Billion-dollar tax cheats require a healthy dose of sunshine

International tax evasion by large multinational corporations siphons nearly $250 billion a year of public treasuries around the world (over 100 billion dollars in the United States), seriously compromising the government’s obligation to serve its citizens in accordance with the United Nations sustainable development goals. I am not proud of my past role as a facilitator of this behavior, even though tax avoidance, unlike criminal tax evasion, is perfectly legal.

The creation and exploitation of loopholes – the work of tax evaders and their enablers – is done in the dark. Sunlight is anathema to those who consider it safe to work in the dark; transparency is fought by those who build their fortunes in labyrinths of opacity and complexity.

Over the past decades, public interest organizations such as Transparency International, Global Financial Integrity, FACT Coalition and Tax Justice Network have worked to bring to light the tax practices of huge multinational entities that siphon off vast resources which belong to the people. Mandatory country-by-country reporting of the tax and commercial activities of multinational companies is an important fruit of their work.

Introduction to Country-by-Country Reports

Just under a decade ago, the OECD and the G-20, a group of the world’s largest economies, launched an ambitious initiative to tackle endemic tax avoidance by multinational corporations, which had produced “a tense situation in which citizens have become more sensitive to tax fairness”. problems.”

The Organization for Economic Co-operation and Development and the G-20 called their 2013 initiative the Base Erosion and Profit Shifting Action Plan. Base erosion refers to the immediate impact of tax avoidance; corporate tax evaders siphon corporate profits from the tax base on which corporate income taxes are imposed. Profit shifting refers to a significant tax avoidance scheme: the manipulation of legal entities, and transactions between them, to shift corporate profits to low-tax jurisdictions or tax havens from high-tax jurisdictions.

The BEPS initiative is impressive for its thoughtful and comprehensive approach to global tax avoidance. Libraries could be filled with content produced by its sponsors, cheerleaders and critics as they sift through the various elements of BEPS, including our area of ​​focus here, CbCR.

CbCR is one of the four BEPS minimum standards, including tax havens, treaty shopping and dispute resolution, which participating countries are expected to implement. The CbCR provides transparency by requiring huge multinational corporations with annual gross revenue exceeding $850 million to produce annual reports on key data, broken down by jurisdiction, that may reveal their tax avoidance activities. These activities include profits, prices for sales between group affiliates (transfer pricing), sales revenue (for sales between affiliates and for actual sales to outside third parties), employees, tangible assets, intangibles, manufacturing and distribution operations, treasury functions, income tax paid, etc.

The The United States required a private CbCR, declared exclusively to the tax authorities, since 2016; a bill requiring public CbCR passed in the House last year, but stalled in the Senate.

View of wind turbines at the Saint-Nazaire offshore wind farm, off the Guérande peninsula, in western France, on September 22, 2022.

Photo by Stéphane Mahl/Pool/AFP via Getty Images

ESG and the need for a public CbCR

The CbCR is a multilateral transparency solution that promises to bring tax evasion out of obscurity, but its realization is incomplete. A dramatic achievement, private CbCR nevertheless leaves data in a dark twilight, where it can only be seen by underfunded and sometimes “flexible” government tax authorities who may or may not pursue audits and who do not represent the interests public. stakeholders.

Political interest in mandating public disclosure of CbCR reports has been slow, as there is not yet a clear consensus on the issue. Policy makers, the press and representatives of public stakeholders only have access to anonymized and aggregated CbCR data– they can’t point fingers.

But let’s be clear. The lack of consensus is not about whether the public would benefit from access to disaggregated, multinational company-specific CbCR data. His “eessential for detecting suspicious activity— tax evasion, tax evasion, money laundering and corruption. The lack of consensus on sunlight is due to the political power wielded by those who increase their wealth and power by designing their tax regimes in obscurity: the tax-avoiding multinational corporations and their enablers in the legal and accountants.

Private CbCR is bad enough in the eyes of the tax avoidance community. Public CbCR, which requires companies to include their CbCR reports on their public web pages or SEC filings, is a bridge too far for them. Multinationals therefore embarrass themselves by arguing that corporate tax data is protectable trade secretas if CbCR information was generating revenue for companies.

But is public CbCR so far from a success in our age of increasing investor attention to the broader interests of stakeholders – environmental, social and governance implications – at stake in corporate behavior? If General Electric CEO Jack Welch”broken capitalismby pushing to the extreme the blind idea that shareholders are the only stakeholders in a company, then the Global Reporting Initiative can provide the way to restore capitalism to its aspiration to harmony with democracy.

A growing awareness of the intersection between taxation and ESG was catalyzed by GRI, a respected proponent of voluntary ESG standards that motivate impact investors. The GRI has published four corporate tax disclosure standards that together are essential to combating tax evasion:

  • Approach to taxation: tax strategy, who approves it, link between tax compliance and ESG strategy;
  • Tax governancetax risk appetite, tax integrity and internal complaint process, and SEC tax disclosure process;
  • Stakeholder engagement: public tax policy advocacy, approach to relations with tax authorities and external stakeholder complaints process; and
  • BEPS-style CbCR.

This awareness turns into action. The U.S. Securities and Exchange Commission ruled last spring that Amazon shareholders were eligible to vote at their annual meeting on a proposal to require the company to publicly disclose its CbCR reports. The proposal was not accepted, but this first vote of its kind garnered shareholder support by tendering $144 billion worth of Amazon stock.

SEC should follow Australia’s lead

The metamorphosis continues. At the end of last month, the Australian Treasury offered to seek legislation make public CbCR mandatory to include large multinationals operating in Australia but headquartered elsewhere. A rapid promulgation is planned.

This is great news. CbCR public disclosures may be required from Cisco Systems, Inc., Hewlett Packard Enterprise Co., Microsoft Corp. and Nike Inc. for the first time.

Australia’s leadership should be applauded and followed; the United States should move from public CbCR to private CbCR. The American people need not wait for Congress. The SEC can and should compel public CbCR reports under its regulatory authority.

This is a regular column by public interest tax policy analyst Don Griswold, who is also a senior fellow at the Digital Economist. Look for Griswold’s column on Bloomberg Tax and follow him on LinkedIn.

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