New Zealand flatters itself for its transparency and ethical standing but that's not telling the full story. Not all crucial information is reported on, and according to newly-released data from the Tax Justice Network's Financial Secrecy Index we're languishing in the middle of the international pack.
Across the world, large corporations and wealthy individuals manipulate the broken tax rules to hide their money. This financial secrecy enables all sorts of anti-social and criminal behaviour, from tax avoidance to evasion, and money laundering to human trafficking. This week, the most recent edition of the Tax Justice Network's Financial Secrecy Index shows that globally there are improvements in two of the three key areas of financial transparency: the automatic sharing of financial information between participating countries, and beneficial ownership registration.
The one area where scant progress has been made is in public country-by-country reporting. In an Index where a zero score means complete transparency, and 100 complete secrecy, New Zealand scores 59. One of the reasons why is because we do not require global corporations to publish enough financial information to stop tax avoidance – an issue our government needs to act on.
Tax avoidance is not illegal, but it is immoral. Currently, global corporations that work in many different countries are able to manipulate the international tax rules to avoid tax. Using their global reach and resources, they can shift profits from where they have to pay tax to where they don't. This is a problem for all governments. The International Monetary Fund estimates that non-OECD countries lose around US$200 billion each year due to tax avoidance, or 1.3 per cent of GDP; and approximately US$440 billion is lost to OECD countries, or 1 per cent of GDP.
Tax avoidance robs our governments of the resources they need to provide for us. No matter where we live or who we are, we all want healthy lives shared with the people we love, and to contribute to the world in ways that are meaningful to us. To achieve this, governments need to provide the big-ticket items that no individual can get on their own – things like roads, hospitals, schools, telecommunications, and collective security. These are the things that corporate taxation helps pay for. Yet, far too many global corporations continue to deliberately avoid contributing their fair share to the people and countries where they operate. Public country-by-country reporting can help to stop this bad behaviour.
In public country-by-country reporting, corporations have to publish specific financial information for each country that they operate in, such as profit before tax, turnover, number of employees, taxes paid and accumulated earnings. Opening the books in this way is a simple solution to a complex problem, and a solution that we know can help.
Public scrutiny has a positive effect on curbing global corporate tax avoidance. The point behind making global corporations put information in the public realm is to allow the public to see if these corporations are paying their fair share of taxes in each country in which they operate. Academics, journalists, investors and civil society organisations can then help governments hold global corporations to account. Information in the public realm also allows governments in developing countries to see this information, which they may not otherwise have access to. Research from places where public country-by-country reporting is required shows that governments received greater tax revenue from the corporations mandated to publish more information – indicating a reduction in tax avoidance.
It is not only organisations like Oxfam and the Tax Justice Network calling for greater global corporate transparency. Late last year, the Global Reporting Initiative launched the first global standard on public country-by-country reporting. Investors back this standard, such as Royal London Asset Management, Aberdeen Standard Investments (managing investments worth £526 billion), and Legal & General Investment Management (managing investments worth £1.1 trillion). Along with customers and company employees, investors see public country-by-country reporting as a way to better measure the risks global corporations are exposed to. Improved risk assessment enables the efficient allocation of capital across global financial markets and promotes stability in the global economy.
Even some corporations see the benefits, such as BHP Billiton, Rio Tinto and Vodafone – all of whom publish variations of country-by-country reports. Unilever has also begun to publish more tax information (although not to the detail of country-by-country reporting).
Here in New Zealand, last year nearly 8,000 people demanded our government make global corporations publish more financial information, and almost 800 people wrote to Minister Nash of Revenue asking the same. The Tax Working Group commented in its report that it received many submissions concerned with transparency. In a country that prides itself on its commitment to human rights and open governance, it is only logical to demand the same of global corporations that operate here – some of which have greater budgets than the very countries they are depriving of the ability to pay for basic human needs like healthcare and education.
- Joanna Spratt is the advocacy and campaigns director at Oxfam New Zealand