Global corporations are hoping to fend off requirements for reporting on the amount of taxes they pay in each jurisdiction, while regulators are moving forward cautiously with imposing such rules.
Australia was originally set to begin imposing the requirement for country-by-country reporting of taxes by companies on July 1 of this year, but has now pushed it back to July 1, 2024. The so-called CbCR requirement is part of the Organization for Economic Cooperation and Development's action plan for combating tax base erosion and profit shifting by multinational corporations, also known as OECD BEPS.
"While Australia's delay in implementing public country-by-country reporting is disappointing, the revised measures outlined still represent a monumental leap forward for international tax transparency," said Ian Gary, Executive Director of the Financial Accountability and Corporate Transparency (FACT) Coalition. "By capturing both foreign-headquartered and domestic multinationals in public reporting requirements consistent with the Global Reporting Initiative, Australia would lead the pack in providing investors, lawmakers and other stakeholders with information that they have been seeking for years. FACT urges the Australian government to move quickly to finalize and pass strong public country-by-country reporting legislation in line with the call from investors with trillions of dollars in assets under management."
His group is seeing a rising level of support for tax transparency at multinational companies after recent shareholder votes at U.S.-based multinationals like Amazon, Chevron, ConocoPhillips and Exxon, although the resolutions did not pass at the companies. Microsoft and Cisco also faced public country-by-country reporting proposals last year, garnering over 20% of outstanding shareholder votes.
"We're seeing more and more investor interest in public country-by-country reporting to inform investment decisions, and the results from shareholder actions are very encouraging and show increased momentum for public disclosure of taxes and other financial information," he said earlier this month. "Just in the last few weeks, shareholders representing $346 billion voted in favor of proposals with Exxon, Chevron, Amazon and ConocoPhillips. We're seeing that as one indicator of the growing interest in demand for public country-by-country reporting. We're also seeing that action is happening in other jurisdictions outside of the U.S. In 2021, the European Union put in place a form of public country-by-country reporting which is not yet truly global, but that is going to be coming into force in the next couple of years."
While the requirements are not yet in place in the U.S., the IRS does have information on its
The OECD rules have provoked fierce opposition from many companies, and some lawmakers in Congress have also objected, but some companies have opted to provide such information already or have been taking steps to curtail their profit-shifting activities.
"We have seen some evidence from tax disclosure requirements that have been put in place in Europe for the banking sector several years ago," said Gary. "These banks have reacted by winding down some of their profit-shifting strategies, and we've seen increased revenue to tax authorities in Europe. I think some companies, maybe prior to the disclosure deadlines, may start to wind down some of their more aggressive tax avoidance strategies, or, at minimum, do a better job of explaining to the public and telling their own story about why they are structured in the way they are. Some companies have objected to disclosure because they said the information could be misinterpreted. I think this is an opportunity to tell the public, policymakers and investors their story beyond the numbers about why they're structured the way they are, how they approach tax and the strategies that they use to minimize tax."
The FACT Coalition has called on the Securities and Exchange Commission and the Financial Accounting Standards Board to require companies to provide country-by-country reporting of their taxes on their financial statements. FASB
"As we said in our submission to FASB, we think this is certainly a step forward to provide the kinds of information that they're contemplating companies require, but we don't think that the proposal goes far enough," said Gary. "They can provide further disaggregated information. Other commenters, including Norway's investment bank, which manages their sovereign wealth fund, have called on FASB to require something closer to full public country-by-country reporting. We understand that there may be limits to what FASB is comfortable requiring, and that's why we've also been calling on the Securities and Exchange Commission to mandate public country-by-country reporting for reporting companies. We think after Australia moves that there will be a great deal of pressure and incentive for the SEC to put in place similar public country-by-country reporting requirements."
However, the proposal has also garnered opposition from groups like the National Taxpayers Union, which released a
"Although a limited form of CBCR from companies to governments has been in effect for several years, and many companies report to shareholders on certain aspects of their tax liabilities, the latest crusade for expanded, publicly disclosed CBCR can ironically be driven by less-than-transparent intentions," wrote National Taxpayers Union Foundation president Pete Sepp. "This disturbing development should give public officials reason to stand up for FASB's independence and ensure that these requirements receive further scrutiny through the larger public policy process instead."
Gary believes that lawmakers in Congress should support the push for country-by-country reporting from groups like his. "If you're a policymaker, and you're interested in supporting investors and well-functioning markets, and creating a level playing field, between, for example, small Main Street American businesses who are not able to take advantage of tax avoidance and profit-shifting strategies in the way that a large multinational company would, that you should support both tax transparency as a measure for protecting investors as well as a global tax deal that would reduce the ability of multinational companies to shift profits," he said. "That puts small business at a disadvantage and also robs the federal government of revenues. If you're concerned about the deficit, for example, the ability of the U.S. government to raise revenues, and do that in an equitable way, should be part of the agenda."
His group would like to see the U.S. implement the kind of public country-by-country reporting, recommended by the Global Reporting Initiative's Tax Standard (
That would require large multinational enterprise filers to publish various information on a country-by-country basis, including a list of subsidiaries; primary activities; third-party and intra-group revenues; profits; cash taxes paid; taxes accrued; an explanation regarding the difference between taxes accrued and the tax due, if the statutory tax rate was applied to profit or loss before tax; the number of employees; and tangible assets.
Shareholder resolutions like the recent ones at U.S. energy and tech companies may prod more of them to voluntarily report on their tax strategies.
"As part of the overarching push for companies to publicly disclose tax and other financial data on a country-by-country basis, resolutions from investors are an exciting new front in the fight, and their use is gaining steam," said Susan Harley, managing director of Public Citizen's Congress Watch division, during a press briefing this month hosted by the FACT Coalition. "Resolutions for public country-by-country reporting, or PCbCR, would have companies disclose important information such as profits, employees, tangible assets and taxes paid on a country-by-country basis, modeling the disclosures voluntarily made through the Global Reporting Initiative. Disclosing PCbCR information is critical to investors as multinational companies engaging in profit shifting can create material risk from tax authorities cracking down on specific tax practices to geopolitical threats and questions of cash flow."
The European Union has been making more progress on requiring country-by-country reporting, but as in the U.S. has been meeting with stiff resistance from multinational companies. Still, with new rules going into effect over the next few years, such reporting seems to be inevitable, at least for the larger companies.
"It has been a very long process because multinationals fight back," said Eva Joly, a former member of the European Parliament, during the press briefing. "They have unbelievable money. They're based in Brussels and also the states. Unfortunately, Europe is also a place for tax havens, and these tax havens are not on the blacklist of the EU for reasons that everybody can understand."
In the U.S., multinationals generally only have to pay taxes on the profits they repatriate back to their home country, she noted. The EU was able to make progress on country-by-country reporting through the accounting rules in the Council of Europe, as the FACT Coalition hopes to do through FASB.
"We started very long and difficult negotiations because these tax havens are in the Council of Europe, and in order to have European legislation you need an agreement between the Parliament and the Council," said Joly. "When you have tax changes, you need unanimity."
Small countries like Luxembourg, Ireland and Malta were able to block such changes in the Council until 2021.
"This is the way the European Union functions, so the first very important thing was to find out how we could circumvent this and that was by using the accounting rules because accounting rules only need a majority," said Joly. "But even having a qualified majority to impose this new transparency was very difficult, and we didn't move forward until 2021 when Portugal was heading the Council. Then they managed to get two more countries on board, and the legislation was passed in December 2021. This was a huge achievement, and it was the first time that multinationals would have the obligation to disclose country by country inside Europe their income and what they are paying as taxes."
Under the new rules, multinationals headquartered in Europe with a total turnover of more than 750 million euros annually for two consecutive years are obliged to disclose. It also applies to subsidiaries of multinationals not headquartered in Europe, with the same threshold of 750 million euros for two consecutive years. Member states had until June 22 of this year to implement the new rules. They will go into effect after 2024 and Joly expects to see the information coming out by 2026. However, she noted that companies won't have to disclose information about other tax havens outside the EU.
She hopes to see the country-by-country reporting legislation eventually be passed in Australia, as it could set an example for other jurisdictions. "The time has come to curb this tax haven curse," said Joly. "We are responsible for much of our difficulties because we have allowed this to continue."
