The Global Reporting Initiative has today launched a new tax transparency reporting standard expected to prevent billions in tax from being smuggled into corporate tax havens. Developed in consultation with businesses, investors, civil society groups, labour organisations, accounting firms and tax experts, the new standard ushers in robust public country by country reporting measures that countries and international bodies have stalled in bringing about at a global level1.
First proposed as an international accounting standard in 2003 by the Tax Justice Network2, country by country reporting is designed to prevent corporate tax abuse by eliminating the financial opacity behind which multination corporations shift profits into low-tax or no-tax jurisdictions. An estimated $500 billion3 in tax is lost each year globally to multinational corporations illicitly shifting their profits into corporate tax havens – equivalent to double the value of petroleum gas exported each year4. By requiring multinational corporations to publicly report their business activities at a local level in each country they operate, instead of at a global aggregated level, country by country reporting exposes mismatches between where a multinational generates profit and where the multinational may have reported that profit.
Even a technically weak version of public country by country reporting for European banks increased corporate tax contributions by 10 per cent when introduced in 20145. An equivalent response worldwide, the Tax Justice Network estimates, could raise $50 billion in global corporate tax contributions each year that otherwise would have been smuggled into corporate tax havens. Some $20 billion of that total would go to the lower-income countries that currently suffer the most from the corporate tax abuse epidemic6. For comparison, the combined health expenditures of all lower-income countries, based on the most recent World Health Organisation figures, was $22 billion in 20167.
Support for the new global tax standard from responsible business leaders and investors comes amid proposals to reform century-old international tax rules and growing recognition of the economic and human costs of corporate tax abuse. The proposals under discussion at the OECD would introduce an approach called unitary taxation, which apportions the global, taxable profit of multinationals between countries according to the location of the underlying, real economic activity. Current assessments of competing proposals have been based on the less rigorous OECD country by country reporting standard under which data is provided privately to some tax authorities only, and withheld from the public.
The OECD standard is scheduled for review in 2020, and the Tax Justice Network is calling for the OECD to take the GRI tax standard as the benchmark for technically robust, and rigorously comparable country by country reporting. A key feature of the GRI standard, lacking in the OECD approach, is that it provides for reconciliation of the country by country reports, with companies’ consolidated financial statements. The GRI standard also allows meaningful comparison and aggregation by separating related party transactions.
Alex Cobham, chief executive at the Tax Justice Network, a member of the GRI technical committee that developed the standard and author of the newly published The Uncounted, said:
“Twice as much tax is smuggled across borders into corporate tax havens each year by multinational corporations as petroleum gas is exported worldwide. When multinational corporations abuse their tax responsibilities to society, they weaken the supports that our economies need to work well and create wealth. This isn’t just bad for the public, it’s bad for investors and business too. Evidence8 shows that when multinationals engineer reductions in their tax contributions, investors receive no higher return – but they do suffer greater risks.
“We need to reprogramme our international tax rules to work for everyone and that starts by getting robust public country by country data in place, to allow informed decisions to be made. The GRI tax standard launched today delivers the highest quality of public country by country reporting data, as formulated by experts from all stakeholder groups including multinationals and accounting firms. We urge governments around the world to adopt the tax transparency measures that responsible businesses and civil society groups have voluntarily rallied behind.”
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Notes to Editor
- The GRI technical committee for the new tax standard consisted of the following members:
- Daniel Bertossa, Public Services International, France
- Alex Cobham, Tax Justice Network, UK
- Andy Cale, Vodafone Group Plc, UK
- Kate Elliot, Rathbone Greenbank Investments, UK
- Eelco van der Enden, Tax Policy Group, Accountancy Europe and PwC, Netherlands
- Richard Murphy, City University, London, and Tax Research UK, UK
- Rob Wilson, MFS Investment Management, USA
- GSSB sponsor:
- Kenton D. Swift, University of Montana, USA
- More info about the standard and committee available here.
- Richard Murphy, 2003, ‘A Proposed International Accounting Standard: Reporting Turnover and Tax by Location’, Essex: Association for Accountancy and Business Affairs. Available from http://visar.csustan.edu/aaba/ProposedAccstd.pdf. For further details of the historical development of country-by-country reporting, see Alex Cobham, Petr Janský & Markus Meinzer, 2018, ‘A half-century of resistance to corporate disclosure’, Transnational Corporations 25(3), 1–26. Available from: https://unctad.org/en/PublicationsLibrary/diaeia2018d5_en.pdf.
- The Tax Justice Network has estimated that $500 billion in tax is avoided by multinational corporations annually. This is more conservative than the IMF’s estimate of $600 billion in tax avoided each year. The research from both organisations confirms that lower-income countries lose around $200 billion a year: less than high-income countries in absolute terms, but substantially more as a share of current tax revenues.
- The worldwide export value of petroleum gas was $257 billion in 2017, according to the Observatory of Economic Complexity.
- Michael and Wolff, Hubertus, Financial Transparency to the Rescue: Effects of Country-by-Country Reporting in the EU Banking Sector on Tax Avoidance (February 8, 2019). Available at SSRN: https://ssrn.com/abstract=3075784 or http://dx.doi.org/10.2139/ssrn.3075784
- There is no single source for the corporate tax payments of multinational companies around the world. UNCTAD’s World Investment Report 2015 estimated that these payments in lower-income countries reach a total of $215 billion a year. A ten percent increase in payments, in line with the effect of public reporting for EU banks, would exceed $20 billion. A revenue increase of $20 billion is equivalent to a tenth of the $200 billion that we estimate in annual losses for lower-income countries. The same analysis estimates annual losses for higher-income countries of $300 billion, so if we assume an equivalent reduction in losses here, these countries would gain some $30 billion, for a global total revenue gain of $50 billion.
- According to the most recent figures from the World Health Organisation, the total health expenditures by revenues of health care financing schemes of low income countries in 2016 was $21.75 billion. The countries counted in the low income grouping included: Benin, Burkina Faso, Burundi, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Liberia, Madagascar, Malawi, Mali, Mozambique, Niger, Rwanda, Senegal, Sierra Leone, South Sudan, Togo, Uganda, United Republic of Tanzania, Zimbabwe, Haiti, Afghanistan, Tajikistan, and Nepal.
- A study in Australia found that companies that paid a greater percentage of their sales or revenues as tax provided shareholders with a larger return on their investment both as dividends and share capital growth.
About the Tax Justice Network
The Tax Justice Network is an independent international network, launched in 2003. It is dedicated to high-level research, analysis and advocacy in the area of international tax and financial regulation, including the role of tax havens. The Tax Justice Network maps, analyses and explains the harmful impacts of tax evasion, tax avoidance and tax competition; and supports the engagement of citizens, civil society organisations and policymakers with the aim of a more just tax system.
About the Global Reporting Initiative (GRI)
The Global Reporting Initiative (GRI) is the independent international organization that helps businesses, governments and other organizations understand and communicate their sustainability impacts.