The international tax system is broken and in need of urgent updating to address issues which allow globalised businesses to move their profits and intellectual property around the world, often to locations where they pay the least tax.
Those processes may continue to be held back by reactions from the US – where many of the largest digital businesses originate – or countries such as Ireland which corporations like Facebook may have chosen as their European base for beneficial tax reasons.
The EU has so far failed to pass its own legislation to better tax digital businesses although the incoming president of the European Commission recently stated that the EU must act by the end of 2020 if no other international solution is agreed.
The OECD is currently in discussions about a new programme of work to “develop a consensus solution to the tax challenges arising from the digitalisation of the economy. This work is expected to conclude by the end of 2020 and establish a follow-up to their anti tax avoidance Base Erosion and Profit Shifting (BEPS) project.
However the BEPS process has been criticised as being biased towards rich countries prompting calls – from the G77 coalition of developing nations, China and others, most recently Norway – for the United Nations to set up a UN tax body to create a truly global solution to modern taxation.
Tech giants such as Google, Amazon and Facebook may be some of the most high-profile examples of companies using complicated tax structuring that the public is aware of – thanks to years of media reporting and targeted campaigning – but the problem is systemic.
Tax justice advocates – such as those that the Open Knowledge Foundation helped convene for our Open Data for Tax Justice project – argue that the world’s tax systems need to be fundamentally restructured and have also pushed for a variety of measures sometimes summed up as the ABCs of tax transparency.
A stands for automatic exchange of information where countries can more easily share tax data on individuals or businesses. B stands for beneficial ownership where the issue of opaque company ownership is addressed by publishing public registers of who owns or runs companies and trusts. C stands for country-by-country reporting where corporations would be required to publish details about the tax they pay, people they employ and profits they make in each country where they operate to build up a better picture of their activities.
Taken together, it is believed that such transparency measures would shine a light on the insalubrious practices currently being used by multinational corporations in order to help the push to crack down on abuses as exposed by investigations such as the Mauritius Leaks, Paradise Papers and Panama Papers.
The BEPS process has seen pushed automatic exchange of information forwards and many countries are joining the drive for beneficial ownership transparency (see the OpenOwnership project for more). There are also steps being taken towards making country-by-country reporting public, but progress is slow.
Two years after the EU voted in favour of publishing public country-by-country reporting information as open data for all large corporations operating in Europe, the issue remains stuck in trilogue discussions at the EU Council. Meanwhile others are taking on the issue including international accounting standards setters and civil society efforts such as the Fair Tax Mark.
We believe that a lack of transparency in current country-by-country reporting standards will fail to build confidence in the treatment of corporations, missing an important opportunity to build tax morale and wider public support for tax compliance.
Research has shown how restricting access to country-by-country reporting exacerbates global inequalities in taxing rights while civil society organisations have set out why public country-by-country reporting is a must for large multinationals to create an “effective deterrent of aggressive tax avoidance and profit shifting”.
We urge all policymakers working on tax issues to prioritise increased tax transparency as an essential strand of modernising the global taxation system as a way to improve public trust and ensure corporate compliance.