I am taking part in a conference in the EU parliament marking the anniversary of the Panama Papers today. I am talking about the role of country-by-country reporting in tackling illicit financial flows. These are my slides:
Tackling illicit flows: Country-by-country reporting
- Richard Murphy
- Professor of Practice in International Political Economy: City, University of London
What CBCR is
- CBCR is accounting data: it is not tax data
- CBCR shows what a multinational corporation does in each country in which it operates
- It does this by publishing:
- An abbreviated income statement including sales, profit and tax information
- Some employment data
- Limited cash flow data
- Some balance sheet information
- And some narrative explanation (hopefully)
- This permits a tax risk assessment
- But more importantly it is about holding global corporations to account locally
What CBCR does
CBCR changes:
- The way we look at multinational corporations:
- They are not monolithic entities but a patchwork of local enterprises that are integrated into something bigger than the parts
- The way that multinational corporations account:
- Their responsibility is no longer just to shareholders but to all their local stakeholders as well
- Our understanding of tax:
- Taxes are not a lump sum paid by one multinational company but are the sum of all the individual payments made in a great many places, and we have to understand them all
- Corporate behaviour:
- What we measure counts. If multinational corporations have to account locally it will change their behaviour in those places
Why CBCR will work
CBCR will work because:
- It exposes who uses tax havens:
- And no one enjoys that now
- If MNCs know that their tax abuse can be exposed by CBCR they will change their behaviour:
- No one wants to be shown to be cheating
- It is easy to use:
- And the work I am doing at City, University of London (and with others) intends to make that easier still
- MNCs will know they can be held to account locally:
- They will improve their local performance to meet stakeholder expectations as a result
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Where’s the funding coming from for this? Just curious.
Also, I think the emphasis should be on companies being compelled to comply with CBCR leads to the benefits claimed. The way this is written you could think that CBCR magically does the work on its own and at no cost. It requires people, costs money, and requires enforcement and we know how hard it is to take big corporations through the legal system, often for no practical result.
Sorry, funding coming from for what Stephen?
And remember, I have extremely limited time today – hence my focus
This would be a regulatory requirement: the company would be required to pay for this work to be done to satisfy the requirement out of its own resources. And then state organs (say, HMRC, or Companies House) would be mandated to check that it is being done, so some funding would be required for that work too.
The argument is often made that the company “must” have this sort of data already to hand for its own internal purposes, so the incremental cost is minimal. The reality is that someone needs set up the systems to create the data and/or extract it into the required format, and then check that the extracted data is correct.
If this is not tax data, then presumably HMRC should not be responsible for making sure that this accounting work is done, just like HMRC are not responsible for regulating accountancy or audit work, although they make use of the work product.
The data does now exist
The claims that it imposed a cost have largely been proved untrue
Regulating this is a real cost where regulators turn a blind eye to most abuse
In many cases data does exist, of course, but not necessarily in the format required. Are you suggesting that country by country reporting will be essentially cost-free to businesses? That is the sort of regulatory impact assessment we have come to expect from HMRC and it is entirely unrealistic.
Sure, regulators need funding to make sure that regulations are followed. HMRC and Companies House are woefully underfunded. But do not underestimate the costs to businesses of complying with regulations. It may well be the cost of doing business, but it is not zero.
I am saying it does now exist so the cost is already incurred
“The claims that it imposed a cost have largely been proved untrue”
Quite so. I’m all in favour of country-by-cuntry reporting.
With the use of business intelligence software “Cognos” for example the data extraction and report formatting is simple, straightforward and cheap.
Precisely
Cheap is not free. Someone has to pay for it, whether it is £10, or £1,000, or £100,000.
How much does the software cost? What is the cost of employing the person to operate it, or of the third party contracted to do that instead?
We are talking about the accountability of entities turning over more than €750 million a year
If they have not got database mining systems that can produce this data there is something profoundly wrong with them
So there is the assumption. This is free because you assume that the systems are already in place to do it all at the press of a button, in the correct format and with no need for review.
Do you think regular accounting information, financial reports, and tax returns are complied automatically with no human intervention and for zero cost?
But the returns do have to be done and be reviewed already so my assumption is wholly appropriate
Agreed that by definition nothing is at no cost, but the cost will be negligible – and certainly nothing compared to the vast number of create once and now forgotten reports I have seen that are produced on a regular schedule from such systems.
Furthermore you could argue that such a report would have a value far beyond whatever cost is incurred in alerting to, and mitigating against, potential reputational risk.
Thank you, Richard, for helping financial non-whiz kids like me get a grip on understanding a topic like this.
Corporate organisation and behaviour is fundamental to the lives we all lead at the moment, yet it’s so difficult to figure out how it ‘works’and what is linked to what.
Thank you for being an information bridge I’ve come to trust. You have a knack for explaining things in simple, easy-to-understand ways. Much appreciated.