Today, 8th June, sees the launch of an amendment to the Finance Bill 2016 which seeks to make it include public country-by-country reporting from companies.
But why does this reporting matter? And why are our Fair Tax Mark accredited businesses already doing it?
What is country-by-country reporting (CBCR)?
CBCR helps us to know where companies are operating, and what they’re doing in those places. More specifically, it means we can see where they’re actually trading and making profits, where they’re ‘booking’ those profits (i.e. registering them with authorities), and how they’re taxes look in relation to this.
It’s crucial for tackling aggressive tax avoidance: it brings to light ‘arrangements’ which avoid paying taxes on profits in some places in order to pay them elsewhere where the tax rates are lower.
The UK government is introducing CBCR for our companies, but it’s not asking them to make it public. Instead, they’ll be providing the information only to HMRC. This is definitely a step in the right direction, but making the information public is really important.
Why does the Fair Tax Mark want CBCR to be public?
Firstly, businesses are part of our society. They provide jobs, products and services which we all want or need, but they also enjoy public goods and services (like roads, power networks, the NHS) and various legal protections too. We think paying a fair share of tax and being open about how they’re doing that is part of the deal – their ‘social contract’ with society.
It also matters for scrutiny. HMRC is working hard to stop dodgy tax dealings but its complex and ever-shifting territory. Having information in the public domain enables other stakeholders – like journalists, consumers and investors – to assess what companies are doing and make better informed decisions on the basis of what they learn.
Perhaps most importantly, it’s vital for developing countries. A huge amount of money flows out of them and into tax havens, taking away vital funds from the countries which need them most. Seeing CBCR can help their tax authorities track money down – but getting the information out of other countries’ own tax authorities takes time and resources which they struggle to find. Making it public helps them take action to protect their rightful revenues.
Fair Tax Mark businesses are ahead of the curve on CBCR
To be a Fair Tax Mark accredited business – if you have operations in more than one country – you have to publish CBCR. That’s because our two core principles are fairness and transparency. Public CBCR is a crucial part of this.
Accredited businesses like SSE have led the pack on this by stepping up and publishing their CBCR. We’re proud of them for doing this and we’d love to see more follow their lead.
So what’s happening with the Finance Bill then?
The bill will become law from July 2016; at the moment, its exact contents is still being debated. Part 10 specifically addresses tax avoidance, by both individuals and companies, and Clause 149 in that part introduces a new measure whereby qualifying companies will be required to publish a ‘tax strategy’ annually. This tax strategy only requires companies to set out their approach to tax planning and tax risk, with a fine of £7,500 for non-compliance.
A cross-party alliance of parliamentarians has asked to insert an additional requirement in Clause 149, stating that qualifying multinational enterprises must include in this new public tax strategy their country-by-country reporting information.
The Fair Tax Mark supports any business that wants to step up its game on country-by-country transparency. If you run a business and would like to know more, drop us a line at firstname.lastname@example.org.