Risk & Economy » Tax » Doubtful country-by-country tax disclosures will become norm

BARCLAYS paid tax equivalent to 53% of its profit in 2013, according to data published in July detailing its tax position on a country-by-country basis for the first time.

For the bank, the disclosure serves as a riposte to the vociferous tax campaigners concerned by the tax activity of multinational companies, with Vodafone, Amazon, Google and Starbucks among those bearing the brunt of the criticism over the morals of their respective structures.

Nevertheless, scepticism remains that the activity will become the norm. ACCA’s head of taxation Chas Roy-Chowdhury says some businesses may follow suit and use it as a marketing tool, trading on their transparency, but public disclosure will not be legislated for.

Instead, he says, businesses will be compelled to make country-by-country disclosures to the tax authorities in line with the OECD’s plans, only making that information public if they wish to.

“That is more likely to be condusive to openness with the authorities,” he says.

The move follows Europe-wide regulatory requirements for banks to publish 2013 turnover and employee numbers for all countries in which they operate, with further expected disclosure requirements in subsequent years.

Similar rules already exist in the extractive industries within Europe. Companies dealing with oil, gas, minerals and logging from primary forests report payments such as taxes on profits, royalties, and licence fees on a country and project basis.

In its first such disclosure – part a strategy to improve the bank’s reputation following a string of scandals, and set to become a regular occurence – Barclays shows it made a pre-tax profit of £2.87bn, and paid corporation taxes of £1.56bn across the world. Of that figure, just £55m was paid in the UK, against reported profits of £4.87bn. When widened to include other taxes including national insurance and VAT, its total contribution to the British public purse was £1.43bn, rising to £3.37bn worldwide.

Public anger 

Barclays, too, has felt the force of public anger over its tax practices – particularly for running tax avoidance schemes through its now-defunct and controversial tax structuring unit.

This latest move could be construed as somewhat unusual, given companies’ desire to disclose their tax position on only a global scale in order to protect themselves from furnishing competition with strategic information. But since he was appointed as Barclays’ chief executive following the Libor scandal, Anthony Jenkins has sought to improve the bank’s reputation, and this latest disclosure forms part of that strategy.

Barclays says it decided to “go further” than the regulatory requirements, and detailed the profit it generated, tax it paid and the subsidies received in each country in which it has significant business, alongside a brief explanation of the business it undertakes in those jurisdictions. All the data is drawn from information the bank has to hand and is provided by the heads of each region.

“Tax influences decisions about how we organise and run our business, and about where we base our operations or hold assets,” Barclays says in its report. “When tax is a factor in deciding where or how we do business, we ensure there is genuine substance to the activity we conduct in each country.”

Widespread adoption

But any kind of widespread adoption of a country-by-country reporting system is unlikely and was branded “completely daft” last year by Deloitte’s head of tax policy Bill Dodwell, who suggested the proposal would see the UK lose tax sovereignty.

And in a report published in October last year, PwC added that any system reporting on a country-by-country basis would rely on the provision of “information and not just data”, with the target audience for such data borne constantly in mind if any meaningful benefit is to be had.

“Mandatory public disclosure requirements have a natural tendency to be inherently prescriptive … leading to the provision of standard data as a ‘tick-box’ exercise as opposed to the clear articulation of information that is useful to the reader,” author Andrew Packman wrote at in the report.

Moreover, the ICAEW has publicly stated moves toward bringing in country-by-country reporting “lack co-ordination”. There is a danger, the institute said in November last year, that “the objectives of campaigners in this area will be frustrated … and lead to confusion rather than clarity”.

The institute also harbours concerns that businesses could suffer from a new set of compliance costs if the requirements are passed in their current form, noting it is “fraught with risks” despite the “laudable” ultimate aim.

As such, the institute recommended the commission undertake a “rigorous, inclusive consultation exercise and a thorough impact assessment on country-by-country reporting before any further legislative requirements are proposed”.

That appears to be a view largely shared by the Big Four. The benefits of tax transparency, PwC said in its October 2013 report, Tax transparency and country-by-country reporting – An ever-changing landscape, depend on the provision of information and not simply data. The recipients of the information have to be borne in mind, as well as its purpose, if a tick-box culture is to be averted, the report concluded.