A new era of tax transparency?
This guest post is contributed by Vanessa Herringshaw, Director of the London office and Director of Training and Capacity Building for Revenue Watch Institute.
New momentum on country-by-country reporting – consensus grows on links between tax, transparency and development
“We are entering a new era of tax transparency.”
Stephen Timms is the UK Treasury Secretary. He made this statement at the OECD Global Forum meeting on tax and development this week. At the same meeting, the OECD made new commitments in this area, including work on country-by-country reporting requirements for companies.
The meeting and the Secretary’s statement reflect a sea-change in global thinking about the connections between taxes, transparency and development. Not only is improving tax transparency and collection now discussed as core to sustainable development, now governments, companies and civil society are working on how best to achieve it.
The global financial crisis helped establish a new political momentum – lack of corporate transparency clearly contributed to the crisis, and the enormous government contributions to shore up the private sector have led to new calls for corporate accountability. Meanwhile, in the assessment of progress towards the MDGs, there has also been a growing concensus that aid is not enough and only increased domestic revenue generation can fund sufficient and sustained change. Experts increasingly see reducing tax avoidance and evasion are as critical areas for reform.
Reflecting these dynamics, the G20 created the Global Forum on Transparency and Exchange of Information for Tax Purposes. This in turn prompted the OECD to bring together two bodies that have never worked together before – the Committee on Fiscal Affairs and the Development Assistance Committee. On the 28th of January, the OECD announced the formation of a new multi-stakeholder Task Force to implement work in two important areas.
The first relates to improving transparency in the reporting of profits and tax payments. The OECD has recommended that the development of multi-national guidelines are explored for country-by-country reporting by companies. This will be discussed as part of the planned updating of the Guidelines for Multi-National Companies (MNCs) that could be complete by the end of 2010.
This approach will run in parallel to the on-going work to develop a new financial reporting standard for the extractive sector by the International Accounting Standards Board. In his statement on the OECD’s proposals, Timms stated, “I would stress that work to develop such guidelines should not impinge on the IASB’s current work on extractive industries, which the UK fully support.” The draft of the IASB’s new extractives standard will be published in February and the deadline for inputs may be the end of June.
To improve transparency, the OECD will also explore moves to improve sharing of tax-related information between countries. The UK is leading the pack – it has announced that by the end of 2010, it will sign a multi-lateral tax information information exchange agreement with developing countries, and it is inviting other OECD countries to join the same agreement. Timms stated that this is part of a move to automatic exchange of information – “that must be the destination we are heading towards” rather than relying on approaches that only respond to information requests.
The second area of work for the Task Force relates to strengthening the capacity of tax administrations, especially in developing countries and emerging economies. One particular area of focus is likely to be building skills on transfer pricing. A key target will be the new African Tax Administration Forum (ATAF).
The OECD must now move beyond the talk and deliver some practical results. The Task Force members will be selected by mid-March – NGOs will be watching closely to ensure they are adequately represented. The Task Force will conduct a mapping of who is best placed to develop particular approaches, scheduled for completion by June. The OECD review of Guidelines for MNCs, including country-by-country reporting guidelines could be complete by the end of 2010.
Meanwhile, the window for comments on the IASB’s Discussion Draft on Extractives, including discussion of whether to include country-by-country reporting, is likely to be February to June 2010.
For those who see domestic revenues as vital to development, and improved transparency as core to accountability, it is certainly a critical time for action to engage with the OECD and the IASB.