A lack of tax transparency allows multinational corporations to unfairly avoid paying billions in tax. That’s less revenue for vital public services and infrastructure.
Last month we revealed shocking new evidence that four big drug companies – Johnson & Johnson, Pfizer, Abbott and Merck & Co. (also known as MSD)* appear to be using offshore tax havens to avoid paying billions of dollars in tax.
NZ$21 million to be precise, just here in New Zealand.
This happens because the global tax system is like a black-box: it is hard to see what goes on inside. Multinational corporations – like the four above – make use of different rules in different countries, and manipulate these to funnel their profits to countries with very low, or no, taxes (often called tax havens). These countries help multinational corporations to unfairly avoid paying billions in tax.
Why does this matter when this behaviour is not illegal?
When big, multinational corporations unfairly avoid paying tax, they starve governments from the revenue they need to provide public services – like healthcare and education – which the poor rely on. This behaviour is unfair and irresponsible.
What does transparency in our tax system actually looks like?
What Oxfam is asking for is something called public Country-by-Country Reporting (pCBCR). This is short-hand for making multinational corporations publish key financial information about their operations in every country where they work. This information should include revenue, profits, tax paid, employees and assets. Because multinational corporations work across the world, and shift their profits across the world, we need country-specific information to be able to compare what they are doing in each country and make sure it is fair.
This approach has four crucial benefits for a transparent tax system:
1. It dissuades multinational corporations from moving their profits around improperly and artificially. If they know they are being watched, they are less likely to act unfairly.
2. It ensures that all tax authorities, including those in developing countries, have access to the data. If reporting is not public, there is a definite risk that developing countries will struggle to get this information.
3. It allows investors, customers and company employees to properly assess the risks the multinational corporation could be exposed to and helps to maintain global financial stability.
4. Public information enables media, civil society organisations and the public to hold large multinational corporations to account. This is part of a well-functioning democratic process.
If multinational corporations know that they’re under proper scrutiny, they will think twice before attempting irresponsible practices. This will result in a fairer share of tax being paid, which governments can spend on vital public services like hospitals and schools. This helps to reduce the barriers of inequality that keep millions of people trapped in poverty.
The European Commission found that public country by country reporting was likely to boost, not harm, economic growth. Having more multinational corporation financial information in the public domain would provide more certainty for investors at a time when so many other aspects are uncertain. Many investors in multinational corporations – such as Legal & General Investment Management Limited and Norges Bank Investment Management – are also calling for public country by country reporting.
Public country by country reporting is already mandatory for financial companies in the European Union. A number of companies such as Vodafone, Unilever and Barclays are already voluntarily providing more information about their tax practices.
This is the way a progressive tax system works; a system that benefits those who need it the most, not just a few.