Later this month, the UN will resume its negotiations on a draft framework convention for international tax. A study, published by Tax Justice Network (TJN) this week (3 November), puts forward the financial argument for ensuring such a framework makes mandatory public country-by-country (CbC) reporting the “global norm”.
Country-by-country reporting
- An annual breakdown of a multinational enterprise’s financial activities and tax positions for every jurisdiction in which they operate
- For each relevant country, reports should contain information on revenue, profit/loss before income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets
- Can be required privately (to tax authorities) or publicly (e.g. Australia and the EU)
The study found that a global public CbC reporting regime would have recovered $475bn in corporate tax revenue between 2016 and 2021, accounting for over 29% of the $1.7trn that was lost through corporate tax abuses in that time.
Under the current OECD-led regime, multinational enterprises with over €750m in consolidated revenues are required to submit CbC reports to tax authorities. Reporting standards, introduced through Action 13 of the OECD and G20’s joint Base Erosion and Profit Shifting (BEPS) initiative in 2015.
The Paris-based organisation published a review in September, highlighting that over 120 jurisdictions have introduced legislation to impose filing obligations consistent with the OECD standard, and more than 4,900 bilateral relationships for the exchange of CbC reports are now in place.
Crucially, however, disclosures under these requirements are made confidentiality and are only available to tax authorities that have exchange agreements rather than the general public. TJN describes this current arrangement as a “global gag order”.
Economists and TJN researchers Miroslav Palanský and Alison Schultz estimated that the effective tax rate of a multinational would increase by 2.1% if they are required to publicly report CbC tax information rather than doing so privately to tax authorities.
This was calculated based on the change in effective tax rate on EU banks after they were subject to public CbC reporting requirements from 2014, compared with the change in the effective tax rate on multinational enterprises after they adopted non-public CbC disclosures in 2016.
Applying that difference to the $22.6tr in profits that multinational corporations booked in low-tax jurisdictions between 2016 and 2021 yields the figure of $475bn
“The UN tax convention would ideally require corporations operating globally to be taxed proportionally by the countries in which they operate,” the TJN report reads: “Lifting the global gag order, by implementing public country by country reporting, is a necessary step to securing the transparency needed to be able to measure and to ensure fair allocation.”
While GRI’s tax standard (GRI 207) includes CbC disclosures, voluntary reporting of this information remains limited. A PwC survey of 850 companies across 21 countries found that only 2.7% publicly reported all the CbC datapoints required under BEPS Action 13.
Australia and the EU have implemented legislation requiring multinationals headquartered in the respective jurisdictions to publicly disclose CbC tax information for a predefined list of jurisdictions.
Fair Tax Foundation chief executive Paul Monaghan said there is evidence that mandatory public CbC reporting reduces profit shifting, whereby multinational companies book their profits in jurisdictions with low tax rates rather than the countries where those revenues were generated.
US-headquartered multinationals are deemed to be “among the most aggressive” in shifting profits, according to TBJ. They booked 24% of their global profits in low-tax jurisdictions between 2016 and 2021, whereas multinationals based elsewhere on average shifted 17% of their profits. This profit shifting by US multinationals between is estimated to have caused global tax revenue losses of $495bn, 29% of the global total over that period.
The US government itself lost $574bn in tax revenue to profit shifting, with US-based companies responsible for $271m of those losses. The impact of profit shifting, however, is more impactful on lower-income nations where the losses in tax revenues account for a greater share of their government expenditures.
Sarah Saadoun, senior researcher at Human Rights Watch, noted that for many countries, “revenue losses under the current international tax system are not just a fiscal issue” as the drain on public budgets impacts education, health care and social security.
TJN estimates that India lost $34.8bn in tax revenue to profit shifting by US multinationals between 2016 and 2021, equivalent to nearly a fifth of its annual health spending.
In total, it lost $88.3bn to corporate tax abuses in that time, equivalent to half of its health budget, $24.4bn of which would be recovered through public CbC reporting according to TJN’s estimates.
Similar patterns appear across Latin America, the Caribbean, Africa and Asia. The Philippines and Honduras, as two further examples, lost the equivalent to over half of their respective health budgets to corporate tax abuses over that six-year period.
Jayati Ghosh, Commissioner at the Independent Commission for the Reform of International Corporate Taxation, commented: “Making multinationals publicly disclose their country-by-country reports would increase tax revenues and curb tax abuse without the need for changes to tax laws.”
“The UN Framework Convention will provide a unique opportunity to establish public country-by-country reporting as a unified coordinated standard, reducing compliance burdens and creating fair competition for all,” he added.
The UN’s Intergovernmental Committee of Experts on International Tax Cooperation will meet in Nairobi next week (10 November) to continue their negotiations on a draft Framework Convention on International Tax Cooperation.
This member state-led body is tasked with delivering a draft framework convention, which is expected to go to a vote at the General Assembly in September 2027. After the talks this month, it will meet three times next year and three times in 2027 before submitting the finalised text.
In the report, TJN and the other contributors to its study argue that delivering consistent tax transparency would be a “major, global public good that the UN tax convention negotiators should now commit to.”
They also call for the establishment of a body to manage CbC tax data and propose future reforms, for “robust” institutions for monitoring corporate tax practices and for a shift towards unitary taxation whereby tax allocations are based on where multinationals operate.
“The UN tax convention represents a once-in-a-century opportunity to establish an inclusive and effective framework for global tax governance,” the report reads. “It can finally move the world beyond the OECD’s failed stewardship, embedding principles of fairness, transparency, and cooperation into international law.”
