The UK Finance Bill will allow the Treasury to pass regulations requiring multinationals to disclose their profits and tax returns to all stakeholders and not just tax authorities.
The amendment to the Bill was tabled by Labour MP and member of the Public Accounts Committee (PAC) Caroline Flint and will affect large multinationals either headquartered or with a substantial presence in the UK.
Flint first introduced the amendment in March, using the so-called Ten Minute Rule Bill, a UK Parliament convention that allows backbenchers to raise awareness of relevant issues and thus influence legislation.
“The backing I received spurred me on to try to amend the Finance Bill in June, gaining the support of eight parliamentary parties,” Flint said yesterday at the House of Commons.
The wording of Flint’s final amendment is written as a faculty for the Treasury, as it “may by regulations require the group tax strategy to include a country-by-country report”.
The concept of a “country-by-country report” refers to the already existing regulations on the subject: The Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016.
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By GlobalDataFlint’s office said in a press release that her amendment “seeks to deal with Government concerns about being forced to implement public country-by country reporting alone ahead of other nations.”
International dimension
The UK Government, tax campaigners and NGOs have backed and welcomed the initiative, in particular because it can have a positive impact on tax transparency worldwide.
For example, ActionAid, which citing IMF estimates, highlighted that developing countries may lose $200 billion a year to corporate tax avoidance.
Natasha Adams, ActionAid head of campaigns, said Flint’s transparency amendment could prevent multinational corporations from exploiting weak global rules and loopholes and thus pay their fair share of tax.
“Thanks to a cross party effort led by Caroline Flint and supported by the Government we may be able to see exactly how much tax these companies are paying in every country where they operate, including tax havens and the world’s poorest countries,” Adams said.
Before the adoption of the amendment, PAC chair Meg Hillier asked Flint in Parliament if the Government would be setting a tone for other parts of the world should it adopt the initiative.
Flint said: “We can do that from our House of Commons Committees, but we hope today that we can give some added muscle to the Government to lead the way in this important area, too.”
She continued: “I am seeking tax justice not only here, but for those developing countries that lose out too. If developing countries got their fair share of tax, it would vastly outstrip what is currently available through aid.
“This proposal demonstrates the widespread view that bolder measures to hold multinationals to account are necessary.”
Flint thanked the Tax Justice Network, Global Witness, the business-led Fair Tax Mark, as well as tax experts Richard Murphy and Jolyon Maugham, QC.
Richard Murphy, who first wrote about the topic in January 2003, underscored in his blog that although the country-by-country reporting is not totally mandatory for the Treasury to implement, it’s a step in the right direction.
“Now the demands for the Treasury to act will grow. If they thought this was an easy way out they are very mistaken,” he wrote.
Risky amendment?
However not everyone sees the adoption of this amendment as a positive step forward. Whilst agreeing that the amendment adoption was a significant victory for campaigners and positions the UK as a leading proponent of tax transparency within the international community, RSM international tax partner Rebecca Reading said this decision by ministers was not without risks.
“As over 100 countries around the world seek to implement the OECD's plans to introduce greater coherence in the global tax system and prevent tax avoidance by multinationals, countries that go further than what has been agreed by the OECD risk alienating others and putting their future cooperation in doubt. This risk is particularly acute with regards to the USA,” she said.
At the G20 summit, held earlier this week, USA President Obama said that progress on international tax reform needed to be done 'in concert' and warned against unilateral action, Reading continued. “Yet by choosing to support the public disclosure of country-by-country tax reporting – albeit in principle and at an appropriate time – that is exactly what the UK is doing. There is a real danger here that the UK's action could derail progress on BEPS implementation at a time when it is beginning to get some good traction across the globe.”
In a sense, the timing of this decision could not be worse, coming as it does at a time of political tension between the EU and the USA over tax policy, following the Commission's decision on Apple's tax affairs, Reading concluded. “Many commentators are unhappy that the OECD's reforms don't go far enough. However, the reality is that it's the only show in town.”
