Businesses and campaigners back global tax standard to tackle $500bn corporate tax abuse

By agency reporter
December 6, 2019

The Global Reporting Initiative has launched a new tax transparency reporting standard expected to prevent billions in tax from being smuggled into corporate tax havens. Developed in consultation with businesses, investors, civil society groups, labour organisations, accounting firms and tax experts, the new standard ushers in robust public country by country reporting measures that countries and international bodies have stalled in bringing about at a global level.

First proposed as an international accounting standard in 2003 by the Tax Justice Network, country by country reporting is designed to prevent corporate tax abuse by eliminating the financial opacity behind which multination corporations shift profits into low-tax or no-tax jurisdictions. An estimated $500 billion in tax is lost each year globally to multinational corporations illicitly shifting their profits into corporate tax havens – equivalent to double the value of petroleum gas exported each year. By requiring multinational corporations to publicly report their business activities at a local level in each country they operate, instead of at a global aggregated level, country by country reporting exposes mismatches between where a multinational generates profit and where the multinational may have reported that profit.

Even a technically weak version of public country by country reporting for European banks increased corporate tax contributions by 10 per cent when introduced in 2014. An equivalent response worldwide, the Tax Justice Network estimates, could raise $50 billion in global corporate tax contributions each year that otherwise would have been smuggled into corporate tax havens. Some $20 billion of that total would go to the lower-income countries that currently suffer the most from the corporate tax abuse epidemic. For comparison, the combined health expenditures of all lower-income countries, based on the most recent World Health Organisation figures, was $22 billion in 2016.

Support for the new global tax standard from responsible business leaders and investors comes amid proposals to reform century-old international tax rules and growing recognition of the economic and human costs of corporate tax abuse. The proposals under discussion at the OECD would introduce an approach called unitary taxation, which apportions the global, taxable profit of multinationals between countries according to the location of the underlying, real economic activity. Current assessments of competing proposals have been based on the less rigorous OECD country by country reporting standard under which data is provided privately to some tax authorities only, and withheld from the public.

The OECD standard is scheduled for review in 2020, and the Tax Justice Network is calling for the OECD to take the GRI tax standard as the benchmark for technically robust, and rigorously comparable country by country reporting. A key feature of the GRI standard, lacking in the OECD approach, is that it provides for reconciliation of the country by country reports, with companies’ consolidated financial statements. The GRI standard also allows meaningful comparison and aggregation by separating related party transactions.

Alex Cobham, chief executive at the Tax Justice Network, a member of the GRI technical committee that developed the standard and author of the newly published The Uncounted, said: “Twice as much tax is smuggled across borders into corporate tax havens each year by multinational corporations as petroleum gas is exported worldwide. When multinational corporations abuse their tax responsibilities to society, they weaken the supports that our economies need to work well and create wealth. This isn’t just bad for the public, it’s bad for investors and business too. Evidence shows that when multinationals engineer reductions in their tax contributions, investors receive no higher return – but they do suffer greater risks.

“We need to reprogramme our international tax rules to work for everyone and that starts by getting robust public country by country data in place, to allow informed decisions to be made. The GRI tax standard launched today delivers the highest quality of public country by country reporting data, as formulated by experts from all stakeholder groups including multinationals and accounting firms. We urge governments around the world to adopt the tax transparency measures that responsible businesses and civil society groups have voluntarily rallied behind.”

The Tax Justice Network has estimated that $500 billion in tax is avoided by multinational corporations annually. This is more conservative than the IMF’s estimate of $600 billion in tax avoided each year. The research from both organisations confirms that lower-income countries lose around $200 billion a year: less than high-income countries in absolute terms, but substantially more as a share of current tax revenues.

* View the new reporting standard here

* Tax Justice Network


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