Those in favour of limited information
Commercial sensitivity dominated the day’s discussions, with taxpayers openly expressing their fears that the information required for CbCR and the masterfile was excessive and unnecessary.
There is a growing concern that information could be misused and negatively construed to portray MNCs in a bad light and undermine the competitiveness of economic markets.
Catherine Schultz from the National Foreign Trade Council (NFTC) stressed that CbCR should only be used as a high level risk assessment tool.
During the consultation, Schultz listed a number of changes she felt were necessary to protect commercial sensitivity:
· Limit use of CbC data to initial risk assessment;
· Prohibit use of CbC data by tax authorities to justify or support TP adjustments under formulary principles and make this unequivocally clear in OECD guidelines;
· Provide a list of excluded terms that do not support risk assessment but could easily be misused (for example, headcount);
· Provide a policy to treat CbC data as confidential taxpayer information;
· Provide a procedure to segregate CbC data from the audit file after initial risk assessment stage (similar to US Internal Revenue Service treatment of Uncertain Tax Position filing); and
· MNE home jurisdiction and OECD must not share information unless requesting country has appropriate safeguards in place.
“The information in the CbC report is not quite as sensitive as the information included in the masterfile, but we would still not recommend that it be made public. There are a lot of business transactions that could be affected if the information in the CbC report was released publically,” said Schultz.
Given the OECD seems willing to be flexible in the area of CbCR information, taxpayers are concerned the information being reported by each company may not be exactly the same and the slight variation could be misused and misunderstood. The release of the information could affect deals, and in situations where subsidiaries are in the same country and in direct competition of each other, the release of information could be commercially detrimental.
On the fence
Concerns over CbCR and the masterfile stem from the increase in detail required. However, there are some that feel the proposals generally fit into the high level risk assessment model.
“On the country-by-country reporting, my general position is that the more the proposals remain within the stated purpose of a high level risk assessment, with relatively few data items, then the less likely there is to be the risk of commercial sensitivity – that is a personal opinion, rather than an official BIAC one, as I said in Paris,” said Alan Mclean of BIAC.
“That said, all companies are different so we cannot rule out the possibility of certain business models where even such high level data could be sensitive, and of course these concerns are amplified by the risk that the data could leak into the public domain,” said McLean.
While some feel the masterfile is also an appropriate high level risk assessment tool, it is clear that it has generated more concerns than CbCR. Many feel that information required in the masterfile, such as business models and profit splits, could create a competitive advantage for other sources and undermine market competition.
“The same considerations apply to the masterfile – the more the focus remains on the high level provision of background context and explanation, the better we meet the objective, and the less risk of competitive harm. However, in describing a group’s business model and pricing policies, it may be necessary for some groups to introduce elements of competitive and market positioning, for example where cost based or profit split methods are employed,” said McLean.
Irrelevant, information must be shared
Tove Ryding, speaking on behalf of Eurodad, stressed the importance of making the information public and not confusing commercial sensitivity with trade secrets.
“It is the country-by-country reporting in particular that we feel should be public. This will contain basic information about the multinational companies operating in our societies, such as the number of employees they have, their turnovers, their profits and taxes paid,” said Ryding. “These are not trade secrets, this is basic information which ordinary citizens have a strong interest in.”
Others who agree with this view, including Oxfam, feel the confidentiality and corporate secrecy surrounding this information has facilitated the shifting of company profits to tax havens.
“The companies who are manipulating their profits to avoid taxation will of course not be interested in transparency. But for the many honest companies that have nothing to hide, corporate transparency would be an opportunity to re-establish public trust and display their responsible corporate practice, whereas continued corporate secrecy would simply create more public suspicion and mistrust - even towards the companies that have done nothing wrong,” said Ryding.
When asked about the NFTC’s response to Eurodad’s comments, Schultz said: “We disagree with the Eurodad and BEPS Monitoring Group’s assertion that the information is in the public interest. This is private taxpayer information, and the publically traded companies already release a large amount of information to their shareholders and to the public annually. The proprietary nature of tax information—even information considered very general, should be protected by the treaty exchange of information provisions negotiated between governments, either bilaterally, or multilaterally.”
Final considerations
The significant air time commercial sensitivity received at the public consultation in May, clearly demonstrates the relevance of the issue to all those involved. It seems even those on the corporate side of the argument cannot agree whether CbCR, for instance, is commercially sensitive.
There does; however, seem to be a general consensus that the information in the masterfile could prove commercially detrimental.
“In terms of minimising the risk of harm, my suggestion would be to always keep the purpose of high level risk assessment for the country-by-country and master files in focus, and to develop approaches that deliver that objective as simply as possible. That would enable most companies to comply with certainty and the minimum burden, which is what we all want to be able to do. Tax authorities, of course, retain their rights to investigate areas of concern in further detail in line with their existing powers,” said McLean.
“The use of tax treaties for governments to exchange information has worked for many years, and we see no reason to change how information is given to governments. Governments have higher negotiating power with each other, and can assure that sensitive taxpayer information is not released publically,” said Schultz.
While the corporate world has valid points, it is hard to ignore Eurodad’s comments and the connection being made with profit shifting and tax evasion.
