After two weeks of silence, the OECD has addressed1 its role in delaying breakthrough tax transparency legislation in Australia, which was confirmed this weekend in frontpage news by the Financial Times.2 Reports of the OECD heavily lobbying against the legislation were first brought to light by CICTAR and the Tax Justice Network.3
A statement was published by OECD Secretary General Mathias Cormann on Twitter. Reacting to the statement, Alex Cobham, chief executive of the Tax Justice Network said:
“It’s disappointing to see the OECD come out with these inaccurate claims and double down on protecting its own agenda over tax transparency. This is something you’d expect from a politician, not an international organisation.
“The OECD claims the Financial Times reporting is ‘false’ – not inaccurate but outright false – to suggest the OECD pressured Australia over its planned legislation. But in the very same statement, they admit that they ‘raised a number of technical issues’ leading Australia to delay its law.
“What the OECD has done is confess that it pressured a member against adopting measures to curb tax abuse – just as CICTAR and the Tax Justice Network had suggested, and the Financial Times confirmed.
“The OECD’s attempt to justify these actions is also flat wrong. The OECD claims that they lobbied against the law because it would have breached the confidentiality terms of the OECD standard, raising the threat that other countries might withhold information. But the Australian legislation is explicitly designed to comply with their international obligations, and the Australian government made this crystal clear in the law’s explanatory documents.4
“Australia’s public country by country reporting law would create a new reporting obligation on multinational corporations. The data collected and published under the Australian law is completely separate from data collected and published under the OECD’s less effective standard. Australia would not be publishing any data collected by other countries under the OECD’s confidential standard. Australia’s law would instead require companies themselves to publish data, primarily under the GRI Standard5, which some multinational corporations are already voluntarily doing, and so literally cannot breach the OECD standard.
“The OECD’s claim is like a newspaper demanding no other paper be allowed to cover a press conference because it arrived at the conference first – and that we should all settle for the newspaper’s incomplete reporting. The OECD’s statement conflates Australia’s separate country by country reporting with its own, which the experts at the OECD surely know is erroneous.
“In fact, we can be certain of this because in 2020, the OECD’s own consultation on its standard brought an overwhelming public response from experts, civil society and investors with trillions of dollars in assets under management, all telling the OECD that it should converge to the GRI standard and also require its reporting to be public.6 The OECD has never responded to this – but it stretches credibility to ask us to believe that the organisation’s experts are not aware of the major differences.”
The OECD’s claim that the introduction of its own standard was conditional on data collected under its own standard remain confidential is also questionable at best. When the G20 mandated the OECD to introduce country by country reporting – which by design requires making companies data public – it was the OECD that introduced confidentially into the standard, negating much of the value of country by country reporting.7 A prominent supporter of the standard at the time in 2016, the UK, passed a law allowing it to publish the data and lobbied for the EU as a whole to do so. The current UK government has since u-turned on country by country reporting, but the law allowing public reporting remains on the books.8 The fact that some OECD members may be insisting on confidentiality now, does not mean this was always the case. Either way, whatever stipulations OECD members have for the OECD’s own standard has nothing to do with the GRI standard nor with Australia’s own domestic implementation of public reporting.
The OECD confirms that it warned the Australian government that its law might unintentionally weaken efforts to curb global tax abuse, but does not provide any evidence to support this claim. On the contrary, a wide body of evidence shows that making country by country reporting data is far more effective at curbing global tax abuse than keeping the data confidential.9
The OECD has been publishing anonymised country by country reporting data for three years, during which no significant dent has been made in curbing profit shifting and global tax abuse. Tax experts largely attribute this to the fact that the OECD’s requirement to anonymise the data shields multinational corporations from accountability, and to the OECD’s continuing failure to deliver meaningful reform of tax rules in the process that effectively began in 2013. Even if OECD members were to stop sharing anonymous data under the OECD standard in protest to Australia ending the practice of anonymity under its own standard, global tax abuse would still be significantly curbed. Governments around the world could expect to see a drop in their corporate tax losses to tax havens as a result of Australia’s law.
Due to the nature of multinational corporations, Australia’s law would apply to 21 per cent of multinational corporations around the world.10 That’s over 2000 multinational corporations, including the world’s biggest household names, that will finally be made to publicly report where they pay tax. Conservative estimates show that 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.11
“The OECD’s extraordinary actions 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,” said Alex Cobham.
The OECD’s statement 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.12 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.13 Latin American and Caribbean nations will be meeting at a first-of-its-kind regional summit14 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.15 The OECD was reported to have been unprecedently aggressive in its lobbying to prevent the historic resolution from coming to pass at the UN.16 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, nor by the OECD’s statement on the matter.
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 2013.17 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.18 The watchdog urged the countries to reject the OECD’s proposals.
Notes to editor
- Read the statement by OECD Secretary General Matthias Cormann here.
- Read the FT frontpage news story here.
- Read the Tax Justice Network’s initial warning of OECD lobbying here.
- The explanatory documents are available here.
- More information about the GRI Standard is available here.
- Read more about the responses to the OECD’s public consultation here.
- 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 moved beyond by requiring multinational corporations to make their reports public under its own separate standard. This where the strength of the Australian legislation comes from.
- More information on the UK Treasury under then-Chancellor Rishi Sunak publicly u-turning on country by country reporting is available here.
- More information on the impact of public country by country reporting is available here.
- 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.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. See the State of Tax Justice 2021for more information on how much tax countries lose to tax havens annually.
- See the State of Tax Justice 2022for more information.
- More information on the European Parliament backing a UN tax convention is available here.
- Watch the statement by the African Union Commissions’ acting head of division for economic policy here.
- Read more about the Latin American summit here.
- More information on the historic UN vote is available here.
- 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.
- More information about the BEPS Monitoring Group’s report is available here.
- 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 here and 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).