The Financial Accountability and Corporate Transparency (FACT) Coalition is calling on the U.S. Congress, the Securities and Exchange Commission, and the Financial Accounting Standards Board to require multinationals to disclose corporate tax information on a country-by-country basis.
Among the information the group wants companies to release publicly is the number of corporate entities in countries, the primary activities of those entities, the tax the corporation pays on a cash basis, and any significant tax incentives.
According to the FACT Coalition, “public disclosure of multinational corporations’ disaggregated profits and taxes is steadily progressing toward a global norm as investors, businesses, and policymakers have increasingly taken steps toward transparency.”
Stated Gary Kalman, executive director of the FACT Coalition.”Investors see the value, policymakers see the benefits, and businesses see the inevitability of greater transparency,”
Seventy-seven countries require multinationals to file country-by-country reports privately to tax authorities, according to the FACT Coalition. In addition, oil, gas, and mining companies in Europe and Canada must disclose such information publicly. Large banks in Europe also have public reporting requirements.
The other groups calling for greater global tax transparency are the United Nations’ Principles for Responsible Investment, Norway’s sovereign wealth fund, the Certified Financial Analysts’ Institute, and the Global Reporting Initiative (GRI). A report published by the GRI in late March found that investment fund representatives in favor of corporate tax transparency manage the equivalent of $10 trillion.
According to the FACT Coalition, Vodafone, Unilever, BHP Billiton, and Rio Tinto are among the multinational companies that publish, in varying degrees, country-by-country reports of tax and payment information. Few others do.
A report released by the FACT Coalition on Tuesday says multinationals should also be required to disclose, on an annual, country-by-country basis:
- Number of employees
- Total revenues broken out by third-party sales and intra-group transactions of the tax jurisdiction and other tax jurisdictions
- Profit or loss before tax
- Tangible assets other than cash and cash equivalents
- Corporate tax paid on a cash basis
- Corporate tax accrued on profit or loss
- Reasons for any difference between corporate tax accrued on profit or loss and
- the tax due if the statutory tax rate is applied to profit or loss, or
- the tax due if the statutory tax rate is applied to profit or loss before tax
The FACT Coalition suggests that “investors would have a much greater ability to understand a company’s international tax strategy and risk profile” if U.S. regulators further specified that companies divide their domestic U.S. income tax into current, deferred, and cash paid to federal and state governments; explain any effective tax rate that is significantly lower than the statutory rate in the countries in which they do business; and disclose for most intracompany debt transactions the countries where the debt is held, the amount of the debt, and the average interest rate “paid” by the relevant subsidiary on that debt.
This level of transparency would have a potential downside for multinationals. A November 2017 study by two European professors found that public country-by-country reporting (CBCR) rules applied to European banks “appear to have substantially increased the tax rates paid by banks that engage in tax-haven activities.” Thus, CBCR may have an impact on curbing tax avoidance by multinationals.
The FACT Coalition is not a disinterested party in the fight for corporate tax transparency. Among its stated goals are “eliminating loopholes that allow corporations and individuals to offshore income and avoid paying their fair share of taxes; ending the use of anonymous shell companies as vehicles for illicit activity; and eliminating loopholes that allow corporations and individuals to off-shore income and avoid paying their fair share of taxes.”