George Turner ■ RB tax avoidance – company calls for public country by country reporting after Oxfam report reveals profit shifting
Oxfam has today released a report on tax dodging by RB, the company formerly known as Reckitt Benckiser and the maker of thousands of well known household products.
The report looks at the 2012 restructuring of the company which saw it set up ‘hubs’ in the Netherlands, Dubai and Singapore, all well known corporate tax havens, and demonstrates the continuing power of the corporate expose as a mechanism for encouraging companies to change their ways. As a result of Oxfam’s work, RB itself is now calling on governments around the world to legislate to compel all multinationals to be transparent about the tax they pay though country by country reporting of key financial data.
RB claim that their decision to move to these places was motivated by a desire to be ‘closer to their customers’, but the Oxfam report reveals that after the restructuring the effective tax rate of RB dropped significantly, from 26.5 percent in 2011 to 21 percent in 2015 and 23 percent in 2016. In total Oxfam estimates that RB managed to reduce its total tax bill by £200m between 2014 and 2016. A particularly interesting detail is the data that Oxfam have gathered on the collapse in the profit margins of RB subsidiaries in Europe after the establishment of the ‘hub’ in Holland, which suggests the company was engaged in significant profit shifting.
The scale of the alleged profit shifting in the Netherlands hub is particularly striking. The company reported pre-tax profits of £779m in the country in 2014, which was one quarter of the group’s entire pre-tax profits. The accounts of the Netherlands subsidiary reveal that the company pays just a quarter of the Netherlands statutory tax rate of 25%, in part due to a deal with the Dutch tax authority which exempts 75% of the company’s profits in the jurisdiction from tax.
The profits recorded in the hubs do not appear to be the result of significant real activity being relocated. Oxfam found that the each employee in the Netherlands accounted for £33m in revenue, 128 times the average employee of the group who accounted for just £258,000.
RB’s defence is less than spectacular. The multinational told Reuters that their tax practices were “in line with other global businesses”. Given that their advisors PwC engage in ‘industrial scale’ tax avoidance for a great number of large multinationals, this is hardly surprising.
The report is a powerful attempt by Oxfam to try to penetrate the murky world of financial accounting by large companies. By looking at accounts from a number of countries, and conducting a deep analysis of the consolidated accounts of the company, Oxfam were able to go a long way in revealing some of the practices employed by RB. But in the end, RB were protected by the opaque nature of their accounts, which still leave a great deal unseen. In particular the financial details of RB’s operations in developing countries, which are too small to report in the company’s consolidated accounts, could not be seen, and so the impact of profit shifting in those countries is left uncounted.
RB response – shine a light!
This once again highlights the need for public country by country reporting – that is, for the data now being reported by multinationals to tax authorities, under the OECD standard based on our 2003 proposal with Richard Murphy, to be made public. Interestingly, while Unilever had once been expected to come out as the corporate champion of public CBCR, it is RB which has now left its rival trailing.
In response to Oxfam’s report, the company called on governments to legislate to compel all companies have to publish the financial details of their operations in each country they operate, to create a level playing field for all businesses.
“RB will be filing its first ‘country by country’ (CBCR) tax return to the UK’s HMRC by December This report will be shared by HMRC with all relevant tax authorities in countries where RB operates around the globe.
The CBCR return will disclose key components of our profit and loss accounts, including revenues earned, the taxes paid, and the number of employees we have in all the markets in which we do business. We believe that such CBCR reports will enable tax authorities to have a better understanding of the individual tax contributions made by multi-national companies like RB.
It is important, however, to recognise that some of this data is commercially sensitive as it will provide our competitors with information about how we are focusing our resources. We believe that compromising RB’s competitiveness to be against the interests of our stakeholders – most notably our more than 40,000 employees. Of course if all companies would be legally required to publish this data publicly, we would fully comply.
This is why RB supports the call on governments to take the necessary steps to accelerate public country by country reporting and to create a level playing field for all businesses irrespective of where they are headquartered. We would encourage the UK Government to play a leading role in this respect.”
We at Tax Justice Network commend Oxfam for their important study, and commend RB for this major new commitment.
Critics will say that RB is only responding to being shamed; but this is unfair. “Joy shall be in heaven over one sinner that repenteth”… We know from many conversations with heads of tax and finance at multinationals that they would much rather reduce the aggressiveness of their tax avoidance, especially in lower-income countries – but that overwhelmingly, the competitive pressure is to keep up with their rivals. And of course, with PwC and the other big four professional services companies marketing new schemes, that pressure will not subside until their is a degree of transparency that promotes a race to the top.
Public CBCR – coming soon
The realisation of public CBCR will indeed provide a level playing field for businesses. And instead of competing to lower their effective tax rates, they can be judged according to their commitment to align profits with their real economic activity – which is the single, internationally agreed goal set in the OECD BEPS process.
The UK parliament has already passed a law to allow public CBCR. The European Parliament also gave its backing last week, and will now engage with the Commission on the next steps to make it law in the EU. Multinationals with any sense of corporate responsibility, and any desire to be on the right side of history, should follow RB in calling for public CBCR to become a global reality now.
Our analysis and that of IMF researchers and leading academics show that multinational tax avoidance costs hundreds of billions of dollars a year in lost revenues, and hits lower-income countries especially hard. Our practical work on a public CBCR database, collaborating with Open Knowledge International and a broad coalition at OD4TJ, is putting in place the structure to ensure that data once available can be used simply and powerfully to drive accountability of multinationals and of tax authorities.
The only question is how soon we get to public CBCR.