While policymakers push for greater transparency, most companies report little or no financial details about operations outside their home country

Opaque disclosure practices are rife among the world's 124 largest publicly listed companies, according to a new study by Transparency International. Most companies report little or no financial details about their operations outside their home country. Even more refuse to disclose which subsidiaries they own – making it very difficult to get a basic idea as to what their footprints are around the globe.

This inescapable conclusion is born out in the reported numbers: 90 of the 124 companies assessed do not disclose the taxes they pay in foreign countries, while 54 disclose no revenue information at all. Positive scores were awarded to only 26 companies with respect to the listing of subsidiaries. “The reality is most companies comply with the law and what is demanded of them from a legal, regulatory standpoint,” said Susan Côté-Freeman, the head of the business integrity programme at Transparency International. “What we need are better laws on the books.”

Of particular concern is a trend among US multinationals significantly limiting the disclosure of subsidiaries in their regulatory filings. They have done so by taking a more restrictive or literal approach to disclosure of subsidiaries that are considered significant or “material”. A case in point: US technology firm Oracle is said to have disclosed 400 subsidiaries in 2010 but only eight in 2012.

In 2009, Google reported on 100 subsidiaries whereas in 2012 it reported on only two, both located in Ireland. By contrast, all evaluated German companies disclosed the full lists of their subsidiaries, associates and joint ventures, without applying any materiality criterion (a threshold set by regulators which defines the significance of a subsidiary).

Mandatory disclosure rules are gradually increasing with the shift towards legislated country-by-country reporting. EU banks already operate under these rules, while oil, gas and mining companies in the European Union will fall under a less stringent mandate as of July 2015. What it means for extractives is disclosure only on tax payments and only in the country where the resources were extracted. “It does not deal with shifting profits to tax havens or shifting profits back to the country of origin where they are based,” said Tove Maria Ryding, the tax coordinator at the European network of Debt and Development (EURODAD).

Banks report these same tax payments but also have to provide an overview of the financial performance of their various subsidiaries, including sales within a group and to other companies, as well as the profits, purchases, and labour costs along with a listing of assets and the number of employees where they operate. “We've taken important steps forward both on extractives and the banking sectors,” said Tove Maria Ryding, the tax coordinator at the European network of Debt and Development (EURODAD). “Now we just need the rest.”

UK trusts still conceal company funds
 

Consumer services, financial, technology and health care firms all place at the bottom of the Transparency International report. Some of this cuts along geographical lines as UK companies, for example, score high marks, in comparison to their US and Chinese counterparts. Credit anti-corruption laws in force in the UK since 2011, and yet Ryding points out the trickiness of the UK provisions: anonymous companies are now banned, but not anonymous trusts. That potentially leads to a shifting of funds to new structures, rather than more transparency.

Another concern is the issue of unfair tax treaties, which are being negotiated between developed and developing countries. These treaties often push down the taxation levels on financial transfers out of developing countries, creating routes through which transnational corporations can avoid taxation. “Yes, focus on companies, but what about the regulators?” asks Ryding.

In a new EURODAD report the tax justice advocacy group does just that, directly comparing for the first time 15 countries across the EU on four critical policy issues: tax treaty fairness, anonymous shell companies and trusts, support for corporate payment disclosure, and the inclusion of developing countries in drawing up new global tax standards.

“There are governments trying to play two horses at the same time,” said Ryding. “They are trying to make sure people don't dodge taxes in their [home] country, but at the same time they're happy to provide shells for people and companies from other countries who want to dodge taxes.” The problem is system-wide, with standards driven down in many countries in order to attract multinationals.

“What we're seeing is a very high degree of political pressure. But,” Ryding adds, “are things really going to change, or will we just continue to get a lot of political speeches?”

Corporate tax  tax ethics  transparency 

comments powered by Disqus