Country by country reporting
Public country by country reporting is an accounting practice that requires companies to publish how much profit and cost they incur in each of the countries they operate in, instead of publishing all the profits and costs they incur around the world as a grouped sum. By requiring companies to detail how much profit they’re making in each country they operate in, this transparency practice makes it possible to spot companies shifting profits out of the countries where they do business and into tax havens so that they can pay less tax than they should. Country by country reporting doesn’t just expose profit shifting, it can deter it too.
Multinational corporations are currently not required to publicly report a country-level breakdown of their profits and costs. Instead, they sum up the profit they make in different countries they operate and the costs they incur, and publish global sum figures, masking the size of their profits and costs at the country level. This lack of transparency allows multinational corporations to move their profits out of the countries where they do business (ie, where they employ workers, run factories and offices, and sell goods and services) and into tax havens (where the company only exists as a rented mailbox) before they declare those profits. By moving profits out of the countries where they do business, multinational corporations can then underreport their profits in those countries and so pay less tax than they should or no tax at all, while the profits they moved into tax havens go untaxed or are taxed at an extremely low rate by the tax haven.
This practice – commonly referred to as profit shifting – results in trillions worth of profit being shifted each year into tax havens and costs governments hundreds of billions in lost corporate tax every year. By making it law for multinational corporations to publish their country by country reports so that we can see the real amount of profit each multinational corporation makes where it operates, multinational corporations will no longer be able to shift profit into tax havens without being caught and held accountable for it.
Many OECD countries already require multinational corporations to privately submit their country by country reports to their tax authorities, however, the reporting corporations are not yet required to disclose those reports to the public. Analysis of anonymised and aggregated country by country reporting data collected by OECD countries shows billions worth of corporate tax abuse taking place via profit shifting every year. But, without knowing which multinational corporations in specific are abusing tax, there’s little the public can do to hold corporate tax abusers accountable other than ask their governments to act – something governments have delayed and resisted for decades.
The Tax Justice Network started campaigning for country by country reporting in 2003, when our then-senior adviser Richard Murphy developed the world’s first country by country reporting standard. Despite being dismissed at first as unfeasible and being strongly opposed by the OECD, a watered down form of country by country reporting was adopted as a global standard by the OECD in 2014 after G20 countries mandated it. Since then, a number of countries adopted their own standards for country by country reporting, in some case in more robust form than the OECD’s. Some corporate groups, like Vodafone, have voluntarily started to publish their country by country reports. A gold standard for robust and effective public country by country reporting was published in 2019 by the Global Reporting Initiative (GRI), the world’s leading body on global standards for sustainable reporting. The GRI’s standards are practiced by 74 per cent of the world’s 250 largest corporations.
Public country by country reporting reprogrammes our tax systems to run on transparency instead of secrecy, helping make sure public funds are collected and put towards meeting the needs of all members of society. To truly eliminate profit shifting and stop trillions from being stashed in tax havens, we must make robust, public country by country reporting a requirement for all multinational corporations everywhere.