This is from today’s Guardian:
You are an opposition politician in a developing country rich in minerals. You want to establish exactly how much tax is paid and what profits are made by a giant mining corporation. The trouble is you can't. In fact nobody can.
In poorer countries, companies have no obligation to disclose any of this information. Secret mining concession deals are often made between companies and corrupt politicians. Civil society does not get a look in so governments cannot be held to account.
Country-by-country reporting can smash this secret world open. Canny tax accountants using a complicated web of companies to hide payments using transfer pricing mechanisms could soon be a thing of the past.
Country-by-country reporting lets us see exactly how much a multinational's group of companies' profits are declared in each country where it operates and how much tax is paid there. It will for the first time show us how that is affected by intra-group trading.
The decision by the UK government to put country-by-country reporting on the agenda of G20 finance ministers next week is a significant development. It has rightly been welcomed by development charities.
It will only work with a mandatory international accounting rule. But since the financial crisis, the momentum for transparency is so great it is likely that many countries in the G20 will back the proposal.
Richard Murphy of the Tax Justice Network has long been campaigning for country-by-country reporting. "It will massively reduce the opportunities for transfer mispricing which costs the developing world at least $160bn (£97bn) in lost revenues — three times the cost of the millennium development goals," he said. "The UK has promised to take a lead helping developing countries obtain the benefits of transparency and accountability. Country-by-country reporting can deliver more in that respect than anything else and the UK seems now to understand that."
As I said recently:
Country-by-country accounting has the capacity to deliver more change to developing countries than aid and debt relief; more than Geldof and Bono combined could dream of; more than the Doha trade round could supply.
I do not exaggerate when i say I think this is the best prospect for delivering real revenues to developing countries that we have.
It’s time is coming.
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I agree. Hopefully there would be buy-in from the accountancy world on this in that the fees lost on tax structuring etc may be recouped on additional reporting requirements.
That said, I suspect any fees obtained in respect of reporting will pail in comparison to levels of fees I suspect they receive that allows them to evade/avoid tax.
If accountants to the approach to ethics that, say, the Co-Op does (ie if it operates in any way against its ethical policy then it can’t do business with them) this may make a difference.
I have seen if first hand with Co-Op bank – a refusal to bank a company on ethical grounds did not cause the company to take its banking elsewhere – it caused a strategic review which ended the said unethical behaviour.
Perhaps if accountants were forced to see face-to-face what the effects their specific actions were having they may find a social conscience. Most people do not think of themselves as bad people…