Why country-by-country reporting by multinational corporations matters

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I wrote earlier today about the arguments now going on in the EU about introducing country-by-country reporting for the extractive industries.

I have to say I am not objective on this issue since I created the concept of country-by-country reporting in 2003, but I maintain - and thousands of others who have campaigned tirelessly for country-by-country reporting in all of Europe's major development NGOs maintain that country-by-country reporting (CbC) is important for the following reasons:

1. Transparency matters. In many countries a corporation does not have to put its accounts on public record. That means that what an MNC does in that country is not a matter of public record. That matters. What MNCs do has enormous implication for the wellbeing of the world: CbC overcomes this problem. It puts all MNC activity ‘on the record’. Many investors appreciate this.

2. Corporate social responsibility (CSR) matters. CSR is about the relationship between a company and its host community. But this does require that the host community knows the company is there. CbC reporting provides that information.

3. Accountability matters. A company cannot be accountable unless it can be identified. This means that the names an MNC uses locally must be on public record. Too often they are not. CbC reporting names local subsidiaries.

4. Trade matters. At least 60% (and maybe more) of world trade is intra-group. In other words it takes place across national boundaries but between companies under common ownership or control. Existing MNC accounts completely eliminate all of this trade from public view. CbC shows it all. This is vital if trade relationships are to be understood, and made fair.

5. People matter. MNC accounts include statements on the number of employees a company has and their aggregate remuneration. CbC would require this statement for every country in which an MNC operates. This would provide invaluable information on labour conditions.

6. Tax matters. MNCs have more opportunity than any other group in a society to plan their tax affairs. They can seek to shift their profits from state to state to find the lowest overall bill. CbC discloses the profits that companies record in each country in which they operate and the taxes that they pay on them. This means they can be held accountable for what they do and do not pay. It’s estimated that if this problem were
tackled enough tax could be collected to pay for the Millennium Development Goals.

7. Corruption matters. The Extractive Industries are dominated by MNCs. The Extractive Industries Transparency Initiative seeks to hold those companies to account for the tax payments they make, and the governments that receive those payments to account for what they do with them. Many MNCs resist disclosure of information on what they pay because of competitive pressure, contractual obligations and local political
opposition. CbC would overcome these objections, significantly enhancing transparency in this sector, and help cut corruption.

8. Development matters. Developing countries lack revenue to finance public goods and services. Aid helps alleviate this problem but creates a dependency, harms the democratic accountability of developing country governments because they aren’t accountable to their electorates for what they spend and aid can itself directly contribute to corruption. Local declaration of economic activity by MNCs with the resulting accountability for taxes paid could break this cycle and help create fully independent, accountable governments capable of raising their own taxation revenues.

9. Governance matters. Many of the major corporate scandals of recent times have involved extensive use of offshore subsidiary companies. These are becomingly increasingly common throughout the MNC world, but it is recognised that the problem of managing them creates severe governance issues for MNCs. This results in increased risk for shareholders and others who need to understand the risk inherent in an MNC’s
activity.

10. Where you are matters. Some countries are politically unstable. If a company trades there shareholders should know. Some are politically unacceptable. If an MNC trades there civil society wants to know. Some countries are subject to sanction. Trading there is illegal. Where you are matters. CbC holds a company to account for where it is.

The EU is now considering the implementation of country-by-country reporting: please support the campaign to introduce it. You can do so by supporting Publish What You Pay and many of its members who are committed to the campaign, including Christian Aid and Action Aid.