European Commission consults on ‘country-by-country’ multinational tax reforms

Investors could be better able to assess national tax activities, says EU.

The European Commission (EC) has launched a public consultation into corporate financial reporting on a country-by-country basis, an issue which tax campaigners say could shed light on multinational companies’ practices of moving profits out of countries where they operate to offshore havens in order to lower their tax bill. Campaigners have recently accused multinationals including Google and Ikea of significantly lowering global tax payments – entirely legally – by funneling profits through low-tax countries. The EC’s DG Markets division said it was currently reviewing applicable accounting standards and could tighten them to require multinationals to fully disclose financial information on their operations in third countries in their annual financial statements. It said a change to so-called ‘country-by-country’ reporting could help investors better assess the different national activities of multinational companies and enhance transparency about capital flows to better enforcenational tax rules. The International Accounting Standard Board (IASB) is already looking at a country-by-country reporting requirement for International Financial Reporting Standard 6 (IFR6) covering the extractive sector (minerals, oil, natural gas). That would require companies to publish payments made to governments in third countries. The US Dodd-Frank Act already requires extractive companies listed on US stock exchanges to do so.
The EC said it had encouraged the IASB to look beyond the extractives sector. Campaigners such as the Tax Justice Network (TJN), say local declarations of economic activity and tax by multinationals would help poorer countries raise tax revenue and promote economic accountability. TJN says that many of the major corporate scandals of recent times have involved extensive use of offshore subsidiary companies. The closing date for the consultation is December 22, 2010.
Link to consultation