PRESS RELEASE: Country By Country Reporting will make global markets more transparent
London, June 30th, 2008
As France takes over the rotating presidency European Union on July 1 it must take the lead in demanding radical improvement in the transparency of global financial markets. One of the most powerful and cost-effective ways to boost transparency would be to introduce Country by Country Reporting into international accounting standards.
Multinational companies use subsidiaries to shift profits and risks between different jurisdictions – often tax havens – yet current international accounting standards do not require them to publish relevant country-specific information on corporate income, profits, taxes, investments, assets, liabilities (or carbon emissions.) Instead, global standards set by the International Accounting Standards Board (IASB) permit companies to combine results from different countries into a single global (or regional) figure, and it is impossible to use company accounts to unpick these numbers for each country.
All the trade between group companies disappears from view in the consolidated accounts that current IASB standards endorse. The OECD estimates that 60% of all global trade is undertaken on this basis. And we know almost nothing about it.
Enron had many hundreds of subsidiaries, often located in the Cayman Islands and other tax havens: County-by-Country Reporting would have exposed its crimes at an early stage.
Country by country reporting would have given early warning of the global credit crunch, and would have limited its impact. Under the current system, regulators and markets cannot meaningfully assess the quality of earnings or risks, which are often specific to a country. Country by country data would make this possible. Transparency is essential for clean and efficient markets, and it underpins democracy and a respect for the rule of law.
At present the governments of developing countries cannot use company accounts to work out what taxes they are properly owed by multinationals, and citizens of corrupt countries cannot work out what deals their rulers are making with multinationals. Country by Country Reporting would provide this information, it would expose which companies are using tax havens in abusive ways, and it could benefit poor countries as much as all foreign aid does now.
Small businesses and ordinary individuals worldwide pay more tax, and public services lack funding, because multinationals can use the opacity in company accounting to shift profits and minimise taxes, leaving others to pay instead. Important economic analysis essential for basic policy-making is made harder, and often impossible, by the lack of information on company activities.
Non-governmental groups associated with the Publish What You Pay coalition have achieved some success by asking for Country by Country Reporting in the extractive industries, and the European Parliament has now asked the IASB to move forwards with a Country-by-Country accounting standard for the extractive industries. New legislation has been introduced in the United States.
The Tax Justice Network strongly supports these initiatives, but we want to go further. We now call for Country by Country reporting for all multinational companies using International Accounting Standards.
Country by Country reporting would be easy and relatively cost-free to achieve: multinationals already hold this information internally. It is high time they were made to publish this data. Europe must take a forceful lead on this without delay. The British government must strongly support this push.
John Christensen, international director of the Tax Justice Network, said:
“Current accounting standards throw a veil of secrecy over company accounts. Global markets will only work in the public interest when there is transparency. A lack of transparency encourages crime and other abusive activities and hides important risk information. Country by Country Reporting would make markets safer, cleaner, and more responsive to voters’ democratic choices. It would expose abusive tax haven activity by multinational companies. Tax is the most sustainable and beneficial form of finance for development; Country by Country Reporting would help release untold billions in tax revenues for poor countries, reducing their reliance on foreign aid.”
Richard Murphy of the Tax Justice Network-UK created the concept of country by country reporting. He said:
“Country by Country reporting is possible. We have to shatter the myth that accounts are only for shareholders. They are not. They are for everyone, in developed and developing countries, whether they are shareholders or not, suppliers or employees of these companies or not, or just concerned citizens. Corporate responsibility is based in communities and it is in our national communities that we must hold companies to account. That is why country by country reporting is essential.”
- Tax Justice Network briefing paper on Country-by-Country reporting:
- French version and German version
- Publish What You Pay on International Accounting Standards.
- European resolution on accounting standards for the extractive industries
- New U.S. draft legislation on country-by-country reporting for the extractive industries