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By Peter Hill
An Australian Senate committee wrapped up a four-year inquiry with a call for public tax and profit reporting for multinational companies.
The Senate Economics Reference Committee, in a report released May 30, also recommended that all companies and trusts publicly disclose information about beneficial owners and that the country’s voluntary tax transparency code be made mandatory “for all large and medium corporations operating in Australia, including subsidiaries of multinational corporations.”The report comes as many countries, including those in the European Union, are struggling to find a balance between encouraging investment from multinational companies and collecting the correct amount of tax on their activities.
Country-by-country reporting is the most widely adopted component of the Organization for Economic Cooperation and Development’s project to stop tax avoidance among multinational companies. The reports give a snapshot of financial data—such as taxes paid, or employee numbers—for each country in which they operate. The Australian Tax Office told Bloomberg Tax May 21 that it “has a copy of the report released by the committee yesterday and is considering its findings.”
In their dissenting statement included in the report, government members of the committee Senators Jane Hume and Ian MacDonald called the inquiry “unnecessarily protracted” and said the opposition-controlled majority report had overreached in some of its comments.
“In the four years it has taken to produce this report, which contains precious little new insight, the government has been getting on with the job in addressing multinational tax avoidance and tax system integrity,” they said.
Some countries, including Ireland and Sweden, have previously said EU member nations shouldn’t make public reporting a requirement, and should only require that large multinational companies provide country-by-country tax and profit information to tax authorities. The reporting would apply to companies with annual turnover of 750 million euros ($876 million) or more.
And some companies, such as Johnson & Johnson and Procter & Gamble Co., have previously said they worry the reports could be misinterpreted.
Making “excerpts” of country-by-country reports publicly available “has the potential to provide the wider community with more insight than they currently have into the cross jurisdictional structure of multinationals,” and would contribute to “a more informed debate about what level of tax should be paid by multinational corporations.”
“Information to be released from Country-by-Country reports would include, at a minimum, high level data on how much revenue is collected and tax is paid in jurisdictions the firm operates in, and the number of employees,” the report said.
The Australian Tax Office has previously opposed the idea.
When it was put to him at a Feb. 28 estimates hearing of the Senate committee, Chris Jordan, the tax commissioner, was adamant Australia would be in breach of OECD rules it that happened.
Jordan told the committee on that occasion that if the reports were disclosed “we wouldn’t ever get anything again. We would have broken the treaty and no-one would ever send us anything.”
Instead, Jordan cheered the idea of a master file, which would accompany the reports and give an overview of a multinational’s business.
“This is pretty cool. This is good stuff,” he said. “These master files basically tell us what their transfer pricing strategies are and how they go about this. This is really rich. We’ve never had this sort of stuff,” Jordan said, adding that the master file sits “at the top of the empire,” describing the company’s overall strategy.
“Most observers would agree that this longstanding inquiry has helped to progress significant and meaningful reforms to address corporate tax dodging in Australia. However, it is clear that there is more to be done,” Jason Ward, spokesman for the Tax Justice Network in Australia, told Bloomberg Tax in an email May 31.
Still, the recommendations “could greatly enhance transparency and continue to increase corporate tax revenues,” Ward said. Specifically, requiring the public disclosure of beneficial ownership structures and requiring certain entities to file general purpose financial statements “would be very significant improvements.”
Michelle de Niese, executive director of Corporate Tax Association in Melbourne, said that the report’s lack of underlying content within the recommendations reflects “how far Australia has advanced down the track of addressing both domestic and international concerns around base erosion and profit shifting.”
The Corporate Tax Association represents the top 200 companies in Australia.
In a May 31 email to Bloomberg Tax, de Niese tempered the organization’s support by saying “the perception that corporates do not pay their fair share in Australia is, to put it simply, factually incorrect.”
“As clearly stated by the Commissioner, if Australia was to determine to make CbC reports public, the ATO would not have anything to make public as Australia would effectively be removing itself from the OECD agreement under which CbC reports are shared between revenue authorities,” de Niese said.
She added surprise that the issue was still being pursued, given the commissioner’s comments to the committee.
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