Update: this post featured in passing in a Financial Times interview with OECD tax chief Pascal St-Amans. (Spoiler: he’s more optimistic than I am.)
This is a bad day for international tax transparency, and for those who steered the great G8 agreement through in 2013.
The OECD has released details of how the standard for country-by-country reporting by multinationals will be implemented. The short answer is: to the minimum possible benefit of developing countries.
The slightly longer answer, drawing on the details of the package, is that the agreement on this important measure to provide transparency and limit the extent of unashamed profit shifting, has been diluted in such important ways that, as Richard Murphy has blogged, means that it will not meet the remit given to the OECD by the G8 group of countries in 2013.
Major issues include the large exclusions (a threshold of EUR 750m in annual turnover), but most importantly the hamstringing of effective transparency. Data will only be collected by host countries, and then exchanged through bureaucratic, formal processes where the necessary inter-state instruments exist.
The effect is to exclude many developing countries which will not have such instruments in place with home countries of the multinationals they host; and to ensure the impossibility of timely information provision in the other cases, meaning that tax authorities will not have the data during the tax year they might wish to investigate.
While this clearly increases uncertainty for multinationals, the lobbying for this outcome may reflect a belief that in many case tax authorities simply won’t bother to ask for, or to use belatedly, any information that is eventually provided.
In addition, there will be no sharing of the data in a common database or IATI-type registry, so it will be impossible for OECD or other international experts to use the data – as I’ve written would be required for BEPS 11, for example – in order to track progress in reducing multinational tax avoidance.
And, ironically or otherwise, the US and UK are apparently behind the high exclusion threshold – because of a claim to be worried about the administrative costs, as home countries for many multinationals. So: exclude any good mechanism for info-sharing, and then use the costs that result as a justification to limit the amount of data actually available. Well done chaps.
So, what is almost certainly the greatest multinational corporate transparency measure to be agreed by international policymakers in recent decades, has been strangled at birth.
The OECD’s country-by-country reporting mechanism, unless there is a dramatic late change, will not provide the information for developing countries (and many others) to reduce multinational corporate tax-dodging effectively. Nor will it allow national or global progress to be monitored or evaluated.
But – the lobbyists against effective tax transparency may want to hold off a while on their celebrations. Such is the extent of their success that in most developing countries, from a transparency point of view, it will simply be business as usual.
By which I mean, the transparency will be minimal and so too will many of the MNE tax payments. So this doesn’t seem likely to be the end.
It’s not hard to imagine that some developing countries at least will simply cut out the middle man, by demanding the country-by-country information directly from the MNEs they host. And perhaps even publishing it, who knows? Not to mention thinking about using it for formulary apportionment approaches. All these things which were safely excluded from the OECD approach by successful lobbying, might come back on the table at the national level…