Our Policy Asks

Tackling corruption and tax dodging by multinational corporations is (almost) as easy as ABC

A = Automatic Exchange of Tax Information

What's the problem?

Tax Justice Network research suggests that tax evasion by individuals over the last few decades has led to roughly $21 – 32 trillion dollars of untaxed wealth being held in tax havens, with 25-30% of this coming from developing countries. Some of this money is able to be hidden because individual and corporate taxpayers may not declare all of the assets and income they hold outside their country of citizenship, reducing the amount of tax they have to pay at home.

What is the solution?
Developed countries are increasingly sharing information about taxpayers on an automatic basis - that is, without the home country having to make a specific request and the OECD has just adopted automatic information exchange as the new global standard

Recent experience suggests that automatic information exchange leads to governments being able to recover a significant amount of tax on unreported income. Through the automatic exchange of information with tax treaty partners, both Norway and Denmark found that in around 40% of cases, taxpayers were not reporting foreign income which they should have paid tax on. 

However, OECD analysis of the current state of play demonstrates that very few developing nations are currently able to benefit from this automatic information exchange, and no developing countries outside of the largest developing economies in the G20. While the pilot phase of Automatic Exchange of Information will include a small number of developing countries, the requirements of the system to share information on a reciprocal basis are beyond the capacity of some developing countries – although they should be allowed to receive information about the activities of their own citizens. 

What should Australia do?
Australia provides information on tax related matters to over 40 countries and receives information automatically from 20 countries, and has committed to implement the Common Reporting Standard for AEOI from 2017 onwards.

Australia should ensure that the needs of developing countries are fully taken into account and offer financial and technical support to developing countries in our region so that they can make use of the AEOI framework.

B = Beneficial Ownership Disclosure

What's the problem?

In many countries, individuals and groups are able to establish shell companies, anonymous trusts or other corporate vehicles with concealed ownership which provide a route for transferring illicit funds, while keeping their identities secret. This secrecy facilitates tax evasion, corruption and money laundering.

Money stolen corruptly from developing and developed countries has often been laundered through companies, foundations or trusts like these.

More than half of all world trade now passes through tax havens and recent research by the Uniting Church of Australia has found that 61 of Australia's top 100 companies have one or more subsidiaries in known secrecy jurisdictions (much as other leading multinationals around the world do). Without accusing any company of wrongdoing, complex and opaque corporate structures can help to hide the internal transactions of multinational corporations, allowing some to avoid tax or evade scrutiny and regulation.

What is the solution?
All countries need to maintain a public register disclosing the beneficial owners and controllers of companies, trusts and foundations. The United Kingdom has just committed to implementing such a register. The Australian Banking Association wants a register like this in Australia, which will help them to comply with Anti Money Laundering and Know Your Customer rules.

More on the benefits of public vs private disclosure here.

What should Australia do?
Australia should advocate that all OECD and G20 nations develop and maintain publicly available registers which disclose the beneficial owners and controllers of companies, trusts and foundations as well as requiring financial institutions to establish the true beneficial owners and controllers of all corporate entities with which they do business. The Government should also begin developing the domestic legislation to require a publicly accessible register of beneficial owners and controllers in Australia.

C = Country By Country Reporting

What's the problem?
Most multinational companies do not publish accounts that outline all income and expenditure for every country in which they operate. Instead of this kind of country by country reporting, they publish only globally or regionally aggregated reports.

These reports do not give sufficient detail about the company's earnings and payments within a country, nor the transactions between different parts of the same company which can lead to money being shifted out of higher-taxing countries and into lower-taxing ones (often tax havens or secrecy jurisdictions). Consequently, developing country governments who often have fewer tax advisors than the multinationals and whose tax authorities are hard pressed keeping up with sophisticated and aggressive "tax planning" by multinationals, are not easily able to get a sense of what the tax obligations of a corporation actually should be.

Christian Aid estimated in 2008 that developing countries lost $160 billion from just two forms of corporate tax evasion, transfer mispricing (overstating the costs of a transaction to reduce a tax bill)  and false invoicing (disguising improper transactions with false invoices). This is more than these countries received in aid that year.

What's the solution?
Part of the solution is for companies to be required to report publically on their operations - including sales, profits, taxes due and paid, purchases, number of employees, assets, purchases, labour costs and financing costs - for every country in which they operate. That way, governments would be better able to hold them accountable for paying their fair share of tax and citizens would be better able to hold governments accountable for using this tax revenue to reduce poverty.

More on the benefits of public vs private disclosure here.

Are others doing this?
In fact, Australia is falling behind what other countries are doing.

The United States requires all listed oil, gas and mining companies to report on the taxes and royalties they pay to governments on a country-by-country and project-by-project basis. The European Union will require the same from large oil, gas, mining and forestry companies from 2015. The EU have also agreed to require more extensive country-by-country reporting from banks, including their profit and loss before tax, taxes due, turnover, number of employees and public subsidies received for every country in which they operate.

The United Kingdom has committed to use the Country By Country reporting template developed by the OECD to require UK multinationals to report on a country by country basis.

What should Australia do?
Australia should begin the consultation and drafting work to prepare domestic legislation to require all companies (possibly starting with oil, gas, mining and forestry companies) registered in Australia to report publically on a country by country basis. As a member (and current president of the G20) Australia should also strongly urge all G20 nations to require this kind of reporting.

In 2013 Micah Challenge made a submission to a Treasury Enquiry into the Taxation of Multinational Enterprises which can be downloaded here.