Richard Murphy: Time to act on tax transparency

The Guardian has published the following Comment by Richard Murphy. This relates to our campaign for an international reporting standard for country-by-country reporting by multinational companies.

But what Richard is really exploring is the extraordinary attitude of a secretive and unaccountable organisation - the International Accounting Standards Board - which appears totally unwilling to act in the public interest, despite the fact that it is largely responsible for setting the reporting standards for global capitalism.

Now read on:

Time to Act on Tax Transparency

Something quite extraordinary is happening in the world of accountancy. The International Accounting Standards Board (IASB) that sets the rules on accounting for most of the world is considering a proposal for a new accounting standard put to it by civil society. This has never happened before.

The proposal is for a cut-down version of what is called country-by-country reporting. That concept is explained here, as are the benefits. The cut-down version, explained in chapter six of this IASB document, is more modest. As a first step towards full country-by-country reporting, campaign group Publish What You Pay (PWYP) has asked for country-by-country reporting to apply to just the extractive industries for now. That term applies to those companies that are engaged in the oil, gas and mining sectors.

What PWYP asks for is disclosure in the published accounts of multinational corporations engaged in the extractive industries of a breakdown of the sums they pay by way of taxes and similar charges to the countries that host their extraction activities. It also asks for disclosure of additional relevant information such as total sales by country, costs by country and reserves by country as well as the name of all local subsidiary companies so that the reasonableness of payments made and the legal identity of the local companies paying them can be determined.

The intention of the proposal is clear. PWYP, the Tax Justice Network and others who are behind this demand want multinational corporations working in this sector to be accountable for paying the tax that those in civil society believe they should pay to the societies that grant them the opportunity to make extraordinary profits. And at the same time, civil society wants this data so that they can hold governments accountable for the use they make of that money.

The aim is to reduce or even eliminate the risk arising from corruption and so make sure the people in some of the poorest nations on earth can enjoy the benefits they deserve that arise from exploitation of the mineral reserves of the countries in which they live. This is no small issue: tax losses flowing from the extractive industries could make up a big part of the lost tax revenues of developing countries illegally stripped from their grasp by multinational corporations. Christian Aid estimates that these amount to $160bn (£106bn) a year – a sum somewhat bigger than the total annual international aid budget.

However, there’s something equally extraordinary going on in the response made by the International Accounting Standards Board to this proposal. They’re saying they do not care that there could be massive benefits flowing to the ordinary people of the developing countries of the world as a result of this simple (and, as some big firms admit, cheap) accounting reform. Benefits resulting from reduced tax evasion, increased tax payments, less corruption, enhanced governance, greater confidence in the business environment in those countries encouraging new inward capital creating more jobs and so on and on are not, according to the IASB, matters of any concern to them. The IASB says that unless this change in accounting can be proven to change the way investors in a company choose to buy or sell their investments then the change is not needed.

So in other words, the apparent needs of fund managers, and their largely computer-generated investment decisions – many of them undertaken solely in pursuit of stock exchange index tracking – are paramount for the IASB. And unless those stock brokers and fund managers who do most of the buying and selling of shares change their computer programmes to assess the information provided on a country-by-country basis on taxes paid then the IASB say this information is not needed by any user of accounts.

In the process they deny that the real needs of other users of accounts exist, whether those users be governments, regulators, ordinary citizens, tax authorities, environmentalists, civil society organisations, and many others. The IASB is in effect saying that all these other users are also only interested in buying and selling shares, and nothing else.

This is wrong, of course. Worse than that, it has to be knowingly wrong. No rational person could believe this to be true. But any rational person can recognise that what the IASB is saying is a wholly artificial argument to put false impediment in the way of necessary disclosure to ensure multinational corporations are held accountable for their activities.

Why would the IASB wish to prevent that disclosure? Maybe the fact that it is a privately funded organisation, largely under the control of the big four firms of accountants, may give some clue on that issue.

Should it be acting in this way? Emphatically not. Its constitution, which is the basis on which it has been given the effective right to write UK law in this area, says it must work in the public interest and must, among other things, give special attention to the needs of emerging economies – such as those that host the extractive industries.

The IASB is clearly not acting in the public interest. It is denying information that is needed to fulfil the public interest on the extraordinary basis of claiming that the public is made up solely of the buyers and sellers of shares. And it is ignoring the needs of emerging economies altogether.

Thankfully you have the chance to object to what they’re doing by writing and telling them why you disagree with their actions. There are full details of how to do so here. Please tell them to change their ways by 30 July when the submission deadline closes. You have a real chance to create change that will increase the amount of tax developing countries receive and so break their dependency on aid. Please don’t waste it.