Christian Aid has issued a new report called “Shifting sands: tax, transparency and multinational companies”.
As they say:
In January 2009, Christian Aid launched a public campaign to highlight the role of taxation in development and expose the impact of tax evasion and avoidance on developing countries. The campaign was based on the premise that, in the long term, developing countries need to raise revenue to enable them to provide essential services to poor people. However, it is not only the amount but also the source of revenue that is important. Over-dependence on aid or natural resource rents has, in the past, led to governments being more accountable to aid donors than to citizens — or indeed not accountable at all. By generating revenue from tax, governments are likely to be more accountable to their citizens and in turn citizens are more likely to engage in the political process — demanding services and representation in turn for the taxes they pay.
And as they argue:
Christian Aid argues that tax is crucial for development and that transparency is a necessary step towards holding MNCs to account for the taxes they pay.
As the rightly observe:
Revenue authorities are often weak and fail to collect the taxes they should; the size of the informal sector makes monitoring of economic activities and the collection of taxes a huge challenge; countries are ill-equipped to monitor and effectively tax international financial flows; and there is a lack of accountability regarding agreements with and the operations of multinational companies (MNCs) and the taxes they pay. The latter problems are exacerbated by limited international cooperation in tax matters and the lack of participation of developing countries in (or indeed their direct exclusion from) international tax matters.
I am well aware that many multinational corporations say that this is the right direction travel with regard to reform, that national tax authority be given the resources they need. I agree, that is essential. But there is a remaining fundamental problem. They can have all the resources they desire, but without data they have no evidence base to decide which cases to pursue or to argue that there has been, in particular, systematic transfer mispricing out of their jurisdiction.
As Christian Aid says, the answer is that:
At present in international accounting standards, MNCs are not required to provide a country-by-country picture of their financial activities showing where profits are made and taxes paid. Because of this, a range of stakeholders lose out:
â€šÃ„¢ revenue authorities and civil society cannot monitor the allocation of profit between companies operating internationally and, if necessary, challenge the company’s local tax arrangements;
â€šÃ„¢ investors have incomplete information when assessing risk (including tax risk);
â€šÃ„¢ tax-compliant and responsible companies miss the opportunity to demonstrate powerful public evidence of their corporate social responsibility (CSR) in regards to tax payment.
It's great to work with them on this campaign in which they are undertaking positive role, and research. It is curious to note some of their research findings:
It is clear that country-by-country reporting is possible. Eleven firms [surveyed by Christian Aid] agreed that â€šÃ„Ã²this information is already recorded within our company’ and 19 firms agreed, or did not deny, that it would be possible for the company to collate this information. Seven firms agreed that â€šÃ„Ã²it would be reasonable for this information to be audited’ and seven firms were neutral on this point. In response to the statement â€šÃ„Ã²publishing this information would further the development agenda’, four replied positively, 11 gave a neutral response, and four responded negatively.
These are significant steps forward,and like Christian Aid I can no doubt at all that country by country reporting will be a reality, sooner than many expect.