Nonprofits Urge Public Disclosure of Country-by-Country Data

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.

May 13 — Representatives from several nonprofit advocacy organizations pressed the IRS and the Treasury Department to make country-by-country reports public—claiming that publicizing the reports wouldn't only shame companies engaged in profit shifting, but would also make the government's job easier.

“In a time with a lot of pressure on government spending, we know that it is hard, sometimes, to make the best use of the resources that you have,” said Porter McConnell, director of the Financial Transparency Coalition, a group of nongovernmental organizations advocating for greater disclosure of tax matters.

“Making country-by-country reports public increases the efficiency of your work. It would ensure that there are more eyes with valuable perspectives,” he said. “It helps digest massive amounts of data filed by companies, and would help flag any indications of risk to the authorities, and in fact, crowd-source some of your work.”

McConnell was one of seven members of the public to comment during a May 13 IRS hearing on proposed regulations (REG-109822-15) implementing a new country-by-country reporting standard from the Organization for Economic Cooperation and Development. The Internal Revenue Service issued the rules in December 2015, and after accepting comments in March, is expected to release final regulations by June 30 (24 Transfer Pricing Report 1467, 3/31/16).


The regulations call for companies to submit country-by-country data—including income, numbers of employees and taxes paid—as part of their tax returns, thus making it confidential. Recommendations from the OECD as part of its base erosion and profit shifting project, completed in October 2015, also call for the reports to be kept secret.

That determination—in the eyes of many who participated in the May 13 hearing—was a mistake.

“The effective tax rates of corporations are a matter of public interest, and therefore should not be shielded behind secrecy,” said Joseph Kraus, a senior policy manager with the ONE Campaign, a global anti-poverty initiative. “There's already strong evidence that public access to country-by-country reports can be a game-changer in exposing tax avoidance, and altering the use of complex accounting structures to shift profits.”

Tatu Ilunga, a senior policy adviser for Oxfam America Inc., also claimed that public reporting would often deter companies from engaging in elaborate tax avoidance structures in the first place.

“Given the massive amount of lost revenue in both the U.S. and developing countries, there is substantial American and global public interest in ensuring that CBC report information is available to as many different types of stakeholders as possible,” Ilunga said. “That public interest far outweighs any perceived need to protect what some say is commercially sensitive information.”

Allowing More Access

Frank Clemente, executive director of Americans for Tax Fairness, argued that even if public disclosure is impossible, the IRS and Treasury should do more to ensure that the information is accessible to some, if not available to all.

Clemente urged Treasury and the IRS to request the information through a mechanism other than the tax return—similar to the Report of Foreign Bank and Financial Accounts (FBAR), a disclosure form that is required for U.S. citizens with foreign holdings, but isn't part of a tax return and isn't subject to the same confidentiality protections.

Separating the country-by-country reports from annual tax returns could allow the reports to be circulated within the executive branch, or to policy makers in Congress, he argued.

“We think that is a good model for you to follow,” Clemente said.

National Security Exception

Clemente also criticized a proposed national security exception to the reporting rules, for those with extensive U.S. military, defense or intelligence contracts.

“It's unnecessary—it would require expensive time-consuming procedures that would likely contribute very little,” he said. “We just don't see how any of this information that's going to be in these reports could be considered of national security concern.”

The proposed regulations released in December didn't include a national security exception, but requested comments from taxpayers about how one might be administered (24 Transfer Pricing Report 1076, 1/7/16).

Several industry groups, including the National Association of Manufacturers and the Aerospace Industries Association, argued for a “bright-line” test exempting any companies that derive most or a significant amount of their revenue from military or defense contracts.

Clemente argued that, if the IRS does include an exception, it should be narrowly defined and considered on a case-by-case basis at top levels at the Treasury, Defense and State departments. In addition, the agencies should submit reports to the congressional tax-writing and intelligence committees documenting the exceptions granted, he added.

Who Is an Employee?

Heather Lowe, legal counsel and director of government affairs at Global Financial Integrity, raised several issues on the regulations' scope—including how employees are counted.

Lowe said the language of the proposed regulations suggests that independent contractors could be included in an entity's employee count—possibly allowing shell or low-staffed companies to misrepresent service contracts as real operations, she said.

“Opening the door to this sort of distortion, artificially inflating employment numbers for subsidiaries, creates this misleading picture of offshore operations,” Lowe said. “That's entirely what we're trying to avoid with this form.”

Reporting Threshold

Other issues raised by nonprofit representatives included the rules used to define a corporate group and the IRS's $850 million threshold for reporting, which several speakers claimed was too high to capture much of the tax avoidance activity.

“While this threshold would capture the largest companies, there's no evidence that only those companies use profit shifting to avoid taxes,” said Kraus of the ONE Campaign. “Furthermore, in some countries, particularly in the developing world, companies smaller than the proposed threshold can have a significant impact on government resources.”

The U.S. threshold is based on the threshold of 750 million euros in the OECD's recommendations.

Taxpayer Concerns

Representatives of multinational taxpayers participated in the hearing as well, arguing that the rules needed clarification in many areas.

Lewis Greenwald, a partner at Mayer Brown LLP in Washington and a board member of the National Foreign Trade Council, said the IRS should tighten the rules for determining “tax residency.” He also said the rules should clarify how “fiscally transparent entities,” or flow-throughs, should be treated in the reporting scheme.

Mary Bennett, a partner at Baker & McKenzie LLP and representing the International Alliance for Principled Taxation, said the IRS should allow taxpayers to file the country-by-country reports a full 12 months after the end of the reporting year, rather than earlier with their tax return, to ensure they can use all financial data.

She also said the rules should ensure that taxpayers can use both “bottom-up” and “top-down” approaches to collecting information from their corporate group.

To contact the reporter on this story: Alex M. Parker in Washington at

To contact the editor responsible for this story: Molly Moses at

Request Transfer Pricing Report