Governments can recover billions from tax havens by publishing withheld transparency data

G20 countries urged to withdraw support from transparency-allergic OECD and back UN tax leadership

At least 1 of every 4 tax dollars lost to multinational corporations using tax havens can be prevented by publishing government-collected transparency data that has been held from the public since at least 2016, the Tax Justice Network reports. A concession in recently adopted tax transparency measures that requires governments to keep anonymous the identities of multinational corporations that confess to shifting profit into tax havens is causing governments to forgo at least US$89 billion every year in corporate tax that should have been collected.

As people and economies everywhere feel the squeeze of the global cost of living crisis, the Tax Justice Network is calling on governments to stop covering up for corporate tax abusers and recover urgently needed public money.

In an open letter¹ to the leaders of G20 countries published today, the Tax Justice Network has laid bare the role of the OECD, a rich countries’ members club and the world’s leading rulemaker on global tax, in engineering the concession into the transparency measure in question, which is known as country by country reporting².

Originally championed by the Tax Justice Network in 2003, the G20 mandated the OECD in 2013 to develop an international standard for country by country reporting. However, rather than requiring multinational corporations to make their country by country reports publicly available, as proponents of the transparency measure called for and which would have publicly exposed any multinational corporation shifting profit into tax havens, the OECD permitted multinational corporations to privately disclose their reports to their governments, who were then required to anonymise the reports before sharing them with the OECD which would then aggregate and share the data with the public.³

To date, nearly 50 countries have privately collected over 15000 country by country reports from multinational corporations.⁴ The OECD has so far published anonymised aggregates of these reports only twice, in 2020 for data collected in 2016 and in 2021 for 2017 data. The OECD failed to publish the latest set of anonymised data in July this year, which would have consisted of data collected in 2018.

The Tax Justice Network analysed the anonymous data from the OECD in previous years to calculate how much tax every country in the world loses to multinational corporations shifting profit into tax havens. In the 2021 edition of its flagship State of Tax Justice report, the Tax Justice Network reported that governments around the world lost US$312 billion in tax in a single year to multinational corporations shifting profit into tax havens.⁵ But the anonymous nature of the data meant it was impossible to identify the multinational corporations shifting profit and consequently underpaying tax.

Had the OECD not negated the purpose of the transparency measure by requiring governments to grant multinational corporations anonymity, the Tax Justice Network now reports, governments could have reduced their annual corporate tax losses to tax havens by at least 28 per cent. This reduction would have meant collecting at least US$89 billion of the US$312 billion in corporate tax governments lost. Evidence shows that the introduction of country by country reporting requirements has increased the tax paid by reporting companies, but the impact of the deterrence measure is more than twice as effective when the reporting is required to be made public.⁶

Rachel Etter-Phoya, senior researcher at the Tax Justice Network, said:

“The OECD concession to corporate tax abuse is a political choice to turn a blind eye. Our governments patronise us with talk about making ‘tough decisions’ to deal with the global cost of living crisis, then choose to stay quiet about multinational corporations that have privately confessed to cheating the public out of billions in tax. They’re choosing to protect the cherries on the cakes of the richest corporations while people worry about putting food on the table.

“Our message to governments is clear: stop the cover up, to lift living standards up.

“As for multinational corporations, we call on you to come clean about your taxes. If you’ve got nothing to hide, if you’re paying your fair share at a time when people are feeling the squeeze, publish your country by country reports.”

Australia is the only country in the world so far to have committed to requiring multinational corporations to make their country by country reports public. The OECD member, which has been privately collecting country by country reporting under the OECD standard, broke ranks with the members club last month when it announced the shift to public disclosure in its Budget 2022-2023.⁷

The UK temporarily broke ranks with the OECD approach when, seeking to take up a leadership role on country by country reporting under the Cameron premiership, it legislated itself in 2016 the legal power to require multinational corporations to make country by country reporting publicly available. The power was never exercised and in 2020 the UK Treasury under then-Chancellor Rishi Sunak officially u-turned on its support for making country by country reports public.⁸ PM Sunak’s government is expected to announce this week a package of tax increases on households’ incomes and austerity cuts to public services totalling £60 billion.⁹ The UK loses £27 billion in tax a year to multinational corporations using tax havens to underpay tax according to country by country reporting privately disclosed to the UK government, the State of Tax Justice 2021 reported last year.¹⁰

In addition to governments around the world losing US$312 billion in tax in a single year to cross-border corporate tax abuse by multinational corporations, governments also lost $171 billion to offshore tax evasion by wealthy individuals, the Tax Justice Network reported in 2021.¹¹ In total, the US$483 billion annual loss to global tax abuse was equivalent to losing a nurse’s yearly salary to a tax haven every second.

This year, however, the Tax Justice Network reports it is unable to publish new annual tax loss figures due to the OECD failing to publish the latest set of anonymised country by country reporting data in July. With the latest set of annual data from the OECD still not published, the Tax Justice Network says it no longer has enough time to analyse the data before the end of the year.¹² The organisation’s annual tax loss analysis has obtained worldwide media coverage in previous years, driving pressure on governments to take action on global tax abuse.

OECD’s “decade-long failure to deliver” tax transparency and reform

The Tax Justice Network is now urging the G20 to move the mandate on country by country reporting from the OECD to the UN in light of the OECD’s “decade-long failure to deliver”.

The OECD is demonstrably failing to deliver on reform of corporate tax rules. After 10 years of negotiations, the OECD’s ‘two pillar’ proposals will now not be adopted by either the United States or by the European Union – the two biggest powers in the OECD’s membership.

All the while, more countries, as well as investors and corporations have been steadily moving beyond the OECD approach. The EU required last year some multinational corporations to make some information from their country by country reports public, with the first set of data expected from 2023.¹³ Investors with trillions of dollars of assets wrote in 2018 to the US stock exchange regulator, the SEC, calling for it to use its power to require public country by country reporting from all US listed companies.¹⁴ In September this year, the SEC confirmed it is now closely considering this.¹⁵ Amazon shareholders attempted to push the company this year to adopt public country by country reporting.¹⁶ And major multinational corporations such as Philips and Vodafone have voluntarily made their country by country reports public by adopting the Global Reporting Initiative (GRI) Tax standard, which is considered to be the gold standard of country by country reporting.¹⁷

At the same time, countries outside the OECD – that is, the majority of the world’s countries – have proposed that the United Nations take on a new leadership role on global tax and provide a genuinely inclusive, global forum for intergovernmental negotiations.

Alex Cobham, chief executive at the Tax Justice Network, writes in the open letter¹⁸ to the G20 countries:

“The G20 was right to necessitate the creating of country by country reporting data, recognising the need and value of this global public good. The G20 is right, too, to remain highly concerned by the scale and damage due to corporate tax abuse. But even the most starry-eyed OECD member country must recognise that the organisation has failed to deliver both on the global public good of country by country reporting, and on providing a forum for tax rule-setting that is either inclusive or effective.

“We now call on the G20 to bring this global public good into the daylight of democracy at the UN, by supporting the G77 and Africa Group resolutions; by asking the UN tax committee to take up responsibility for country by country reporting data and/or by backing the creation of the Centre for Monitoring Taxing Rights through a UN tax convention.”

Hon. Irene Ovonji-Odida, a panellist of the UN High Level Panel on International Financial Accountability, Transparency and Integrity, a member of the African Union/Economic Commission for Africa High Level Panel on Illicit Financial Flows out of Africa (the ‘Mbeki panel’) and a Tax Justice Network board member, writes in the report’s foreword:

“Many economically wealthy states that are OECD members are seeking to block the creation of an intergovernmental tax body, and a UN tax convention. Presumably they continue to prefer an ineffective body in which they exercise disproportionate power. But many people in OECD countries, too, face grave pressures of inequality and climate crises. They, too, wish to end the social damage that corporate tax abuse inflicts on us all.  

“This report highlights an important way in which the OECD is failing everyone, driving inequality between and within countries. It should be a catalyst for the public around the world and especially within OECD countries to demand that their governments back a truly inclusive, transformative process to bring global tax to the UN.”

Progress on UN tax convention

A draft resolution¹⁹ calling for negotiations on a UN tax convention to begin was tabled last month at the UN General Assembly’s Economic and Financial Committee. The resolution, expected to be debated and voted on in December, follows years of growing global support for a UN tax leadership role:

• A call to develop a UN Tax Convention was first put forward by the Africa Group at the United Nations in 2019.
• The UN Secretary-General’s initiative in 2020 to explore responses to the Covid-19 pandemic identified a UN tax convention among the options for heads of state.²⁰
• In February 2021, The UN high level panel for Financial Accountability, Transparency and Integrity (FACTI) including former heads of state called for the establishing of a UN tax convention to implement a package of tax justice policies.²¹
• The World Economic Forum in June 2021 published a white paper identifying the UN tax convention among key policy pathways for an ambitious economic recovery post-pandemic.²²
• Also in 2021, the South Centre – the intergovernmental organisation of lower-income countries – published a briefing detailing a proposal for a framework UN convention on tax.²³
• The world’s first draft for a UN tax convention was proposed in March 2022 by civil society experts at Eurodad and the Global Alliance for Tax Justice, drawing battle lines for future negotiations at the UN.²⁴
• Finance ministers of the Economic Commission for Africa , representing around one in six of the world’s population and over a quarter of the membership of the United Nations, called on the UN in May 2022 to start negotiations on a tax convention to address comprehensively the threat of cross-border tax abuse, including by wealthy individuals and multinational companies.²⁵
• The new finance minister of Colombia, itself an OECD member, used the platform of a Tax Justice Network/Global Alliance for Tax Justice event on 6 September to announce the country’s support for a UN tax convention, and their plans to encourage Latin American consensus.²⁶
• The UN Secretary General António Guterres announced in September this year his readiness to support a UN convention on tax that would overhaul century-old global tax rules.²⁷

-ENDs-

Read the State of Tax Justice 2022 report

Read the open letter

Notes to editor

1. The Tax Justice Network is publishing an open letter to the leaders of G20 countries on Tuesday 15 November 2022 raising concerns about the OECD failure to deliver on G20 mandates on tax transparency and reform. An embargoed copy of the letter is available to read here.
2. Country by country reporting is an accounting method designed to expose profit shifting by multinational corporations. The method requires multinationals to report their profits and losses for each country they operate in, making it impossible for multinationals to move profits around the world for the purposes of underpaying tax without getting caught. Prior to country by country reporting, multinational corporations were required to only publish the global sum of their profits and losses without country-level details. This made it possible to move profits into tax havens before declaring them to tax authorities without getting caught. Evidence discussed in the State of Tax Justice 2022 report (see note 6 below) shows that the transparency measure has been effective in increasing the tax paid by reporting companies, but more than twice as effective when reporting companies were required to disclose their country by country reports publicly instead of privately to a tax authority – demonstrating the value of public accountability in making this deterrence measure more effective. More information about country by country reporting is available in the State of Tax Justice 2022 report.
3. For a more detailed discussion of the history and development of country by country reporting, see Cobham, Janský and Meinzer, 2018, A half century of resistance to corporate disclosure, Transnational Corporations 25(3).
4. Data on the number of reporting countries and collected reports is from a letter from the OECD to the Tax Justice Network. The OECD’s letter was a response to the Tax Justice Network’s letter to OECD raising concerns about the delayed aggregated country by country reporting data. See note 12 below for more information. Copies of both letters are presented in the State of Tax Justice 2022’s appendixes.
5. The State of Tax Justice 2021, published by the Tax Justice Network with the Global Alliance for Tax Justice, Public Services International and FES, found that the world loses $483 billion in tax a year to global tax abuse committed by multinational corporations and wealthy individuals.
6. The State of Tax Justice 2022 presents new analysis on the effectiveness of country by country reporting, and reveals that requiring multinational corporations that are already disclosing country by country reporting privately to disclose this reporting publicly can prevent $89 billion in cross-border corporate tax abuse a year – equivalent to preventing 1 of every 4 tax dollars lost to multinational corporations using tax havens to underpay tax. An embargoed copy of the report is available here (password: SOTJ#2022). The report will be published online here when the embargo lifts.
7. The Australia government announced new public country by country reporting requirements in its Budget October 2022-2023 on 25 October 2022.
8. Read more about the UK’s u-turn on making country by country reporting public here.
9. Read more about the UK’s upcoming Autumn Statement here.
10. The UK loses over £52 billion a year to global tax abuse. £27 billion of this tax loss is due to cross-border corporate tax abuse by multinational corporations and £25 billion is due to offshore tax evasion by wealthy individuals. This data is sourced from the State of Tax Justice 2021. See note 5 for more information.
11. See note 5.
12. Due to the OECD failing to publish aggregated country by country reporting in July this year, and with the data still not published as of going to press, the Tax Justice Network is no longer able to calculate new annual global tax loss before the end of the year. The Tax Justice Network raised concerns about the delayed country by country reporting data, as well as concerns about the robustness of this data to the OECD in a letter send in October 2022. The OECD replied in a letter asserting that the data will be published in 2022 but did not say when exactly. Copies of both letters are provided in appendixes of the State of Tax Justice 2022.
13. The EU’s attempt in 2021 at adopting public country by country reporting rattled multinational corporations’ woodwork but failed to deliver meaningful transparency. The attempt was characterised by shameless lobbying by companies that benefit from financial secrecy – the French government’s position was revealed to have been directly written by lobbyists, and the outcome reflects that entirely. More information is available here.
14. Read the letter to the SEC here.
15. Read about the statement from SEC chair on considering country by country reporting here.
16. Read more about shareholder efforts to commit Amazon to country by country reporting here.
17. More information on the GRI standard and on demands from investors on the OECD to adopt the standard is available here.
18. See note 1.
19. Read the draft resolution tabled in October at the UN General Assembly’s Economic and Financial Committee for a UN tax convention here.
20. The UN Secretary-General’s “Financing for Development in the Era of COVID-19” initiative is available here.
21. Read more about the UN High Level FACTI panel’s report here.
22. The WEF’s white paper is available here.
23. The South Centre briefing is available here.
24. More information about the world’s first UN tax convention draft proposed by civil society experts at Eurodad and the Global Alliance for Tax Justice is available here.
25. More information on the May 2022 statement from the African Union’s conference of finance ministers is available here.
26. Watch the Colombian Finance Minister’s announcement at the Tax Justice Network’s and Global Alliance for Tax Justice’s event of Colombia’s support for a UN tax convention, and their plans to encourage Latin American consensus.
27. Read the UN Secretary General’s report here, published Tuesday 27 September 2022, announcing his support for negotiations to begin on a UN tax convention.