Issues Regarding the Task Force

Country-by-Country Reporting

Action Item: Require that all multi-national corporations report sales, profits, and taxes paid in all jurisdictions in their audited annual reports and tax returns.

Background: Tax avoidance is a global problem. It involves the abusive exploitation of gaps and loopholes in domestic and international tax law that allows multinational companies (MNCs) to shift profits from country to country, often to or via tax havens, with the intention of reducing the tax they pay on some or all of their profits. Tax avoidance on such a large scale is facilitated by a lack of transparency in the way MNCs report and publish their accounts. Making MNC accounts more transparent would help tackle tax avoidance at very low cost.

At present most MNCs publish segmented information that breaks their trade down along product or division lines. However, MNCs are not required to publish geographic data, and there is no requirement to do so on a country-by-country basis. Despite publishing their accounts as if they are unified entities, MNCs are not taxed in this way. Each member company of the group is taxed individually. This makes it difficult to establish an overview of what is happening within a group of companies for tax purposes.

Tax avoidance is facilitated by tax haven structures created to shroud business activity in secrecy. It is often impossible for tax authorities to obtain information or assistance from the government of a tax haven, and companies are not usually under any obligation to disclose what they are doing outside the country that is making the enquiry. Given this opacity, even proving the existence of a tax avoidance scheme can be difficult.

Executing Authority: International Accounting Standards Board.

Benefit: Country-by-country reporting (CCR) would provide information to a wide range of stakeholder groups which will strengthen efforts to monitor corrupt practices, corporate governance and responsibility, tax payments, and world trade flows. CCR would benefit investors by revealing which corporations operate in politically unstable regimes, tax havens, war zones, and other sensitive areas. CCR would also enable citizens of developing nations to determine who owns the companies that are trading in their countries, what tax is being paid and whether that appears reasonable in relation to the tax rates in the country in question.

Country-by-Country Reporting in the News

September 26, 2011

Momentum Builds for Global Crackdown on Tax Loopholes

LONDON – In a sign of growing anxiety about tax competition that costs governments billions of dollars a year, international economic policymakers are exploring the need for a global crackdown on tax loopholes.

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July 13, 2011

Senators Introduce Bill to Stop Offshore Tax Havens

WASHINGTON, DC – Sen. Carl Levin, D-Mich., and several other senators have introduced a bill to close offshore tax loopholes and strengthen offshore tax enforcement.

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November 9, 2010

Tax claims hit reputation as well as coffers

LONDON — Over the past fortnight, Vodafone stores across Britain have been blockaded by pro­testers wielding banners with the slogan “tax dodgers”. Orchestrated with the help of social media, the campaigners focused on a comparison between swingeing welfare cuts in the UK and what they claimed was Vodafone’s £6bn unpaid corporate tax bill – in spite of the figure being dismissed as an “urban myth” by HM Revenue & Customs. “If the rich paid their ...

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October 26, 2010

The fight against corruption: Naming and shaming

THE ECONOMIST—CONGRESSMEN working late into the summer nights to overhaul America’s system of financial regulation were surprised when Bono started lobbying them. Yet the rocker-cum-campaigner helped to insert a far-reaching change into the legislation they were drafting. It has nothing directly to do with America’s financial mess, but it will push forward the fight against corruption in the developing world, a cause which has made some much-needed progress recently.

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January 27, 2010

Crackdown on tax evasion in attempt to help poorer countries

The Guardian -- Large companies should reveal how much of their profits they pay in tax to developing nations to show they comply with local corporation tax regimes, Stephen Timms, the Treasury minister, will say tomorrow as part of a three-pronged effort to boost tax revenues in poor countries.

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