBCR since its inception, as have many of our fellow FTC members including Christian Aid and Tax Justice Network-Africa.
There are now multiple requirements for CBCR from multinational companies, depending on the jurisdiction and industry sector, some fully public, and an OECD standard has been introduced which will require all multinationals of a certain scale to report privately to the tax authority in their headquarters country. It is critical that this data is used effectively, and seen to be so used. The next 2-3 years provide a window in which to confirm the value of CBCR; to move policymakers towards a global consensus on requiring public CBCR; and to establish a single format for reporting, to ensure lower compliance costs for business and more effective use of the data by civil society, media and tax authorities alike.
As leading organisations in this field, we now propose to establish an open database, to include all publicly available CBCR data; to provide a venue for multinationals that wish to lead in transparency by publishing their data voluntarily; and to make the data, and core tools and risk measures, accessible to a wider audience.
It’s important that we have a wide range of views and voices feeding in to the process, to ensure the design meets the key user needs. To that end we are working on a range of channels. First among these is an international survey that we would urge as many people and organisations from around the world as possible to fill in.
Next week we will convene an international expert group meeting, to be followed in the coming months by data sprint/s and additional collaborative work to bring together open data, accounting and tax justice experts with the aim of delivering clear progress in four key areas:
- First, a common format nesting all of the existing CBCR standards will be created.
- This will be used to construct, second, an open, online database into which researchers can enter new CBCR data as it becomes available, and which has the potential to become the main repository for public CBCR data, and the main source for future research and policy analysis.
- Third, we will create a number of tools and indicators of the misalignment of declared, taxable profit with the location of real economic activity; and the ability quickly to rank and compare across companies and across jurisdictions in order to identify priorities for further scrutiny.
- Finally, the aim is to ensure the database is fully linked in with related projects including, crucially, to establish relationships with the increasing volume of beneficial ownership data available, including through potential partners such as OpenCorporates and Open Contracting.
The intention is to obtain over time significant backing from a range of users including investor groups, reporting companies, civil society groups, tax authorities and policymakers. Please get in touch if you would like to be involved in any way, via Open Data for Tax Justice – and please do fill in the survey!
This week saw the re-launch of the European Union’s Common Corporate Consolidated Tax Base (CCCTB). The purpose of the CCCTB is to harmonise the rules around how multinational corporations are taxed across the European Union, and to switch from OECD tax rules to a unitary approach with formulary apportionment (more on that below).
The CCCTB was originally launched in 2011, after many years of discussion, but in the EU’s own words the proposals proved ‘too ambitious’ for member states. The immediate proposal now is but a baby step towards the bigger goal and we welcome the intention; but there is a long way to go before this will significantly impact on multinational profit-shifting, and there are important weaknesses that must be addressed even in the existing proposal.
What is the CCCTB?
The most ambitious part of the CCCTB is an attempt to create a single, harmonised tax base for multinational companies with operations in Europe. This means that large companies will report their profits across the whole European Union. Those profits will then be apportioned among countries, based on the real economic activity taking place in that country (e.g. people and sales), so that countries can then choose how much to tax those apportioned profits (i.e. there will be no harmonisation of rates).
This system is intended to lower compliance costs for multinationals operating across multiple EU jurisdictions, but also to prevent multinationals from apportioning their profits to low or no tax jurisdictions where they have few or any staff, starving countries where they are really operating, of tax revenues.
As our research into US multinationals has shown, there are a number of EU jurisdictions which offer near-zero effective tax rates in order to poach the taxable profit from their neighbours. The CCCTB would go a very long way towards addressing this anti-social behaviour, and many of the high-profile avoidance cases such as Google and Facebook.
All of this has the potential to make a huge difference to the fight against tax avoidance and evasion. Tax avoidance is facilitated by mismatches between legislation between different countries, and by companies shifting profits from high tax to low tax countries.
As Tove Maria Ryding, from our partners Tax Justice-Europe said:
“We all stand to benefit from this proposal. When multinational corporations are not paying their fair share of taxes it means that we have to pay more taxes and that there is less money in the public sector for hospitals and schools. This is a big step forward.”
The CCCTB has been in the works for a very long time. The European Parliament reported on the issue in 2005. The European Commission launched the proposals the first time in 2011. At that time the proposals were killed off by vocal opposition from member states, and as measures such as this require the agreement of all member states, the proposals were dead in the water.
Back in 2011 the most vocal opponent of the CCCTB was the United Kingdom, who saw it as a threat to their goal to create a “competitive” system of corporate taxation (aka a tax haven). With the UK now choosing to leave the EU, this proposal may now have more legs. Although in theory the UK could still block it, interfering with the rules of a club that they are seeking to leave would do very little to improve their negotiating position in the Brexit negotiations. However, it must be said, that the UK were not the only opponents at the time.
It is also clear that we are moving on from the world of the mid-2000s when these proposals were first made when too many people thought that tax avoidance by multinationals simply wasn’t an issue. It is clear that the EU is responding to the demand for more action following the many high profile stories of tax abuse, including most lately, the Panama Papers.
Will it work?
Of course the devil will be in the detail, and there is still long road to travel before the measures are implemented. The most ambitious parts of the CCCTB, the consolidation of the tax base and apportionment of profits between nations is still being negotiated and so could never happen.
But even without the ‘third C’, two CCs are an important step forward, particularly for developing countries which have often been the victim of companies using Europe as a tax haven. The proposals also contain a number of other measures for dealing with mismatches between tax rules in different countries. As Francis Weyzig of Oxfam Novib told us:
“This [the anti-avoidance package without consolidation] is the core of the package that really matters to developing countries. If agreed, it will be a big improvement. It will do away with all patent boxes in EU member states, eliminate the double Irish, eliminate Dutch hybrid structures (multi-billion dollar overseas cash boxes) widely used by US-based multinationals, and replace the harmful Belgian notional interest regime with something less harmful.”
Others have highlighted that the elimination of patent boxes is ‘compensated’ by the introduction of massive tax deductions for R&D. In combination with other elements, this risks the overall package seeing the EU take a further step down the foolish road of tax ‘competition’ – a race to the bottom which no state, nor its citizens, can win. This has the potential also to make the EU more of a problem for lower-income countries, as they seek to exert their own taxing rights.
Finally, Richard Murphy raises a fundamental problem with the current hopes for a CCCTB: that the data generated under International Financial Reporting Standards is simply not fit for tax purposes. Can accounting standard-setters finally rise to the challenge, or is there a need to develop separate tax reporting standards?
Unitary tax: the direction of travel?
How far the EU will manage to go with the CCCTB is an open question. There will be many, including the TJN, keeping a close eye on how these proposals advance. But we are heartened by the Commission’s appetite to move to a unitary basis for taxing multinationals. Other economic blocs around the world are likely to give increasingly serious consideration to such an idea – especially as the OECD’s BEPS reforms are increasingly seen to have failed to reduce the gross misalignment of taxable profits with real economic activity.
This is well worth watching: journalist and author of Author of ‘Fragile Empire‘ and ‘This Is London‘ and Ben Judah presents his report at the Hudson Institute on how kleptocrats and what he calls the ‘global wealth defence industry’ (or the secrecy and tax avoidance/evasion industry) is wreaking havoc on the global economy and represents a serious threat to international peace and security. He draws on our research on quantifying offshore funds and our Financial Secrecy Index.
Panama Papers: More than just offshore Malta Today
“Morality is instantly problematic in a planet that engages in tax competitiveness at various levels. Every country is interested in outsmarting the next country, some employing more piratic financial services practices than others . . .”
Brazil aircraft manufacturer Embraer paid $5.76 million to shell company for Indian Air Force plane deal The Financial Express
See also: Embraer to Pay $205 Million to Settle Corruption Probes Bloomberg
U.S. prosecutors are said to be closing in on Venezuelan asset seizures and charges Bloomberg
$11 billion possibly siphoned from PDVSA state oil firm; story involves shell companies, offshore accounts in Panama, U.S. banks . . .
The United States should fight against tax dodgers, not for them The Washington Post
How multinational tax transparency got killed off by Australia’s business lobbies The Sydney Morning Herald
Time for U.K. to Get Tough on Offshore Transparency? Bloomberg BNA
Tax evasion arrests in Israel for tycoons using Scots firm Herald Scotland
The automatic exchange of information between countries’ tax authorities has been trumpeted as a game changer for the fight against tax evasion. But the publication of the latest data shows that many countries, including some tax havens, are being very selective about who they are choosing to share information with. It seems many OECD countries prefer to play this kind of ‘dating’ game among themselves…
UN Expert backs the Tax Justice Network’s Financial Secrecy Index in the battle to protect human rights
The next United Nations secretary-general Antonio Guterres has a lot on his plate. But when he takes over from Ban Ki-moon to head the United Nations on the 1st of January 2017 one of his priorities must be to eliminate tax havens.