Last week 31 countries signed a new Organization for Economic Cooperation and Development (OECD) agreement providing for country-by-country corporate information reporting and the automatic exchange of tax info between countries under the Multilateral Competent Authority Agreement (MCAA).
Country-by-country reporting, the brainchild of noted tax reformer Richard Murphy,* is a principle that makes it possible to detect tax avoidance by requiring companies to list their activities in each country (nature of business, number of employees, assets, sales, profit, etc.) and how much tax they pay in each country. A company with few employees yet large profits is probably using abusive transfer pricing to make the profits show up in that country rather than another one, to give one obvious example of how the idea works. In the OECD agreement, the procedure is that beginning in 2016 each company will file a report to every country where it does business, then all the countries receiving such reports will automatically exchange them with each other, meaning each of these countries will then have a full view of how much business Google, for example, does in every jurisdiction. The shortcoming to this is that while governments will have this data, the public will not have it (a fact criticized by the Tax Justice Network) due to alleged concerns about confidentiality. However, the European Commission, including its Luxembourgian president Jean-Claude Juncker, is now talking about requiring publication of the country-by-country data for each EU Member State.
Which highlights an important aspect of this agreement: Many major tax havens, including Luxembourg, Ireland, Liechtenstein, Switzerland, the United Kingdom, the Netherlands, Belgium, and Austria have all signed on. But the United States did not sign it. Surprisingly, you can’t find this out in any U.S. publication, as far as I can tell. I’m a subscriber to the New York Times, and a search for “OECD tax deal” or “OECD tax” for the past week (it was signed six days ago) yields no results. “OECD” yields one result unrelated to the MCAA. Ditto for the Wall Street Journal. Ditto for my premium Nexis subscription: No U.S. stories on the agreement. You’d almost think they’re trying to keep us from finding out. But no, not exactly: The Financial Times was able to get Treasury Secretary Jack Lew himself to comment in its story on the MCAA. He said, “From a US perspective, there are elements of this that don’t require legislation and we’re looking to getting to work right away.”
That’s certainly a clue: Some of the changes do require legislation, and getting that from the Republican Congress is not going to happen. In fact, Republicans have always been willing to step up to keep the United States a tax haven for foreigners, and the Bush Administration went out of its way to undermine previous OECD attacks on tax havens offshore, as Australian political scientist Jason Sharman masterfully showed in his book Havens in a Storm.
Republicans have done such a good job at helping out domestic tax havens that the United States is now “The World’s Favorite New Tax Haven,” according to Bloomberg Businessweek which, in an ironic coincidence, published the story at 12:01AM the day the MCAA was signed (so it didn’t report on the signing either). According to the article, foreigners’ money is pouring out of Swiss banks into the United States, and Rothschild has set up shop in Reno, Nevada.
A little too ironic…
* As regular readers know, Murphy is someone I frequently cite in these pages.
UPDATE: @AlexParkerDC from Bloomberg BNA was kind enough to send me to a couple of his posts on the OECD’s Base Erosion and Profit Shifting (BEPS) negotiations. These suggest that the Obama Administration believes it can implement country-by-country reporting through regulation alone, and had already committed to it in the BEPS process. However, the IRS has proposed not to implement country-by-country until 2017, while the new OECD agreement begins with this year’s tax information, as noted above.
Cross-posted from Middle Class Political Economist.