The G8 communique does, I admit, feel like a minor personal triumph. In its paragraph 25 it says:
Comprehensive and relevant information on the financial position of multinational enterprises aids all tax administrations effectively to identify and assess tax risks. The information would be of greatest use to tax authorities, including those of developing countries, if it were presented in a standardised format focusing on high level information on the global allocation of profits and taxes paid. We call on the OECD to develop a common template for country-by-country reporting to tax authorities by major multinational enterprises, taking account of concerns regarding non-cooperative jurisdictions. This will improve the flow of information between multinational enterprises and tax authorities in the countries in which the multinationals operate to enhance transparency and improve risk assessment.
It's a decade since I wrote the first version of country-by-country reporting. Along the way I have been vilified by companies, tax advisers and even tax authorities who have said country by country could not work, would not help tackle tax avoidance, did not provide useful data and should be quietly forgotten.
Now it is going to be at the forefront of the fight on global tax avoidance.
I am still not happy. I do, of course, want the data on public record in the accounts of multinational companies. But that is the next step. Tonight I am happy to have made a contribution to the debate.
Now I wonder who will get the contract to do the technical development; me, or a Big 4 firm?
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Well done Richard. Tomorrow is, as you say, another day. But I hope you sleep well tonight – you certainly deserve it!
26 also endorses automatic information exchange – quite clearly, and it calls for the OECD to develop it.
This is an important step foward, these are largely your ideas. Believe me this is just about as good as you are going to get out of a G8 communique.
This is a triumph for TJN and for yourself. The best result you could have hoped for.
Have a drink and celebrate, if you get a chance. These are not insignificant statements. G8’s are about setting agendas, priorities and creating political pressure and a political climate. It has done this. CBC and AIE are pre-requistes for unitary taxation. This sets the agenda and the direction of travel. It doesn’t provide us with a route map to get there, but you were never going to get that. In a spirit of understatement, I think you can chalk this up as a result.
If I didn’t think that the honours system was totally discredited, I’d say you deserved a gong. Oh, and Prem and JohnC too.
Hear, hear.
Congratulations Richard. See how the implementation goes…
That came out understated. Well done!
Good luck with that one, Richard!
I confess that although I like the rhetoric, I fear it will be no more than that. The vested interests in the US are *so* strong, and the current UK govt tolerates a gaping chasm between its tax avoidance rhetoric and its actual practice so cheerfully (and – given how deeply implicated in tax avoidance the Cameron and Osborne families and presumably their peer group have been – it’s hard to believe the deep-down admiration for the tax avoiders is really going to change) …. that I’m not myself brimming with optimism.
I’m not generally prone to cynicism, but really, in this case, I’ll believe it when I see it.
It’s a huge, tremendous achievement, many congratulations.
The Big Four will now complete the usual trajectory of first ignore, then vilify, then claim it’s common sense and they thought it all along.
I completely agree data on the public record in the published accounts is a very reasonable request.
OK. Now I feel bad at my curmudgeonly response!
Well done, Richard! This *is* significant – just getting these issues onto the agenda, in the face of such vested interests.
I’m utterly persuaded that this is one of the major ethical issues of our age, and am busily trying to work it onto the curriculum of a major University’s business school – it’s an issue for governments of course, but also for every single company, in deciding its approach to tax (and of course it presents what looks like a classic example of the ‘tragedy of the commons’). Most people in business simply don’t see this as an area in which they need to step up to the plate and act ethically. Merely getting it on people’s radar is a big deal.
So …. in more upbeat mode ….. well done, sir!
Thanks
Can we talk re the curriculum?
I’ve sent you an email off-list wrt the curriculum.
On the you or Big 4 question, I’m afraid to say that I would rather see the Big 4 as their combined experience gives them a much greater grasp of the complexities involved and much more rigour on review processes than any one man band could ever hope to have.
Country by country reporting is more of a financial accounting exercise than a tax exercise and I suspect that your experience on advising large mutli-nationals (across the a range of industries) on the practicalities of financial accounting is limited. For example, how is your grasp of the nuances of financial accounting and tax in respect of life assurance companies?
So I can create it, persuade the world of its relevance, write almost all the technical material on it to date, but apparently not know enough about it?
Very odd
Correct. Like all these things the devil is in the detail. I have read all your research papers and they are pretty high level being effectively a laundry list of required data. They don’t mention any of the practical aspects of producing meaningful information or real interpretational guidance. Neither do they cover many important tax and financial accounting technicalities either generally or specific to certain industries (other than some mention of extractives) or tax regimes. Some bits are missing entirely (Other Comprehensive Income as just one of many examples)
And you think all those have not been thought about?
Why?
They were targeted at their moment
Now is a new moment
Correct again. I am pretty certain they haven’t all been thought through and there’s simply no evidence to suggest they have. To be honest, no one person is capable of doing that and certainly not someone whose main advisory experience seems to have been gained in the world of SMEs and individuals no matter how long they have been agitating for a change. As many businessman find out sometimes their business out grows their skills of running it and they have to pass on the reins.
I never suggested I could do it all
I did wonder whether I might even be asked
Think J Ledbetter is just stating this is too much work for one man! The Big 4 by their very nature can leverage a huge amount of resources around the globe, market insight and practical experience! Not even you can compete with that…unless as some of us suspect you are ‘in fact’ omnipresent!
Time for you to sit back and enjoy The Good Life!
Of course one person could not do it all
But one person created the idea
And could advise on how it might work
Better than the Big 4 who have sought to destroy it
I think T. Good is correct. Even if you created it, it does not follow you have the wide range of technical competence to make it actually work.
For example, it does not appear that you have thought through the fact that different parts of the group will be under different local GAAPs.
So taking Starbucks as an example, the UK stat accounts on which UK tax is based is under UK GAAP. However, the Starbucks Inc. group accounts are under US GAAP and so will any break out under CbC in your proposal. So the UK tax is based on a completely different figure (sometimes markedly different) to what will be produced under CbC with no hint that there should be any reconciliation.
So “tax gaps” either positive or negative will apparently be produced not just from ignoring the local tax legislation but also because legitimate and real accounting adjustments caused be the different accounting regimes.
I am undertaking an academically fund end review of GAAPs right now
Just for information
Congratulations Richard – just getting Country by Country reporting this far is an epic achievement.
I wouldn’t trust the Big 4 with anything without proper oversight.
Deloitte have already demonstrated their “expertise” at one of Lloyds Bank’s PPI complaints handling centre!
I have just re-read the paper on Unitary taxation. It isn’t clear how country-by-country fits with that. Could you do a piece to explain.
CBC is not a tax system
It shows where companies record profits
It shows where sales are
It shows where labour is
It shows where assest are
the last three are used as the basis of the formula to restate the first
So that makes three simple categories a group would need to report; you woudn;t need to report the first on a cbc basis wold you.
Yes
Because you need to check the plausibility of data, and that in itself requires full accounts
No.
You need a single consoldated set of accounts because that is the profits figure upon which the single tax profit calcuation will be based. The profits made by group companies in particular coutires don’t matter under Uniary Taxation; the apportionment is based upon those three categories you list above.
As regards plausability, tax compliance work will also necessarily be conducted on a unitary basis. That will involve the same principles as tax compliance is currently based upon, looking at the underlying records. Other than recording sales, workforce and assets in individual countrys no cbc analysis is necessary.
But you need all the other data to choose the right formula
Again no, just no.
A Unitary system, such as the one you have supported, is Unitary. What is needed for it is the data you outlined above. The consolidated profits, that is the unified profits are apportioned and all you need are those unified profits and national figures for sales, tangible assets And workforce. Amongst other data IP is expressly excluded from the data.
But hey, I’m not the guy who single handedly re-framed the entire world tax debate. So please go ahead and explain how all that other stuff helps “choose the right formula”. If I bore you then just show me the link. At the moment, however, the paper I have read, which I followed direct from your blog, does nothing to indicate any need for any detailed cbc reporting.
That has been done, many times over
And I do not propose to repeat it here