Country by country – the momentum builds

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The FT has reported:

Stephen Timms, financial secretary to the UK Treasury, will push this week for a move towards “country-by-country” financial reporting for multinationals.

The move comes as finance ministers meet in Berlin on Tuesday to review the international crackdown on tax havens.

The Treasury, keen to expand the campaign to include aggressive avoidance as well as evasion, believes that the additional reporting requirement for multinationals would bring more transparency into their negotiations with developing countries on transfer pricing. This determines the allocation of taxable profits between parts of a multinational.

The idea is largely opposed by business, in part because of the extra compliance burden. Some development experts also question the approach, given the more fundamental problems facing some developing nations’ tax administrations.

A critique of existing research on the country-by-country reporting issue will be published on Tuesday by Britain’s Department for International Development.

Which I admit I find rather odd: as creator of the concept they never sought my opinion, but knew where I was. I wonder how objective it is in that case? Or could the omission be explained by that it was written by my old friends at Oxford:

The study, by the Oxford University Centre for Business Taxation, says tax losses from profit shifting by multinationals due to faulty transfer pricing have been “overestimated drastically”. It also criticises estimates of tax evasion by rich individuals in developing countries, which some reports have put as high as $124bn (€89bn, £75bn) a year.

It says: “Overall, it is fair to conclude that most existing estimates of tax revenue losses in developing countries due to evasion and avoidance are not based on reliable methods and data.”

It also questions the view that tax evasion is the prime motivation for money being shifted out of developing countries, saying that political instability and concerns about property rights may be more important. But the study supports the call by campaigners and aid charities for more transparency, and says evasion and profit shifting are likely to be significant problems.

I’m inclined to note that ‘they would say that’ of our estimates, but it doesn’t really worry me: the fact is this: if the estimate is wrong but the problem is real now please fund the research to replace that done by us with tiny resources but who have none-the-less dragged this issue onto the international agenda. I suspect this critique got more funding than we have ever enjoyed in combination.

So let’s now work to really tackle the issues. And accept that country-by-country reporting is one of the solutions.

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