FT confirms OECD lobbied against Australian tax transparency

The Financial Times has confirmed that the OECD – the international tax rulemaker – heavily lobbied to stop Australia from passing legislation that would have delivered the biggest transparency breakthrough to date on the taxes of multinational corporations.¹ The OECD’s deliberate attempt to block progress on tackling tax havens will have significant implications for the upcoming vote at the UN General Assembly on whether to begin formal negotiations that could shift leadership on global tax from the OECD to the United Nations.

Suggestions of OECD interference were first reported by CICTAR and the Tax Justice Network two weeks ago, immediately after the Australian legislation was unexpectedly postponed.²

“What little credibility the OECD had is now in tatters. The OECD makes promises about ending global tax abuse, but was evidently doing everything it could behind closed doors to protect tax abusers,” said Alex Cobham, chief executive at the Tax Justice Network.

Some commentators in the tax sphere had questioned the idea that the OECD would do such a thing, after the Tax Justice Network raised the alarm. Some also queried whether the Tax Justice Network had risked its reputation by raising the possibility, at a point when it was not possible to make the evidence public.

Alex Cobham added, “The clear evidence published by the Financial Times today confirms the Tax Justice Network made the right decision to question the OECD on whether they lobbied against measures to curb tax abuse. We would not have raised the possibility without being entirely confident in the original source, and we welcome the comprehensive corroboration. It is however disappointing that despite the clear evidence, the OECD has still not even acknowledged our questions.”

The OECD, a club of rich countries that has set global tax rules for the past sixty years, was mandated by the G20 in 2013 to reform global tax rules to stop multinational corporations from shifting profit into tax havens and underpaying tax. A decade later, the OECD has yet to deliver any significant progress.

“There was heavy, heavy opposition from the OECD to the bill and that was one of the critical factors behind the decision” to pull back from the measure, one person with knowledge of the situation told the Financial Times.

OECD did not want Australia to expose companies shifting profit to tax havens

The Australian law opposed by the OECD – which may yet be adopted despite the delay – would force one 1 in 5 multinational corporations around the world to come clean about their profits and taxes.³ 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 law requires 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, serving as both a tool for accountability and deterrence. 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.⁴

At least 1 out of every 4 tax dollars lost to multinational corporations shifting profit into tax haven can be prevented if all multinational corporations were required to make these reports public, according to conservative estimates.⁵ The Tax Justice Network published the world’s first model for public country by country reporting in 2003, and has campaigned for it since.

The strength of the Australian legislation comes from it moving beyond what is dubbed the “OECD concession”.⁶ 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.”⁷

It is now confirmed that the OECD has gone further than simply designing tax standards that maintain the status quo. The Financial Times’ revelations confirm that the OECD acted as an outright proponent of opacity and blocker of progress, lobbying Australia to keep multinational corporations’ profit shifting behaviour out of the public eye.

Fate of OECD tax leadership role hangs on upcoming UN vote

The Financial Times’ reporting will have significant implications for the upcoming vote this winter at the UN General Assembly on the future of leadership on global tax.

The news arrives on the heels of Europe, Africa and Latin America announcing or preparing to announce support for UN tax leadership.

The European Parliament recently backed negotiations on a UN tax convention, which would move leadership on global tax to the UN.⁸ The Parliament upheld the argument that rulemaking at the OECD has not been inclusive. The influential African Union Commission reaffirmed this month the commitment to UN tax leadership made by the Africa Group at the UN last year.⁹ Latin American and Caribbean nations will be meeting at a first-of-its-kind regional summit¹⁰ later this month on international tax rules, where the countries are expected to agree regional consensus and negotiation positions largely in favour of moving leadership on global tax to the UN.

Countries at the UN General Assembly agreed by unanimous consensus last year to open the door to negotiations to a UN tax convention.¹¹ The OECD was reported to have been unprecedently aggressive in its lobbying to prevent the historic resolution from coming to pass at the UN.¹² The resolution was introduced by the Africa Group. The UN General Assembly will debate the prospect of negotiations this September and vote on whether to formally begin the negotiations this winter.

Supporters of UN tax leadership have pointed to the OECD’s failure to meaningfully include the majority of countries in its rulemaking process – a concern that is unlikely to be assuaged by the Financial Times’ revelations of the OECD lobbying its own member against introducing a key measure to fight corporate tax abuse.

Supporters have also pointed to the OECD’s failure, after nearly a decade of efforts that began in 2013, to deliver tangible progress on rampant global tax abuse.

Earlier this week, the OECD’s long-delayed package of reforms was criticised as “fundamentally flawed” by the BEPS Monitoring Group, the widely recognised tax reform watchdog that has been tracking and evaluating the OECD’s reform process since 2013.¹³ In its latest report, the BEPS Monitoring Group corroborated findings from several independent studies, including by the IMF, that the OECD’s proposals will not curb corporate tax abuse to any significant degree, and that benefits for lower income countries are at best highly questionable.¹⁴ The watchdog urged the countries to reject the OECD’s proposals.

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

“The OECD claims to lead international efforts against tax abuse. Whether or not people take that claim at face value, it is genuinely shocking to see it confirmed that the OECD has lobbied its own member country against introducing a key measure to fight corporate tax abuse.

“Public country by country reporting, when it arrives, will increase revenues around the world to the tune of billions of dollars, by exposing the most egregious profit shifting. Investors will benefit from reduced risk in their shareholdings, and employees will benefit both from lower risk and from the chance to negotiate fairly based on a true reporting of the profits of their work. Smaller and domestic businesses will benefit from a more level playing field, instead of a system that subsidises multinationals’ tax bills by effectively granting them immunity for abuse.

“The Financial Times’ reporting shows that the OECD has put itself firmly on the side of secrecy – on the side of tax abuse – against one of its members. That’s an extraordinary state of affairs. And it couldn’t send a clearer signal to countries wondering whether the OECD’s proposed tax rules will help them to curb tax abuse. They won’t, and countries should pursue their own alternatives, while preparing for negotiations to establish a proper tax body at the United Nations instead.”

-ENDS-

Notes to editor

1. Read the FT article here.
2. Read the Tax Justice Network’s statement on suggestions of OECD lobbying here.
3. Due to the international nature of multinational corporations which have operations in several countries, we calculate that the Australian legislation will apply to 21 per cent of multinational corporations around the world. This unprecedented level of tax transparency is expected to help government’s around the world curb their corporate tax losses to tax havens. 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.
4. See the State of Tax Justice 2021 for more information.
5. See the State of Tax Justice 2022 for more information.
6. For more information on the “OECD concession” and the history of country by country reporting, see the State of Tax Justice 2022
7. The explanatory documents are available here.
8. More information on the European Parliament backing a UN tax convention is available here.
9. Watch the statement by the African Union Commissions’ acting head of division for economic policy here.
10. Read more about the Latin American summit here.
11. More information on the historic UN vote is available here.
12. 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.
13. More information about the BEPS Monitoring Group’s report is available here.
14. A study by the South Centre and the Coalition for Dialogue on Africa (CoDA) can be found here, and a EU Tax Observatory report can be found here. More information about the failure of the OECD’s “two pillar” proposal is available hereand here. IMF research on the revenue returns to the OECD proposals can be found here(see Figure 1 and Figure 5 on Pillar 1 and broader revenue impact), and here(a comparison of Pillar 1 with digital sales taxes for Asian countries).