UK Parliament votes to implement country-by-country reporting

Labour MP Caroline Flint, on left, and Jane Ellison, financial secretary to the U.K. Treasury

A cross-party group of U.K. parliamentarians pushed through an amendment to the Finance Bill last week which may force companies to publish more information about their tax affairs.

The amendment includes enabling legislation which would force multinational corporations to publish “country-by-country” reports, detailing where they earn profits and where they pay taxes in all the countries in which they operate.

In the debate on Sept. 5, Jane Ellison, the financial secretary to the Treasury, said the U.K. government had been a firm supporter of greater tax transparency and greater public disclosure of the tax affairs of large businesses and had always advocated a multilateral solution.

She said it is important to ensure that both U.K.-headquartered groups and non-U.K. multinationals are bound by the new disclosure rules.

“It is vital for ensuring that the policy intention of greater transparency is delivered. It is also important for ensuring that U.K.-headquartered groups are not put at a competitive disadvantage,” she said.

The amendment gives government the power to implement country-by-country reporting at a time it deems appropriate. In practice, this means it will be implemented as soon as a model can be agreed between the U.K. and other countries.

During a debate in June, four days after the EU “Brexit” referendum, parliamentarians were concerned that introducing the amendment at that time would put U.K. multinationals at a competitive disadvantage for reputational reasons.

Country-by-country reporting already exists in the extractive industries sector and in financial services, and a few companies have decided to voluntarily start publishing this information.

Labour MP Caroline Flint, who drafted the amendment, described the new disclosure as “a pro-business measure.”

“Public transparency can make a real difference in ensuring fair taxation and fair play,” she said.

The cross-party support for the amendment “sends a very powerful message, confirming the U.K.’s leading role in addressing tax evasion and avoidance and providing the government with the tools to move quickly, when the time is right, without the need for primary legislation,” she added.

Much of the parliamentary debate about additional financial disclosure rules touched on the European Commission serving Apple with a 13 billion euro bill (US$14.5 billion) in Ireland after it was revealed that the tech giant had paid a corporation tax of 1 percent from 2003 and only 0.005 percent since 2014 on its non-U.S. profits.

“Apple is entitled to defend its position,” Ms. Flint said, “but the case highlights the need for more transparency in multinational business affairs.”

This position was supported by Conservative MP Charlie Elphicke, who said, “If a big business organizes its tax affairs so that it basically pays no tax whatsoever, then it is inevitably warping the free market because it is getting an unfair tax advantage, or a tax advantage that gives it a competitive advantage over other enterprises that are paying tax on their profit. For me, that is a really serious issue.”

Apple had received a special deal which was counter to the fundamental principle of the rule of law, he said, and the company had organized its intellectual property in such a way that it does not pay tax in the United States, where the intellectual property was generated.

While it is not a question of Apple, Mr. Elphicke said, “it is a question of general U.S. outbound tax planning. That is why country-by-country reporting matters.”

Fellow MP Mike Wood said that as a Conservative, he believes taxes should be kept as low as possible to avoid stifling growth and development.

“However, the flip side of keeping tax levels low is that everybody must pay their fair share. Aggressive tax avoidance, bending the rules of the tax system to gain an advantage that Parliament never intended, means that a heavier burden falls on others who are able to keep less of the money that they have earned. This government are rightly committed to supporting businesses through low taxes – that is why corporation tax is being cut again to 17 percent – but those taxes do have to be paid,” Mr. Wood said.

“There is widespread and growing agreement that there is a need to move to country-by-country reporting so that the information is out there and available both to national tax authorities and to the wider public,” he added.

Charities and tax transparency campaigners welcomed the result of the vote. Christian Aid described it as a “decisive breakthrough against multinational tax dodgers,” while Oxfam said country-by-country reporting is “an essential weapon” in taking on evasion and avoidance.

Simon Kirkland, senior parliamentary adviser at Christian Aid, said, “It should trigger serious reflection at Apple and the many other firms like it, where tax arrangements may be legal but they are very far from what most people would regard as fair and decent.”