Notes on the Front

As part of a drive to bring a little bit of democratic accountability over multi-nationals, the EU Commission is proposing that multi-national country-by-country reporting be made public.  This refers to the process by which large multi-nationals are required to report in what countries they derive their profits from and pay their taxes in.  In the future, large companies will be required to provide this information to the national tax authorities in the EU.  The question the EU Commission is posing is whether this information should be made public.

Unsurprisingly, a number of interest groups are opposed to public disclosure, according to Ian Guider writing in the Sunday Business Post (paywall).  In its submission to the Department of Finance, Ibec warned:

‘It is difficult to envisage how public trust could be engendered through this system (making country-by-country reporting public) or how debate could be better informed by publication of confidential information.’

This is curious reasoning.  Experience suggests that public trust is ‘engendered’ through transparency; it is secrecy that undermines confidence.  Second, debate is better informed with full information; it is degraded and open to manipulation in the absence of information.

Deloitte employs a more interesting reason not to make this information public.  According to Guider, Deloitte claimed that:

‘ . . . revealing it (country-by-country profit and tax information) could lead to [companies] becoming targets of audits’.’

Well, this information will already be provided to tax authorities so if there is something amiss, an audit would (or should) result, even without making the information public.  In any event, companies shouldn’t worry – if they are tax-compliant.

Returning to Ibec’s concerns, there is one argument that is really strange.  Referring to the prospect of companies having to reveal where they are operating:

‘Companies in sectors such as pharma and medical devices where site information is highly guarded, even within company groups, would be put at a disadvantage.’

I can understand occupying military empires preferring not to reveal the location of their bases (the natives might start taking pot shots at them), but to equate company location information to state secrets is somewhat extreme.  In any event, competitors and tax authorities can easily access this site information through industrial detectives.

Of course, when all arguments fail, fall back on the ‘it-will-deter-foreign-investment’.   Make country-by-reporting public and Ireland will lose out on foreign investment (the corollary is that secrecy is a sustainable investment policy).  But is this unsubstantiated assertion true?   Let’s look at one public country-by-country reporting process that is already in place and see what lessons can be drawn. 

Since 2015 all EU banks have been required to publish country-by-country data –and this information is public.  Oxfam undertook an examination of the top 20 EU banks using this public data:  ‘Opening the Vaults’.  They found:

• The 20 biggest European banks register around one in every four euros of their profits in tax havens, an estimated total of €25 billion in 2015.
• These European banks made profits of €4.9 billion in Luxembourg – more than they did in the UK, Sweden and Germany combined.
• Barclays, the fifth biggest European bank, registered €557 million of its profits in Luxembourg and paid €1 million in taxes in 2015 – an effective tax rate of less than 0.2 percent.
• European banks did not pay a single euro of tax on €383 million of profit made in smaller tax havens.
• A number of banks are registering losses in countries where they operate. Deutsche Bank, for example, registered a loss in Germany while booking profits of €1.9 billion in tax havens.
• Low levels of profit in countries that are not tax havens translate into low tax revenues for those countries. For instance, Indonesia and Monaco have a similar level of economic activity by European banks, but the banks make 10 times more profit in Monaco than they do in Indonesia. Such gaps can hardly be explained on the basis of ‘real’ economic activity.

In the Oxfam report, Ireland features prominently as a destination for potential profit-shifting (that is, profits generated in other countries but booked in Ireland to take advantage of the accommodative tax regime).  This is why Oxfam refers to Ireland as a potential tax haven or, at least, a tax haven facilitator.

The questions here are: has this country-by-country information helped inform the debate?  Has this publicly available information led to a withdrawal of foreign direct investment?  Has this public data led to tax audits?  The answers are yes, no, and hopefully.

None of these tax avoidance activities – and their interaction with Ireland – appear to be illegal.  But that is the problem.  If it was illegal it could be closed down.  The purpose of open information is to stimulate a debate over what should be legal and what shouldn’t be.  The EU Commission proposal is the first step towards starting this conversation.  The purpose of Ibec’s and Deloitte’s submission – as reported in the Sunday Business Post – is to close down that conversation.

And there is no better way to lose trust and confidence in the system than to keep vital information secret. So let’s open the books.  Let’s have that debate – in Ireland, Europe and throughout the world; wherever multi-nationals operate.