The long road to country-by-country tax reporting
By Richard Murphy FCA
In December 2019 the Global Reporting Initiative launched what can be considered as the first-ever true tax accounting standard. Enjoying the succinct title of GRI 207: Tax, it sets out wide-ranging reporting requirements on this issue. What is most notable is it represents the first global standard requiring public ‘country-by-country reporting’ (CBCR) on tax.
CBCR has a long history. While some early ideas were discussed in the 1970s, none came close to being realised. What we now know as CBCR was reinvented in a paper I wrote for the Tax Justice Network in 2003, who have pursued CBCR relentlessly since.
The idea has spread much more widely over time. From these beginnings to the point where CBCR is now a requirement for tax purposes in more than ninety countries, it’s been long and complicated journey. And with the arrival of the GRI Standard, it is now on the way to becoming a public accounting standard as well.
It is hard to recall how little interest anyone in civil society had in tax in 2003. John Christensen and I were almost certainly the only civil society activists wholly dedicated to the issue. Yet what John and I knew was that multinational corporations were, at least at that time, persistently abusing the rules of international taxation to shift profits from the locations where it was earned to tax havens. The cost to whole continents, like Africa, was enormous. Even now it is estimated to be $500 billion a year.
The good news was that some were quickly persuaded of the merits of our argument. Just as we were starting out the tax justice campaign so too were the Publish What You Pay (PWYP) NGOs coalition beginning to hold the Extractive Industries Transparency Initiative (EITI) to account. As a result PWYP were the base in 2005 for the first public call for CBCR.
It is to the credit of Christian Aid and Action Aid, in particular, that this issue transferred into the general development narrative. Alongside other NGOs, such as Oxfam, they began to campaign tirelessly for CBCR. As Christian Aid set out in 2008:
“A common accounting standard should be promoted, to make the hiding of profits impossible by requiring companies to report what they do on a country-by-country basis.”
In the aftermath of the global financial crisis, other participants joined the demands, such as the Uncut and Occupy movements. This broadened the political support and expanded calls for CBCR, meaning it moved beyond its taxation roots.
The real change, though, happened as a result of UK media reports inspired by or involving tax justice campaigners (including me) on the activities of some multinationals. These cases captured the attention in 2012 of the Chair of the UK Public Accounts Committee, Margaret Hodge MP. Her investigation of Google, Amazon and Starbucks was pivotal: as it was apparent these companies were hiding behind legal secrecy.
Within months UK Prime Minister David Cameron had made tax transparency a priority issue for his period as G8 Chair, culminating in the 2013 G8 Summit, at which I was present. The summit communique said:
“We call on the OECD to develop a common template for country-by-country reporting to tax authorities by major multinational enterprises, taking account of concerns regarding non-cooperative jurisdictions. This will improve the flow of information between multinational enterprises and tax authorities in the countries in which the multinationals operate to enhance transparency and improve risk assessment.”
To this point the accounting profession had claimed CBCR was not technically possible. The International Accounting Standards Board (IASB) had refused to engage, saying it was not within their remit as it was not data required by the providers of capital to a company. After the G8 summit that position was no longer sustainable. The OECD had to deliver a standard, and did so in 2015, requiring major multinational corporations to deliver CBCR data.
There was, however, a major problem. OECD based CBCR was to be secret: the data was only for tax authorities and no other agent could have access. The paradox of transparency being promoted secretly was not, apparently, noticed. The public, who had long campaigned for this information, were to be denied it.
The NGOs who had fought so long for CBCR were not prepared to give up. Nor were some political forces. Both the European Parliament and European Commission continued to demand CBCR. Long standing opponents, including Big 4 accountancy firms, began to embrace the idea. Despite all that, the GRI Standard is the first public CBCR standard — seventeen years after the idea first emerged.
Throughout that period the message has been consistent and simple. That multinational corporations are accountable for their activities in the communities where they operate, including the proper payment of tax. This logic does not challenge the fact that a company has to account to its shareholders by producing a single set of global accounts. But what CBCR says is that this is not the limit of its responsibilities.
CBCR recognises that corporations have stakeholders beyond shareholders, including trading partners, employees, regulators and civil society wherever it operates. What CBCR provides is some of the data needed to appraise the scale of an entity’s activities in a jurisdiction. The aim is not just to ensure the right amount of tax is paid in the right place, at the right rate and the right time — although that is important, of course. This is also about responsible capitalism, which recognises its duty to all in society.
In 2019 the Business Roundtable CEOs, including some of the biggest US companies, began to recognise such duties. So too does the GRI Tax Standard. Now the world’s largest corporations, their accountants and investors must all support the initiative. It’s not just fair tax campaigners that demand this; all of society does too. In 2003 that was almost unimaginable. Now, in 2020, it is what the world expects. We are finally moving in the right direction.
Richard Murphy was a member of the expert Technical Committee appointed to develop the GRI Tax Standard. He is Professor of Practice in International Political Economy, City, University of London; Visiting Professor, Anglia Ruskin University Global Sustainability Institute; and Director, Corporate Accountability Network.