Country-by-country » Tax Research UK

Tackling global tax evasion

Country-by-country, Economics, Task Force on Financial Integrity and Economic Developm, Tax Havens Comments Off

Jan 242012

It’s Davos week. Appropriate growth has to be on the agenda of all present. But so too does something else, and that’s tax evasion.

Tax evasion costs the world US$3.1 trillion a year in my estimation - at least 5% of world GDP. and we could stop some of it. I never pretend all of it: that’s impossible. But stopping some of it would radically restructure the economies of the world with special benefit for the poor.

In that case it’s good to see my Task Force on Financial Integrity and Economic Development colleague Nick Mathiason in the Guardian today explaining five ways to tackle global tax evasion. Please read what he has to say, here.

Ernst & Young are confused

Accountancy, Country-by-country, Ernst & Young 23 Responses »

Nov 222011

A representative from Ernst & Young came to the meeting I spoke at in the European Parliament last night on country-by-country reporting.

He was a very confused chap. I concentrated on EU related issues: Eurodad, as a development agency, unsurprisingly concentrated on developing country issues. And then up popped E & Y (and I paraphrase, but I hope accurately):

“I’m confused.” he said, “You want to tackle corruption is developing countries and you want to help EU countries collect tax. What is it you really want?” The poor chap sounded so confused as if reconciling such aims was beyond his no doubt highly paid ken.

But is it really that hard? We want accounts that simply say where a multinational corporation operates, what it is called in each country it operates and a profit and loss account, limited balance sheet and even more limited cash flow data for each country (almost without exception) on a basis that also reveals intra-group trading and that therefore holds global capital to account locally, wherever local might be.

Is that so hard to understand? I beg to suggest it isn’t, unless of course you’re wilfully blind and a major representative of the 1%. Not that I’m suggesting such a thing of E & Y, of course.

Eurodad and the need for transparency in Europe

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Nov 222011

I was delighted to talk at the launch of Eurodad’s new report – ‘Exposing the lost billions: How financial transparency by multinationals on a country by country basis can aid development‘ – last evening in the European Parliament.

The report is on country-by-country reporting and is another major contribution to the debate now going on in Europe on this issue, and how far such reporting should go.

The EU has conceded the case for country-by-country reporting, but only so far with regard to the extractive industries and forestry, and only with regard to payments to be made to host countries by companies extracting such resources.

Don’t get me wrong: I welcome this disclosure, but it’s far short of what is needed. As the representative of the Commission speaking at the event conceded, at a time when a deficit of tax revenue is at the core of the crisis facing Europe to concentrate solely on how accounting may be used to tackle corruption, but not financial disclosure or even tax due in developing countries does seem to be an ambition remarkably short of that required.

I argued the case for country-by-country reporting that I make in summary here and highlighted three things. First, if the EU really believes in the free movement of capital then it has to believe that movement must be accountable – and only country-by-country reporting can do that.

Second, if it really believes, as it says it does, in a single market then it has to believe in the integration of EU corporate tax systems and country-by-country reporting is designed to help provide the data to make that integration work.

Third, if the EU thinks that markets deliver well-being (and there’s no doubt they help do so) then they must also believe that openness, transparency accountability are all essential to ensuring a proper allocation of resources within markets. Preserving the status quo where 60% of world trade is hidden from view, and much of it is routed through tax havens, by the combination of consolidated accounts and secrecy jurisdiction subsidiaries within multinational corporations does not demonstrate commitment to that ideal.

There’s a long way to go in this debate as yet, with every chance the Commission proposals can be extended to embrace full country-by-country reporting. I’m up for the fight to achieve just that.

The Greens response to the EU commitment on country-by-country reporting

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Oct 252011

This has come in from the Greens in response to the EU’s commitment to country-by-country reporting for the extractive sector and forestry:

The European Commission today adopted proposals to revise EU rules on accounting and transparency (1). The Greens welcomed the proposals as a first step to improving transparency on the payments and accountability of large corporations but regretted that the Commission did not go further both in terms of scope and the extent of transparency. Commenting on the proposals, Green finance spokesperson Sven Giegold said:

“While it is welcome that the Commission wants to strengthen EU transparency and accounting rules, the selective approach proposed would make this a missed opportunity to properly shed light on the activities of corporations. Greater transparency is in the interest of investors and all stakeholders of a company. Aggregated figures in existing company reports are of limited value for getting a true picture of the economic performance of a corporation. In addition, country-by-country figures are vital for clamping down on corruption, bribery and tax evasion. Unfortunately, the Commission’s proposals are undermined both by the failure to ensure a sufficient degree of information about corporations’ activities and by the fact that full transparency is limited to a few sectors.

“We certainly welcome the proposals to ensure project reporting for extractive industries and forestry. Establishing a clear footprint, along the lines of the US Dodd-Frank legislation, will help limit the ability of irresponsible firms in these sectors to unethically extract resources from developing countries and conflict regions, and limit the scope for corruption and bribery in these areas. However, it is hard to see why these proposals should be limited to these sectors. Many developing countries depend on agricultural products and infant industries which would be excluded from the directive. Instead, what is needed is comprehensive country-by-country and project reporting for all large corporations. Only then can we verify if multinational corporations contribute a fair share of taxes to the countries where their activities take place.

“As regards, the proposed country-by-country information, a higher degree of information and greater detail is needed to ensure proper transparency of corporations’ activities. While it is correct to exempt small businesses from additional reporting burdens, the proposed project reporting also needs a more comprehensive and precise definition, with a reasonably low materiality threshold to ensure important information cannot be glossed over or omitted. We will work to strengthen all these elements of the proposals during the legislative process.”

(1) The Commission is proposing to update and merge the two existing EU accounting directives and to revise the EU transparency directive, as part of as part of the responsible business package.

I strongly agree.

But the Sven Giegold was, with me and others, a founder of the Tax Justice Network.

The EU says it is committed to country-by-country reporting

Country-by-country 4 Responses »

Oct 252011

Statement from EU Commissioner for Internal Market and Financial services, Michel Barnier and EU Commissioner for Development, Andris Piebalgs

During the African Union Summit with African Ministers of Finance last January in Addis Abeba, we committed to lead on the fight for more transparency of European extractive and forestry industries active in Africa. Today, by adopting legislative proposals for the transparency and accounting directives, requiring the disclosure of payments to governments on a country and project basis by listed and large non-listed companies with activities in these sectors, the Commission delivers on its commitments.

These new measures will improve sustainable business among multinationals active in the oil, gas, mining or logging sectors. It will play a groundbreaking role in the better management of natural resources and in the increase of domestic fiscal resources available to provide basic social services to the citizens. This new legislation will be a strong contribution to the Agenda for Change of European Development policy which aims at equipping Developing countries with the tools to foster sustainable and inclusive growth.

Today, the Commission establishes itself as an avant-garde in promoting transparency and goes well beyond the US Dodd-Frank act, putting the interest of developing countries at the forefront of this European domestic legislation. This will help to achieve a new step in the quality of our relations with Africa, based on mutual accountability and transparency.

We will now continue to taking the lead on the international agenda and promoting country-by-country reporting in global forum to ensure a coherent level playing field.

Well, clearly I am delighted. This is the next step on the way to full country-by-country reporting. A process that started when I wrote the first version of country-by-country reporting when my son Thomas (whose cartoon I posted earlier today) was 16 weeks old (it being delayed until he slept through the night) is coming closer to reality.

Thanks to all who have campaigned tirelessly on the way.

Now we have to get it through the Parliament.

And then make it global.

And apply it to all sectors.

For the benefits I describe here.

Time for the UK’s finance directors to answer the question “Why do you use tax havens?”

Accounting, Country-by-country, Secrecy jurisdictions, Tax avoidance, Tax Havens 11 Responses »

Oct 212011

Michelle Perry is a financial journalist who I have spoken to on and off for a decade. I note she’s just taken up a new role as editor of CFO World and in that capacity has written an editorial I want to publicise, because I think it important. Issued in response to Action Aid’s report on tax havens, using methodology I developed, she says:

There were numerous responses to ActionAid’s report earlier this month that 98 of the FTSE 100 companies use tax havens located as far as the Cayman’s to islands closer to home like Jersey. What wasn’t surprising were the polarised views. Tax issues rarely produce indifference.

No public defence was made by the influential, but media-shy, group of 100 finance directors. But the group did respond to me by email (not in person) to say that the Hundred Group are “absolutely committed to acting with integrity and transparency in all tax matters”.

The statement went on to say that the UK’s top companies continue “to make a substantial contribution to the UK public finances”. It quoted the annual study of total tax contribution – a survey set up six years ago to counter criticism of corporate tax avoidance. The survey shows that the Hundred Group member companies contributed £56.8 billion (or 11.9 percent of all government tax receipts) in the year to 31 March 2010.

The response to that is always, I suggest “So what? How do we know that’s the right sum?”. Perry seems to agree. She continued:

It’s true, of course, business does contribute significant sums in taxes to government. However the taxes cited in this report tend to be a combination of those borne and those collected.

It’s important not to blur the lines here. It’s this very point that many companies dislike. They do not like to feel that they are working as an unpaid, unglorified tax collectors for a government whatever its colour.

But in reaction to ActionAid’s research I do not feel this is a valid response. In fact it does not respond to the research, but redirects attention and shirks the issue.

We can not have a debate about tax or tax havens – their validity or not – until these companies and more to the point these finance chief acknowledge freely and publicly that they use them and why they use them. It may turn out that these reasons are wholly valid but until they state them, we cannot have a grown up debate about this burning issue.

We need to have this debate so that the companies can regain a value in the eyes of society and until we do large corporates will continue to be seen, wrongly, by a large majority of the British public, as a parasite of the taxpayer.

This is the perfect opportunity to speak openly and freely on these matters.

I should apologise for such a lengthy quote. But I think this a really significant argument and I applaud Michelle Perry for making it.

Might I suggest that the next step is to ask for country-by-country reporting?

Task Force to the G20

Corruption, Country-by-country, Development, Information exchange, Secrecy jurisdictions, Task Force on Financial Integrity and Economic Developm, Tax avoidance Comments Off

Oct 172011

The Task Force on Financial Integrity & Economic Development (of which Tax Research UK is a committee member) released the following communiqué following its 2011 annual conference, held this year in Paris, France on October 6-7, 2011:

This past week, the Task Force on Financial Integrity and Economic Development (Task Force) concluded its annual two-day conference in Paris, France, building upon its success in recent years establishing an awareness and understanding of the problem of illicit financial flows and the importance of increasing transparency in the global financial system.

The Task Force further developed its five recommendations for achieving greater transparency in the global financial system—beneficial ownership disclosure, automatic tax information exchange, trade mispricing curtailment, country-by-country reporting by multinational corporations, and better anti-money-laundering laws, into a working plan for the G20—taking into account obstacles and logistics of implementation.

Specifically, the Task Force recommends the following next steps for the G20, when it meets next month:

Support ongoing efforts to improve domestic resource mobilization for tax collection and empower anti-corruption efforts through greater transparency and accountability of Multinational Corporations (MNCs) in the Extractive Industries. Specifically, (1) support full implementation of the Cardin-Lugar provisions (Section 1504) of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2011 as well as similar legislation that is currently moving through the European Union, and encourage G20 member countries to adopt similar provisions for country-by-country reporting by MNCs in the extractive industries; (2) explore mechanisms and standards to increase transparency on MNCs contributions to governments beyond the extractives; and, (3) encourage members to commit to the Convention on Mutual Administrative Assistance in Tax Matters.
Urge the Financial Action Task Force (FATF) to include (1) establishment of tax evasion as a predicate offense for money laundering, and (2) improvement of the peer review process for member countries in the 40+9 Recommendations as a result of the Review of the Standards currently underway.
Strengthen anti-bribery provisions by implementing and enforcing laws criminalizing foreign bribery and prohibiting off-the-books accounts in accordance with the OECD Convention Against Bribery of Foreign Public Officials and UN Convention Against Corruption (UNCAC), and regularly reporting on the enforcement of these laws.
Call upon member countries to establish national registers of companies, trusts, and other legal entities with information on accounts, beneficial owners, nominee intermediaries, managers, trustees, and settlers. This information should be made available to any tax authority.

Every year, developing countries lose approximately $1.3 trillion in illicit financial outflows—the proceeds of crime, corruption, tax evasion, and trade mispricing. This loss of capital outpaces current levels of foreign aid by a ratio of 10 to 1. Curtailing these outflows is crucial to nurturing a stable and robust economic recovery in global markets, stamping out political corruption and crime, and fostering good governance in emerging economies.

The Task Force on Financial Integrity and Economic Development is a unique global coalition of civil society organizations and more than 50 governments working together to address inequalities in the financial system that penalize billions of people.

Country-by-country reporting seminar, European Parliament, 21 November

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Oct 132011

Eurodad and MEPs Sharon Bowles, Antolin Sanchez Presedo and Sven Giegold are glad to invite you to our:

Roundtable: Country-by-country reporting: How financial transparency by multinational companies could contribute to development

Monday 21 November 6-8 PM., Paul Henri Spaak Building, Room P7C050

European Parliament, Brussels

The roundtable will follow the release of the proposed revision to the Transparency and Accounting Directives. This will include EU Country by Country Reporting (CBCR) requirements for the extractive and forestry industries.

The event will also launch Eurodad’s new report “Country-by-country reporting: How financial transparency by multinational companies could contribute to development” which provides examples of tax evasion and aggressive tax avoidance both within and beyond the extractive sector. The report argues that comprehensive reporting is needed and makes concrete proposals for optimal standards to extend beyond the extractive sector.

We invite the panel to not only consider the Commission’s proposal but also seek its views on further progress that could be achieved on country-by-country reporting reflecting on the European Parliament’s statement that “country-by-country reporting is of the utmost importance for extractive industries, but recalls that it would equally be beneficial for investors in all sectors, thereby contributing to good governance globally”.[1]

This event will bring together key people from the Parliament and Commission and Danish Government who will host the EU presidency in 2012 EU at a crucial time for country by country reporting.

Chair Antolín Sánchez Presedo MEP

Speakers

Michel Barnier: European commissioner DG Markt (invited)

Sharon Bowles MEP

A Representative of the Danish Government (Invited)

Richard Murphy: Tax Research UK

Marta Ruiz: Eurodad

The number of places is limited so please register as soon as possible by email only, to amarriage@eurodad.org registration will close on November 11, 2011.

Uganda moves to tackle extractive industries corruption

Corruption, Country-by-country, Development 2 Responses »

Oct 122011

The BBC reports:

Uganda’s parliament has voted to suspend all new deals in the oil sector following claims that government ministers took multi-million dollar bribes.

MP Gerald Karuhanga said in parliament on Monday that UK-based Tullow Oil paid bribes to influence decisions.

Tullow said it rejected the “outrageous and wholly defamatory” allegations.

The vote is a big blow to President Yoweri Museveni, who has been in power since 1986, analysts say.

The BBC’s Joshua Mmali in the capital, Kampala, says it means the government will not be able to sign new oil deals until a petroleum law is enacted.

During a heated parliamentary debate on Monday, Mr Karuhanga tabled documents alleging that Tullow Oil bribed Prime Minister Amama Mbabazi, Foreign Minister Sam Kutesa and former Energy Minister Hilary Onek.

This is great news! Corruption of this sort has to be tackled: those involved have to be named and oil revenues have to be made accountable, most especially through country-by-country reporting.

Uganda has taken a step in the right direction.