A growing number of leaks and scandals from tax havens have put tax avoidance by big multinationals into public focus and on the political agenda. For years, a few big corporations managed to obtain special advantages at the cost of society using their privileged access to technical expertise and the complexity of international tax law. They have influenced politics, tax agencies and the rules in their favour. Detailed, country-specific information on economic activity, profits and tax payments are an important instrument to make their tax avoidance publicly visible and to enable public control of tax agencies and democratic discussion on the political reform efforts. Intensive lobbying at all levels has ensured that after more than forty years, we have not reached this milestone. The long history of the emergence of CBCR illustrates the challenges in holding powerful multinationals to account.
First proposals for more detailed public reporting by a UN commission in 1977 were rejected because of coordinated protest by business groups from the industrialized countries. On their behalf, OECD countries in the negotiation room forced consensual voting in the commission, which was later dissolved without progress. At the same time of the UN commission, another business-driven institution tasked with developing reporting standards was founded under the lead of the big accounting companies. Its first relevant draft standards of 1980 contained at least a weak geographical segmentation of reported figures.
Despite strong conflicts of interest at the creation of these business-driven standards, they obtained quasi-legal status in the EU in 2001 and have spread globally since then. The discussion about removing the segmental reporting obligation between 2006 and 2008 showed the fundamental differences between the interests of corporations as information providers and investors as well as the wider public. In the end, the EU abolished the obligation without sufficiently accounting for the counter-arguments. The Big Four accounting companies played a problematic role as advisor of both corporations and politics.
Partly thanks to pressure from civil society, country-by-country reporting (CBCR) entered the political agenda from 2003 onwards, starting with extractive industries, then covering the EU banking sector and leading to comprehensive proposals from the OECD in 2013 and later the EU in 2014. Yet, the high degree of technicality and the focus on business interests at the OECD led to a limitation of access to selected tax agencies. In comparison, the EU negotiations were more open and discussions more diverse despite strong pressure from business interest, mainly from Germany. Through repeated consultations, reviews and attempts to shift discussion to the tax area with its requirement of unanimity, the process was delayed until today despite the European Parliament voting in favour of more transparency twice – in July 2015 and July 2017.
The history of the emergence of CBCR shows that there are fundamentally different perspectives between corporations and accountants, investors and the public; and between developing countries and capital exporting OECD economies. Accounting standards should therefore not be left to technical experts. They should instead be subject of an open political process and be negotiated in an international forum in which private and national interest take second stage behind the global public good.
The fierce opposition against public disclosure of country level financial information by business lobby groups, seconded by respective governments, illustrates the importance of CBCR disclosure in a context of growing scales of tax avoidance since the mid-1990s.
Key findings
- Efforts to develop country by country reporting policies in the late 70s by a UN commission was founded under the lead of the big accounting companies. The same happened later with OECD proposals.
- The Big Four today have a combined turnover of EUR 120 billion globally and employ 750,000 people. They work as tax advisors and consultants to political institutions and oversight bodies. They themselves are organized as networks of separate companies and don’t publish any consolidated accounts – in a way deviating from the rules they made themselves.
- Disguised as self-regulation, private business actors take on specific regulatory tasks on behalf of the state and influence the standards as well as their implementation.
- Corporate interests, supported by certain Western governments, have successfully delayed, derailed or watered-down initiatives for greater financial corporate transparency, employing a massive lobby machinery and diverse tactics.
Key recommendations
- Holding multinational companies to account for tax abuse.
- Public country-by-country financial Reporting must enter the agenda of international policy makers.
- Public country-by-country policies must be framed as an accounting matter, and not just as a tax matter, since otherwise It would never get adopted, held up by the requirement for unanimous decision making in tax matters in the European Union.