By Kate Lappin and Anis Chowdhury
MELBOURNE and SYDNEY , Feb 6 2023 – Australia is set to become the first country or jurisdiction to require large multinational corporations (MNCs), with a global consolidated income of at least AU$1 billion, to publicly report country-by-country (CbC) tax information. The new Labor Government announced on 25 October, 2022 in its budget paper that MNC’s public CbC tax reporting will begin from 1 July, 2023. Australia’s public CbC reporting rules will apply to all companies headquartered in Australia and companies headquartered elsewhere with sufficient nexus in the country.
Kate Lappin
The announcement received very little media attention, perhaps overlooked as a technical amendment. Yet public CbC reporting could be a vital weapon in the fight against corporate tax avoidance in Australia and, more importantly, in low-income and highly indebted countries that lose even greater proportions of public revenue to tax havens.
All countries in the Organisation for Economic Cooperation and Development (OECD), including Australia and the US, have required large MNCs to privately report CbC tax data under Action 13 of the OECD/G20 project against Base Erosion and Profit Shifting (BEPS). In November 2022, the European Parliament approved a directive to mandate public CbC reporting for large MNCs within the bloc, with a range of limitations discussed below, from 22 June, 2024.
The Australian move comes a month before a new push at the United Nations to convene a global tax body to set international taxation standards, after years of faltering efforts among the world’s richest countries at the OECD.
Losing billions
The Paradise Papers and the Luxembourg Leaks of the International Consortium of Investigative Journalism (ICIJ) shed light on tax manoeuvres of more than 100 MNCs. Apple alone shifted profits around the world to accumulate US$252 billion offshore. A 2021 ICIJ study revealed that, in one year alone, MNCs shifted US$1 trillion offshore, depriving governments of hundreds of billions in revenue.
Anis Chowdhury
Corporate profit shifting, as the practice is called, to dodge tax, costs countries US$500 billion to US$650 billion in lost tax revenue annually, according to a report by a high-level United Nations panel, published in 2021.
Research by the Centre for International Corporate Tax Accountability and Research uncovered tax dodging by MNCs that bled money from public services and workers including in scandal ridden aged care homes in Australia. It exposed how Microsoft receives billions in outsourced government IT Contracts, while lodging over AU$2billion in profits via its Bermuda based subsidiaries where it pays little tax.
Almost 800 large corporations paid no tax in 2020-21, Australian Taxation Office report reveals. The country loses about AU$8 billion a year due to MNCs profit-shifting.
Poor countries bleed most
The 2021 ICIJ study finds African countries the most “vulnerable” to profit-shifting. In 2017, the Tax Justice Network found that low-income countries were the biggest victims of profit shifting.
In some countries such as Zambia and Argentina, losses exceeded 4% of GDP. In Pakistan the losses due to profit shifting were 40% of total tax revenues, and in Chad, the estimated losses were larger than all taxes collected (106.2% of total tax revenue)!
The State of Tax Justice 2021 finds that low-income countries collectively lose the equivalent of 48% of their public health budgets.
Low-income countries rely more heavily on corporate income tax for the revenue required to fund cash-starved public services, making corporate tax transparency vital in addressing global poverty and inequality.
Rich countries serving corporate interests
International taxation rules have been designed by rich nations, especially by their club, OECD. Tax justice activists, such as the African Tax Administration Forum allege that developing countries are “not at the table” at the OECD, but on the menu, with OECD rules designed to allow multinationals to continue to extract profits in the global south, without making fair contributions.
The OECD’s standards for MNCs tax reporting are riddled with loopholes. As Oxfam points out, the OECD rules do not allow people in low-countries to have access to information about MNCs’ profit made or tax paid in their countries and nor do most tax authorities in low-income countries.
Similarly, the European Union’s CbC reporting is seriously watered-down. Tax transparency is only required for the 27 EU member states and the 21 black-listed or grey-listed jurisdictions on their flawed list of tax havens. Oxfam points out this means secrecy is retained for more than 75% of the world’s nearly 200 countries. The EU also provide a “corporate-get-out-clause” for “commercially sensitive information” for 5 years; and limit reporting to companies with consolidated turnover above EUR 750 million, excluding 85 – 90% of MNCs.
Unions’ play a critical role
The Labour movement has taken on the fight to end corporate tax avoidance. Labour’s share in GDP has been declining since the early 1970s in advanced countries and since the early 1980s in developing countries. Some unions have recognised that corporate tax avoidance erodes the public services workers need and undermines collective bargaining, while increasing corporate power.
The global union federation, Public Services International (PSI), co-ordinated union action to in support of public CbC reporting amongst other tax reforms. PSI joined the technical committee that drafted new Global Reporting Initiative (GRI) Tax Standards and worked with union pension funds to back the standards, which are now widely regarded as the best benchmark for corporate tax accountability.
In Australia PSI and affiliates exposed corporate tax avoidance in aged care, labour hire companies and corporations receiving large government contracts and worked with unions to shape the Labor party’s policy platform.
The announcement reflects one of the recommendations PSI and the International Trade Union Congress made to the Australian Treasury in its submission on Multinational Tax integrity and enhanced tax transparency.
Can Australia lead?
Since being elected in May 2022, the new Australian government has sought to improve its international standing by setting stronger climate targets, increasing engagement with Pacific Island countries and rebuilding capacities of the Department of Foreign Affairs and Trade. If the government can make good on its promise to implement the GRI standards and require public CbC reporting, it will have significantly contributed to the global public good and set a precedent for the EU and other countries to follow.
In addition to setting new tax transparencies standards, the Albanese Government should support the push by African countries for a truly inclusive UN tax convention – which could slash the scope for tax abuse by MNCs and wealthy individuals. Together, these contributions would deliver more to low-income countries than Australia’s entire development aid budget.
Kate Lappin is the Asia Pacific Regional Secretary for Public Services International (PSI), the Global Union Federation representing more than 30 million workers who deliver public services in 154 countries and territories. Kate headed the Asia Pacific forum on Women, Law and Development (APWLD) for eight years and has worked across labour, feminist and human rights movements for more than 20 years.
Anis Chowdhury is Adjunct Professor, Western Sydney University. He served as Director of Macroeconomic Policy & Development and Statistics Divisions of UN-ESCAP (Bangkok) and Chief, Financing for Development Office of UN-DESA (New York).
IPS UN Bureau
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