28 June 2016

A chance to improve the taxing business of business tax


As tax collection goes, it must be the least efficient and most prejudicial method of all: send in dozens of investigators on an early morning raid.

But that’s exactly what happened at Google’s Paris office in May, triggering an international string of bad news stories by lunchtime.

Across the Channel, the company was already under a cloud for its secretive £130 million UK tax deal, which many suspected to be too low.

Then mobile phone giant Orange weighed in, complaining that Google took unfair advantage of existing tax rules and urging regulators to create a more ‘level playing field’.

These latest chapters of Google’s unhappy tax affairs exemplify multinationals’ increasingly fractious relationship with suspicious tax authorities and consumers around the world, not to mention their competitors.

Today the UK House of Commons will debate what a growing number of MPs from all the major parties believe is a better way: to put the most crucial information about multinationals’ operations out in the open, in order to help restore trust in companies and create a more level playing field, as well as raising funds for national defence, policing and other critical government functions.

To date, this reform has attracted the support of dozens of MPs across the Conservative Party, UKIP, Labour, the Lib Dems, the Scottish Nationalists, the Greens, Plaid Cymru and the SDLP. With the country divided by a post-referendum hangover, MPs from all parties supporting a cross-party amendment would be a welcome act of unity.

What they favour is a simple change in UK law to require all multinationals above a certain size to publish some of the information that they already have to give the UK taxman.
The information – known as a country-by-country report – details matters such as the number of people employed by a multinational in each country, its turnover in each country, its taxes paid in each country, and so on.

While rows of figures are not the most scintillating, they are important for tax authorities, investors, competitor companies, consumers, journalists, politicians and academics. That’s because they give an initial clue about whether a particular firm is paying its share of tax in the countries where it does most business.

A firm which reported a hefty chunk of profit in a tax haven where it employs eight people would be likely to face questions. Not only from tax authorities but also from investors concerned about a company’s financial and reputational risks, to say nothing of competitors concerned about unfair competition and other stakeholders concerned about tax fairness.

By contrast, a firm which reported its profits roughly in line with the scale of its economic activities in each country have evidence with which to reassure tax authorities, investors, competitors, consumers and politicians that it was indeed playing fair.

Such transparency would arguably be especially important for people in developing countries, whose poorly-resourced tax authorities struggle especially hard to tax sophisticated multinationals. No less than the World Bank has characterised such poor countries’ difficulty with multinationals as a ‘tax war’.

Multilateral negotiations on this are not working. The policy is being watered down in the European Union. As the UK debates what the country will look like outside the EU, tax transparency should be a central part of this.

Barclays has been doing it for years. Although it, and other big banks, were required to do so by European law, the firm has chosen to reveal much more detail than it had to. And while it has come in for some criticism, it has also won praise for transparency – and the sky has not fallen in.

Other multinationals including Vodafone have taken a more sporadic approach, voluntarily revealing some of the data in a country-by-country report – but not all of it.

Faced with this messy patchwork, as well as public distrust of big business and the need to finance the functions of the state, it is no wonder that MPs are looking at public country-by-country reports as part of the answer.

Joe Ware is a writer for Christian Aid.