Global tax rulemaker under fire after Australia pressured to delay global tax transparency breakthrough

The Australian government has delayed legislation¹ which would have delivered the biggest breakthrough to date in transparency on the taxes of multinational corporations. Shockingly, reports suggest that lobbying against the legislation by multinational corporations and their professional enablers may have been bolstered by the OECD itself – the organisation which claims to set international tax rules in order to reduce corporate tax abuse.

“The suggestion that the OECD interfered in a country’s decision to promote tax transparency is extraordinary, and the organisation must provide a full, public explanation of its role here,” said Alex Cobham, chief executive at the Tax Justice Network.

Australia’s proposed legislation, which was expected to pass this week with a comfortable majority, would require major multinationals operating in Australia to publish their country by country reports. The reports are designed to expose any profit shifting a multinational corporation may be doing into tax havens. Multinational corporations are estimated to shift over US$1.1 trillion into tax havens every year, costing the world over US$312 billion in lost corporate tax a year.²

At least 1 out of every 4 tax dollars lost to multinational corporations shifting profit into tax haven can be prevented by requiring all multinational corporations to make these reports public, according to conservative estimates.³

Due to the international nature of multinational corporations, at least 1 in 5 multinational corporations around the world would be affected by the new Australian law and be required to publicly disclose about their profits and taxes.⁴ This includes many of the world’s biggest multinational corporations such as Amazon, Apple, BP, British American Tobacco, Chevron, Coca-Cola, ExxonMobil, Ford, General Electrics, HP, Hyundai, JPMorgan, Johnson & Johnson, Lockheed Martin, McDonalds, Mastercard, Mercedes-Benz, Microsoft, Nestle, Nike, PayPal, Pepsi, Pfizer, Philip Morris International, Starbucks, Tesla, Unilever, Verizon, Volkswagen and Walt Disney Co. The delayed Australian legislation can help government’s around the world curb their corporate tax losses to tax havens.

The strength of the Australian legislation comes from it moving beyond what is dubbed the “OECD concession”.⁵ Multinational corporations were almost made to publicly disclose their country by country reports when the G20 mandated the OECD in 2013 to develop an international standard for the reporting practice, which the OECD had long resisted.

Rather than requiring multinational corporations to make their country by country reports public, the OECD designed its standard to require multinational corporations to confidentially disclose their reports to their governments. These reports were then to be anonymised before being shared by the OECD as aggregated data with the public. The anonymised data has made it possible in recent years to determine how much profit multinational corporations shift into tax havens and how much tax they underpay as a result, but also impossible to identify the multinationals behind the profit shifting.

This “OECD concession”, which requires governments to keep reporting multinational corporations’ identities anonymous even when their country by country reports confess to profit shifting, is what Australia would have broken ranks with by requiring multinational corporations to make their reports public. The explanatory documents for the Australian legislation show how the Australian government aims to sidestep the OECD restrictions: “The [OECD country by country] report is subject to strict confidentiality and cannot be publicly disclosed under Australia’s international obligations in the OECD/G20 Base Erosion and Profit Shifting Project report on Action 13. Therefore, these amendments create a separate public reporting obligation.”⁶

It now seems that the OECD has gone further than simply designing tax standards that maintain the status quo. If reports are to be believed, the OECD may have become an outright proponent of opacity and blocker of progress, lobbying Australia to keep multinational corporations’ profit shifting behaviour out of the public eye.

Calls on the OECD’s to explain its lobbying role come on the heels of the European Parliament backing negotiations on a UN tax convention that would move leadership on global tax rules away from the OECD and to the UN.⁷ Countries at the UN General Assembly agreed by unanimous consensus last year to open the door to negotiations on a UN tax convention.⁸ The OECD, which has led global tax rules for over sixty years, was reported to have been unprecedently aggressive in its lobbying to prevent the historic resolution from coming to pass at the UN.⁹

Supporters of the UN tax convention have pointed to the OECD’s failure to meaningfully include the majority of countries in its rulemaking process – a criticism the European Parliament upheld last week¹⁰ – and to the OECD’s failure, after nearly a decade of efforts that began in 2013, to deliver tangible progress on rampant global tax abuse. The long-delayed outcome of the OECD’s reform process, the “two pillar” proposals, are expected to make little impact on global tax abuse and many countries look increasingly unlikely to implement the proposals.¹¹

Suggestions of OECD interference in curbing global tax abuse will likely bring more attention to the OECD’s mismanagement of its stewardship over global tax rules and bolster support for UN tax leadership. The OECD failed to publish its own anonymised country by reporting data last year prompting an exchange of open letters between the OECD and the Tax Justice Network about the data, ending in an open letter by the Tax Justice Network to the G20.¹² The OECD has also been criticised for watering down the proposed global minimum tax rate – put forward by the Biden administration in 2021 – to the point where the global rate now perversely benefits, rather than restrains, corporate tax havens.¹³

Alex Cobham, chief executive of the Tax Justice Network, said:

“The Australian government’s important proposed legislation demonstrably does not trespass on the OECD’s rules around its own standard. The legislation also clearly aligns with the OECD’s claim to be an opponent of corporate tax abuse.

“If it is confirmed that the OECD has lobbied to block progress against corporate tax abuse, then the remaining credibility of the organisation is in tatters. We urge the Australian government to resist any such attempts to bully it into allowing corporate tax abuse to remain hidden – and to make public those responsible.”

While Australia’s legislation has been opposed by large multinationals like Meta, the owner of Facebook, which urged¹⁵ the government to keep tax reporting confidential, investors overseeing trillions of dollars have been championing public country by country reporting in recent years. In 2020, investors responding to the OECD’s public consultation on public country by country reporting overwhelming urged the OECD to make public disclosure a requirement. A call that was echoed by civil society and technical experts responding to the consultation. The OECD has yet to provide any feedback to this overwhelming response to its consultation.

More recently, shareholders of Amazon, ExxonMobil, Chevron and Brookfield have attempted to win votes at shareholder meetings to require the companies to voluntarily publish their country by country reports.¹⁶

The Australian government’s proposal follows from the long-term work of Tax Justice Network Australia and of CICTAR (the Centre for International Corporate Tax Accountability and Research) and PSI (Public Services International), building key alliances with investors and the labour movement to demonstrate the breadth of demand for tax transparency.

Jason Ward, CICTAR’s principal analyst, said¹⁷:

“It is no surprise that multinationals are pushing hard to keep everyone in the dark. No one is buying the notion that corporations are responsible and caring when failing on the most basic obligation to fund public services where profits are extracted.

“The Albanese Labor government should not bend to corporate bullying and must enact this landmark transparency legislation as soon as possible, without watering it down.”

-ENDS-

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Notes to editor

1. Read the draft legislation here.
2. See the State of Tax Justice 2021 for more information.
3. The Tax Justice Network estimates that at least 1 of every 4 tax dollars lost by the world to multinational corporations using tax havens can be prevented by requiring multinational corporations to publish country by country reporting data.
4. We calculate that at least 21 per cent of the world’s multinational corporations will be affected by Australia’s public country by country reporting requirement.Based on 2018 statistics from the OECD’s confidential country by country reporting data, there are 132 multinational corporations for which Australia is as an ultimate parent jurisdiction, and another 1,997 multinational corporations that have a subsidiary operating in Australia. This makes a total of 2,129 multinational corporations which the law would apply to. This number represents a lower bound of what the scope of the law will actually be, as some countries (like, notably, Ireland and the United Kingdom) do not provide a country breakdown for these statistics for Australia and any multinational corporation’s headquartered in these countries with subsidiaries in Australia are not included in this number. There are also other countries that similarly host the headquarters of multinational corporations with subsidiaries in Australia, but which do not participate in the OECD standard. These multinational corporations are also left out of this number.According to the same 2018 statistics, there are 10,102 multinational corporations across the world. 2,129 multinational corporations covered by Australia’s law / 10,102 total multinational corporations = 21 percent.
5. For more information on the “OECD concession” and the history of country by country reporting, see the State of Tax Justice 2022.
6. The explanatory documents are available here.
7. More information on the European Parliament backing a UN tax convention is available here.
8. More information on the historic UN vote is available here.
9. The OECD was reported to have used unprecedented language in letters to ambassadors to question the UN’s fitness to oversee international tax discussions. Sources told the Tax Justice Network that the move has backfired in some quarters as it was seen as “undiplomatic” and “highly unusual” to attack another international institution in this way, and may actually have bolstered support for the UN resolution. The letters the OECD sent to ambassadors have been discussed with the Tax Justice Network by multiple people who have seen them. The OECD did not respond to media requests at the time to make the letters public.
10. See note 7.
11. More information about the failure of the OECD’s “two pillar” proposal is available hereand here.
12. Read the Tax Justice Network’s open letter exchanges with the OECD and the Tax Justice Network’s open letter to the G20 in the annex of the State of Tax Justice 2022 here.
13. More information is available here on how the global minimum tax rate, which was could have been a speed limit for tax havens, is now a reward programme for corporate tax havens and tax abusers.
14. More information is available here on investors’ response to the OECD consultation on public country by country reporting.
15. See Meta’s submission the Australian government on public country by country reporting here.
16. More information on shareholder efforts to push through voluntarily public country by country reporting at Brookfield is available here, and at Amazon, ExxonMobil and Chevron is available here.
17. Read CICTAR’s statement expressing concern over the delay to the legislation here.