COMMENT: Why businesses should back country-by-country reporting

Media entrepreneur, businessman and member of the UK House of Lords Economic Affairs Committee, Lord Hollick, became the latest high-profile voice calling for country-by-country reporting last week.

“In a world of globalisation, how do single countries hold corporations to account?” Hollick asked a conference at Oxford University’s Centre for Business Taxation on Friday. “It’s hard to work out how much tax is paid where. The disclosure regime does not get to the heart of the issue. We need full disclosure.”

Hollick said that it was unacceptable that Parliament should only be alerted to “extraordinary goings on” through the pages of Private Eye, arguing that large corporations should publish their tax affairs in the same way they do the other aspects of their accounts.

“Having been an executive of a large corporation, I would be happy to do this,” said Hollick. “Companies should pay a fair rate of tax. We should move vigorously towards the path of transparency.”

Ardent tax justice campaigners from non-governmental organisations have long argued for country-by-country reporting as a means to help developing countries in which they claim 1,000 children a day die because of corporate tax avoidance. Such arguments have been strongly disputed by multinationals which have yet to throw their weight behind country-by-country reporting, despite attempts by Christian Aid to engage them with their FTSE4 campaign.

Rare as his voice is among the business community and in the corridors of power, however, Hollick will be harder to dismiss. And there are many compelling reasons why businesses should not dismiss calls for country-by-country reporting out of hand beyond the basic appeals to morality and the spirit of the law.

One of the most compelling is their investors. As asset management firms have recognised, investors want stability, they want to minimise their exposure to risk and they want better information on their potential investments.

Aggressive and uncertain tax positions can expose companies to costly litigation. Moreover, there is a much more basic risk for companies’ cash flows and how the stability of their profit is viewed by shareholders. With governments coming under financial pressure to ensure businesses pay their fair share of tax, if loopholes that companies have used to legally reduce their tax bill are closed, then the next year, even if the business remains the same, profits will fall. This makes for a volatile economic model, which may not put shareholders at ease.

Meanwhile, companies are becoming increasingly concerned with reputation and corporate social responsibility. Many have already eschewed the use of child labour and sweatshops, while promoting environmentally sustainable practices in an effort to increase their standing in the eyes of the public – their customers and the cornerstone of their business.

As one PR executive at a law firm event last week recognised, the media and the public see tax avoidance as an issue as controversial as banker bonuses in these austere times. This is coupled with a lack of understanding because neither the tax authorities nor the companies will explain to people in clear terms why they have the tax arrangements they do. It is, as he said, “an own goal”.

Lord Hollick is right to stand up for transparency. Because businesses with nothing to hide have no need to hide. And more importantly, if they disclose what taxes they pay in each country in which they operate alongside their profits, losses and how many people they employ, they can prove their good names in the eyes of their investors, their customers and an ever more cynical world.

International Tax Review is inviting corporates, NGOs, advisers and authorities to debate this vital issue at its inaugural Tax & Transparency Forum in London on May 2.

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