Lars Koch, IBIS: Responsible Tax Reporting

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Conference on CSR & Tax, Copenhagen

Lars KochIBIS

June 2012

Responsible Tax Reporting

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Introduction

• I am not Richard Murphy from Tax Research LPP

• I am not a chartered accountant

• IBIS is working closely with Murphy and others in a global campaign for tax justice

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Financial Transparency

The link to the Principles for Corporate Responsible Tax:

Financial Transparency: • …is a key principle for responsibility

Financial Transparency is needed…• …to understand substance of company structures• …in order to be accountable• …to understand power dynamics• …for tax authorities to audit accounts• …for citizens to hold governments and companies to account

Transparency in financial reporting and tax is crucial!• Ex: SABMiller; Ghana

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Country-by-Country reporting

Country-by-Country reportingA demand that

multinational corporations publish accounts for every jurisdiction in which they trade as part of their annual financial statements

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What is C-b-C reporting?

• Country by Country reporting would require every MNC to declare:

• 1. In which countries it operates (including companies in tax havens);

• 2. What it is called in that location;• 3. What its financial performance is in every

country in which it operates including– It sales, both third party and with other group

companies– Purchases, split in the same way;

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What is C-b-C reporting?

– Labour costs and employee numbers– Financing costs split between those paid to

third parties and to other group members– Its pre-tax profit;

• 4. How much it pays in tax and other ways to the government of the country in which it is operating

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Why is C-b-C important?

• Transparency matters– All MNC activity is 'on the record' - especially intra-group trade

• CSR matters– The relationship between an MNC and its host community is

recorded

• Accountability matters– You're not accountable unless you can be identified

• Trade matters– 60% of world trade is intra-group - now we'll know about it

• People matter– Employee conditions are important to us all

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• Tax matters. – Where do and don't you pay tax?

• Corruption matters– Particularly holding parties to account for revenue streams in the

Extractive Industries

• Development matters– Paying tax in developing countries is vital

• Business matters– Multinationals pay less tax than small and medium size national

companies. Is this due to unfair tax competition?

• Risk matters– There is political risk to trading in some places

Why is C-b-C important?

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What would we know if we had CbC? - 1

• The precise structure of multinational corporations– Who is where– Under what name

• The importance of each jurisdiction to the reporting MNC

• How much tax is paid where– So we can hold countries to account for it

• The real value of intra-group trade– And some idea of where it flows

• How trade is used to shift profits out of developing countries and into secrecy jurisdictions– Is it really $1000 billions a year?

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• If secrecy jurisdictions are used to avoid tax, and maybe by how much– Could create reputational risk

• Employment in business and rates• What risk investors face

– In the tax structures companies use– From the places in which they trade– From their dependence on tax havens– From corruption

• Poor governance – by companies and by governments

What would we know if we had CbC? -2

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What would we know in Ghana?

• Why are the oil and mining companies not reporting significant profits for tax despite increasing prices on oil and gold?

• What are the tax decductable costs to the companies? Why are they so high?

• What are the costs of intra-company trading and financing?

• Is the ownership or trade related to tax havens? Is profit shifted out of Ghana as tax planning?

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Where are we with CbC Reporting?

• US, Hong Kong and EU are passing legislation on transparency of tax payments for oil and mineral companies– This is crucial for holding governments to account for the tax

they receive

• We need also to hold companies to account for how much tax they pay– CbC reporting is discussed in EU, International Accountancy

Standard Board (IASB)

• Proactive companies can start reporting CbC on a voluntary basis

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Contact

THANK YOULars Koch, Head of Policy

lk@ibis.dk

www.ibis.dk