The politics of country-by-country reporting

Since the OECD approved a decent country-by-country reporting standard, the lobbying to undermine it in practice has really kicked on. Here’s an update on some of the politics of country-by-country, including the manoeuvring in OECD, US, EU and UN processes; and on what may follow…


First, the OECD standard for country-by-country reporting is pretty good – probably all that could have been hoped for in the context of a process designed to defend arm’s length pricing.

As I wrote last week, though, and the Financial Times (£) picked up, the standard has been strangled at birth by the changes to BEPS Action Point 13. Lobbying on implementation has very substantially eroded the potential value of the measure, because data:

  • will only be provided directly to home country tax authorities;
  • will only be shared with other tax authorities under slow and uncertain information exchange processes; and
  • will never be made public.

I miss the old days, when country-by-country reporting was a transparency measure…

These deliberately inserted weaknesses mean that most tax authorities (especially but not only those of developing countries) will not receive timely data (i.e. within the tax year under investigation) for most of the MNE affiliates in their jurisdiction; and there will be no greater possibility of civil society holding tax authorities or MNEs to account.

In addition, the erosions of the standard mean there will be no central repository or access mechanism for the data. This means that the OECD has, in effect, agreed to fail to meet its commitment under BEPS Action Point 11 – which requires the establishment of a baseline for the extent of profit-shifting, and the tracking of progress over time. The very good team working on BEPS 11, who have comprehensively shown how no existing data can do the job, appear to have been completely undermined.


US MNEs have been highly effective in their lobbying, but evidence of serious, remaining concerns emerged last week. In a joint letter to Treasury Secretary Jack Lew, the chairs of the Senate Finance Committee and the House Ways and Means Committee (Republicans Orrin Hatch and Paul Ryan, respectively) set out a range of concerns about the BEPS process – and make a fairly explicit threat to take a different path from the administration:

Regardless of what the Treasury Department agrees to as part of the BEPS project, Congress will craft the tax rules that it believes work best for U.S. companies and the U.S. economy… We expect that as we move forward on U.S. tax reform, U.S. tax policy will not be constrained by any concessions to other nations in the BEPS project to which Congress has not agreed.

It is the specifics which are most revealing. While there are passing references to rules on permanent establishment and controlled foreign companies, the bulk of the text refers to concerns over country-by-country reporting.

[W]e are concerned about the country-by-country (CbC) reporting standards that will contain sensitive information related to a U.S. multinational’s group operations.  We are also concerned that Treasury has appeared to agree that foreign governments will be able to collect the so-called “master file” information directly from U.S. multinationals without any assurances of confidentiality or that the information collection is needed. The master file contains information well beyond what could be obtained in public filings and that is even more sensitive for privately-held multinational companies.  […]

Some recent press reports have indicated that the Treasury Department believes it currently has the authority under the Internal Revenue Code to require CbC reporting by certain U.S. companies and that Internal Revenue Service (IRS) guidance on this reporting will be released later this year. We believe the authority to request, collect, and share this information with foreign governments is questionable. In addition, the benefits to the U.S. government from agreeing to these new reporting requirements are unclear, particularly since the IRS already has access to much of this information to administer U.S. tax laws. Therefore, we request that, before finalizing any decisions, the Treasury Department and IRS provide the tax-writing committees with a legal memorandum detailing its authority for requesting and collecting this CbC information from certain U.S. multinationals and master file information from U.S. subsidiaries of foreign multinationals.  We also request that you provide a document: (i) identifying how the CbC reporting and other transfer pricing documentation obtained by the IRS on foreign multinationals operating in the United States will be utilized, and; (ii) providing the justification for agreeing that sensitive master file information on U.S. multinationals can be collected directly by foreign governments.  In the event we do not receive such information, Congress will consider whether to take action to prevent the collection of the CbC and master file information.

The push is on to prevent even the OECD’s now limited, and probably unworkable mechanism to provide CbC information to non-US tax authorities.


Meanwhile… the European Commission’s repeatedly trumpeted new package on tax avoidance has been leaked, and falls substantially this side of impressive. On CbC in particular, prevarication around public data continues – now with a proposed consultation.

Similarly, the UK government reiterated at a conference on Friday its manifesto commitment to consider the possibility of public CbC.

The European Parliament will debate the issue again on 7 July, with a possible vote to follow, and so this now becomes a major test.

UN process

Finally, it seems that public CbC has been excised from the latest draft of the draft Financing for Development text for the UN conference to be held in Addis, in July, leaving a line on CbC for tax authorities which adds nothing to the OECD position. Sigh.

Where does this leave us?

Is this the end for hopes for CbC as a meaningful international transparency and accountability measure? I don’t think so.

What has already been achieved, lest we forget, is the overcoming of what was always presented as the greatest obstacle: compliance costs. Aside from the possibility of US withdrawal, the OECD standard pretty much locks in the collation of the necessary data, by more or less all MNEs worldwide.

The claims around costs were always inflated (who remembers one of the big four accounting firms suggesting it could add 25% to their bill?), and so once the political tide turned the objection did not hold much water.

And this is why, of course, the US letter reflects a shift towards the real underlying issue: an objection to transparency itself. An interesting though unexpressed implication of the concern is that US MNEs are apparently willing to operate in multiple jurisdictions where they would not trust the authorities with even quite basic data about their global operations.

An alternative view, of course, is that US MNEs are aware of the potential for such data to lead to material changes in their effective taxation rate, in multiple jurisdictions and perhaps at the global level too.

(In fact ongoing research suggests that the US is such a big loser from the profit-shifting of its own MNEs, that BEPS success in reducing profit ‘misalignment’ would produce substantial additional revenues there – as well as in many other jurisdictions. It’s arguably a real mark of lobbying success that there hasn’t yet emerged an all-conquering coalition of countries in favour of much deeper change.)

What happens next in the politics of country-by-country?

Are we approaching that point where the anti-transparency lobbying has been so successful that supporters should give up? Or once this becomes clear in practice, might one or more host countries simply demand CbC data directly, starting the crucial leak in the dam?

Such a move might well circumvent the OECD caveat around not using the data for formulary apportionment, which would open up all sorts of interesting further possibilities.

Or will the EU resist the lobbying and go for public CbC? This would not only set a standard for others, demonstrating the absence of armageddon-level side-effects and also undermining any ‘competitive’ arguments for opacity.

It would also, on its own, provide a great deal of the globally relevant data for other tax authorities and civil society to use. Expect 3 weeks of (more) intense lobbying…

One way or another, the current period is likely to mark an important turning point in international tax transparency.

The weakening of the OECD standard in practice has been a resounding counter-strike against transparency. The question is whether that remains the story – or if it is overturned at the European level, or incrementally by individual countries.

A final thought: not too much has been heard in these moments from the private sector  advocates of transparency. Whether the likes of Paul Polman, head of Unilever, who has called explicitly for MNEs to pay tax where they do their business; or from investors and analysts who have identified the risks of tax opacity increasingly clearly; or from professional services firms including some of the big four accounting firms, who seemed to have identified the advantages of country-by-country. Now would seem like a good time…

10 Replies to “The politics of country-by-country reporting”

  1. are there anything credible behind the claim CBC would divulge commercially sensitive information? It is not obvious to me how presenting information about revenues, costs, profits etc. but organized by country would help competitors.

    1. The only thing that makes much sense seems to be the risk of revealing (the results of) preferential tax treatment – I can’t see what else really. And if that’s the ‘commercial’ advantage a business relies on…

  2. Really good piece, just had a few questions: What is the significance of the European Parliament’s vote in favour of public CBCR yesterday? The Parliament does not have direct legislative power which rests with member states. So it needs individual member states to introduce appropriate legislation, but which European country is likely to introduce legislation on public CBCR first, if any? What about the tensions between the European Commission and the European Parliament regarding CBCR – are we seeing large differences emerge between them?

    1. Dear Sam — thanks for pointing that out.

      The legislative proposal – tabled by the European Commission – in question is the Shareholders’ Rights Directive. The European Parliament is a so-called co-legislator on this file. This means in layman terms that the Parliament gets a say on the final version of this piece of EU legislation that provides for a minimum standard across the EU (minimum harmonisation). To facilitate this, the Parliament appoints a ‘rapporteur’ to formulate a report with the help of colleagues from other political groups with proposals to strengthen the Commission’s proposal. This report was voted this week and includes public country-by-country reporting for all sectors of the economy. Moreover, European parliamentarians propose a much lower threshold for reporting than the OECD model for CBCR.

      This means that it’s the Parliament’s express wish for this directive to include public CBCR, contrary to what the Commission had in mind. The Parliament proposes for this directive on Shareholders’ Rights to amend in turn the Accounting and Transparency Directives that have been key for CBCR in the EU.

      Meanwhile the Council, where the Member States are represented, also has a go at the Commission’s proposal and comes up with its wish list of improvements. You’re right, it’s unlikely that the Council comes to the same conclusion on the inclusion of public CBCR for its position.

      However, giving the co-legislation procedure, what follows are negotiations between the Parliament, Council and Commission in so-called trialogues. The Parliament’s negotiators have a strong mandate to argue for the inclusion of public CBCR (the vote on this issue was won with 404 to 127). Moreover, it has also become one of the most prominent issues – something that can easily be explained by the public outcry after LuxLeaks, the wide-spread concern around corporate profit shifting and the perceived lack of contributing to society by multinationals. The Parliament’s own investigation into these matters, the TAXE special committee, generates a lot of attention for this matter as well.

      A number of EU member states have in the meantime declared that they are going to implement elements of the OECD’s BEPS action plan, including its CBCR template. This does not stand in the way of the EU to go further and require the CBCR reports to be publicly disclosed, but you’re quite right that this does complicate the matter. Member States simply do not like to duplicate efforts.

      However, the EU is more than a number of OECD members and the OECD’s BEPS action plan in itself is voluntary and a minimum standard. Our efforts will therefore be geared towards finding an EU compromise on the Shareholders’ Rights Directive that builds on EU member states efforts to implement CBCR, while at the same time correcting some shortcomings – as we see it – of the OECD plan.

      The European Commission, or at least a significant part of its college of Commissioners, is not against public CBCR. The responsible commissioners – Mr Hill from the UK and Ms Jourova from the Czech Republic – have stated that they feel that for the Commission to start working on public CBCR for all sectors, it will first have to do an impact assessment and public consultation, which is currently ongoing.

      They also seem to hold the view that the Shareholders’ Rights Directive is not the right place for this issue, and that it should therefore come in a separate proposal, or that it should wait until the Accounting and Transparency Directives are reviewed, from 2018 onwards. Many European Parliamentarians and citizens however feel that this takes to long and demand urgent action.

      What’s more, is that the Commission did an impact assessment for public CBCR for banks last year, and concluded that any consequences from publicising are likely to be positive (in terms of financial stability, competitiveness, better quality corporate data for investors, et cetera).

      What all this tells us is that we have an interesting, challenging set of negotiations ahead of us, where the Parliament’s negotiators will firmly argue that there’s an urgent need for bold action to curb corporate tax dodging. The Council and Commission do not necessarily disagree with this – on the contrary – but differ in opinion on the way how to achieve this.

  3. The vote is the Parliament asking the Commission to introduce the amendment to the Directive, which is all it can do

    It does not bind the Commission: it is a clear indication it wants this law

    But the Commission has to be the next focus of attention

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