Distinct improvements, but the same improvements are obliterated - in the same consultation paper.
The consultation document contains a few marked improvements but the same improvements are crushed - in the same consultation document - by imposing restrictions and use language and concepts that provide broad access to bypass improvements mentioned above.
PWYP Norway therefore believes that Parliament's request for decision no. 792 (2014-2015), to highlight undesired tax adjustments, is still not sufficiently followed up in this consultation document, and that the proposal, until shortcomings are improved, is in conflict with Parliament's request for decision, especially when it comes to "support functions in third countries" (tax havens).
This means that it is not true that the Ministry of Finance with its proposal, as presented in the consultation document, has followed up on Parliament's request for decision. It is therefore a concern that the Ministry of Finance states, that it will determine the final regulation on the basis of this proposal, as it currently exists.
PWYP Norway has worked on the case for many years as well as adjacent tracks from OECD-BEPS. We are very familiar with what requirements that will provide the necessary information for the purpose of highlighting undesired tax adjustments, and what requirements that will not be suitable to obtain the information necessary for the purpose. We have made a thorough review of the consultation document from the Ministry of Finance and provided a a detailed reply.
Read PWYP Norway's consultation submission in Norwegian: PWYP Norway's consultation to the regulations relating to Country-by-Country Reporting
Read PWYP Norway's consultation submission in English:MFA_submission-CBCR-consultation_PWYPNorway_NOV16.pdf
A troublesome regulation?
The case concerns a regulation and specifically:
- Which accounting figures shall be reported to prevent undesirable tax planning?
- How shall accounting figures be reported to prevent undesirable tax planning?
PWYP Norway’s request for extended country-by-country reporting (“ECBCR”) encompasses the following:
- Audited accounting figures for investment, production, income, costs and tax to be reported for all countries.
- Audited accounting figures to be reported in notes to the annual financial statement.
PWYP Norge's arguments receive massive support from other consultative bodies
Global Financial Integrity (GFI) is an American think tank that has tried to make estimates about the world's capital flows and they advise various governments in this area. GFI has submitted a consultation response where they state that "We fully endorse and submit as our own position the consultation response provided to you by Publish What You Pay Norway, dated 14 November 2016, the contents of which are incorporated herein by reference".
Finans Norge write the following notes in their consultation response: "Finans Norge believes that financial transparency is an important means to discourage capital flight, tax evasion and aggressive tax planning. We agree with the criticism that has been directed against the current regulations for country-by-country reporting according to the Accounting and Securities Trading Act and that the requirements of the CBCR regulation should be extended and strengthened. Through an improved country-by-country reporting, the authorities and the general public will gain a greater insight into how companies manage resources, where the flow of money leads and if the countries where they operate with extraction of non-renewable natural resources receive their rightful income. It is especially important that resource-rich developing countries have access to sufficient information from the extraction companies as it is the poor countries that are hit the hardest by capital flight, tax evasion and undesired tax planning. The Ministry's proposed amendments to the CBCR regulation involves several improvements for reporting, but in some key areas the proposal should be adjusted. In this context, we will support the views that are promoted in the consultation document from Publish What You Pay Norge from 14.11.16."
Norsk Øko-Forum (NØF) is a multidisciplinary interest organization which purpose is to fight economic crime. It has nearly 1,000 members from the police, prosecutors, tax administration, tax collectors, customs, NAV (Norwegian Labour and Welfare Administration), and other control agencies, banks, insurance companies, accounting firms and more. Their members work each day following money flows. NØF emphasizes in their consultation reply that it is unfortunate when the Ministry of Finance does not suggest that it is an absolute requirement of the regulation that the figures reported must come from the annual financial statements. NØF writes "As a general rule, companies in tax havens do not pay taxes to that country and therefore the company does not need to declare this. The association would argue that there is intrinsic value also in the information that a business has a unit in a tax haven, where actually very little or even no tax is paid. This will in fact highlight tax adjustments, and thus fulfill the intentions of Parliament. We therefore suggest that this limitation is removed from the proposal".
In their consultation reply, Industri Energi supports PWYP Norge's proposal and they write the following: "The consultation proposal contains certain proposals that would enable the goal of highlighting undesired tax adjustments and ensure relevant information related to CBC reporting from daughter companies and support functions in third countries. The problem is that the same conditions have not been achieved, as there are proposals to use language and concepts that makes it entirely possible to circumvent these. Industri Energi therefore believes that decision No. 792 (2014-2015) has not been followed up on in a sufficient manner".
LO, the largest and most influential workers' organisation in Norway, in their consultation response also points out the obvious issue: ""LO believes it is positive that the Ministry proposes to include the company's full costs instead of being limited to "the purchase of goods and services". It is however important that this obligation is not pulverized by only applying if the company has had payments to authorities in that country. LO also points out that "In tax havens, there is a large probability that such payments are avoided, especially when there is a limit of 800.000 NOK for reporting duty".
JURK (Legal Advice for Women) shows in their consulting input their work for the fight for a state of law in Guatemala, and that the country fulfills its human rights obligations, particularly women's rights. They write that "Norway has supported the UN institution CICIG (International Commission against Impunity in Guatemala) and the fight against corruption in Guatemala. The institution has been behind the disclosure of a number of high corruption scandals that so far have meant that both the president and vice president had to resign. A prerequisite for maintaining such corrupt structures, political elites and authoritarian regimes is the ability to build up capital outside the open market to maintain power, and for Guatemala's political elite the use of secrecy jurisdictions, such as Panama, has been revealed". JURK therefore states that "Companies should state expenses for all countries, and specify this in notes to the financial statements, for all countries. Companies should not be allowed to keep support functions for corruption and capital flight exempt, as exemplified by Panama. JURK’s international department also endorses PWYP Norge's entry."
The Norwegian Support Committee for Western Sahara shows in their consultative input that oil and gas in the waters off the coast and the valuable natural resources of Western Sahara plays an important role in financing and legitimating the occupation from Morocco. The work of the Norwegian Support Committee for Western Sahara is based on the UN's resolutions on decolonization. They write that "Extended country-by-country reporting (ECBCR) as proposed by PWYP Norway will provide better corporate transparency for companies that have access to non-renewable and limited natural resources." The Support Committee for Western Sahara gives its full support to Extended country-by-country reporting (ECBCR) and maintains the principles of accounts figures and notes to financial statements as well as reporting costs for all countries. "Such jurisdictions should obviously not be protected by a regulation that seeks to address the harmful effects of precisely such hideouts," writes the committee. The committee has a clear call to action in its proposals: "The Support Committee for Western Sahara asks Norway to use this opportunity to strengthen country-by-country reporting to be an extended country-by-country reporting, as proposed by PWYP Norway, and as supported by a number of other players in Norwegian society and internationally".
In their consultation response from the Fellerrådet for Afrika (the Norwegian Council for Africa), the organization writes that "The potential for economic growth and development of African countries is hampered by a lack of transparency, poor tax systems and limited tax bases. To ensure that Norwegian investments on the African continent contributes to the development/don't inhibit the development, it is important that Norwegian legislation contributes to provide transparency and improvements to the overall investment climate" and points out that "AU's report on illegal capital flight from Africa highlights that African countries are heavily reliant on the extraction of natural resources, both for export and tax revenues. They also find that the extractive sector is particularly vulnerable to illegal capital flight." The Norwegian Council for Africa also refers to Norway's role: "In a time where the official financial support to Africa drops and more and more of the African economies are linked up against the private market, the Norwegian authorities must see their role as an active player in the global market. Norway must be a driving force for openness, economic sustainability and growth. In a political climate where trade and business investments are emphasized over aid, the Norwegian authorities must be aware of their role and be a contributor to a positive investment climate that does not allow corruption and capital flight". They also write that The Norwegian Council for Africa "refers to the consultation response from Publish What You Pay and in general support their input. Particularly important in this context is that the information is entered as notes to the financial statements rather than in a separate report" and that it must not be up to the companies themselves to decide what should be included in the reporting. The Norwegian Council for Africa provides a detailed justification for why the threshold for report must be lowered to 400.000 NOK, why exemptions from the obligation report must be removed and that the "Purpose of the CBC reporting must be broader than pure tax adjustments. The information must also be aimed at counteracting other economic crime and undesirable economic adjustment in favor of companies, where this happens at the expense of national states' possibility for sustainable economic development".
KFUK-KFUM Global show the same shortcomings in their proposal. They write: "The proposed regulation text will however not deliver on the Ministry's own goal in this area, as regulations can still be interpreted to understand that companies do not need to include figures from tax havens in country-by-country reports" and also write that "Although it is unclear if it is intended, it is natural to interpret the regulatory text to mean that companies only need to include information on country basis from countries where they pay over 800.000 NOK to the authorities. Thus they will avoid the reporting obligation from countries where they do not pay tax, including most tax havens". They also support PWYP Norway's input.
Norsk Redaktørforening (The Association of Norwegian Editors), Norsk Presseforbund (the Norwegian Press Association) and Norsk Journalistlag (The Norwegian Union of Journalists) write in a joint consultative statement about how important it is for journalism that there is openness and transparency for significant social information. The organizations write: "Access to such information is crucial for the journalistic media in order to fulfill its task as critical monitors of public and private power in society and how society's resources are managed and distributed". The organizations show among other things that "The European Court of Human Rights (ECHR) in a number of judgments has referred to the role of the press as "the public watchdog" and how this is relevant to the interpretation of among other things the European Convention on Human Rights (ECHR), article 10 on freedom of expression and freedom of information. In a recent judgment from the ECHR's Grand Chamber (Case of Magyar Helsinki Bizottság vs Hungary - Application no. 18030/11) it is for instance stated that normally a request for information can be submitted in cases where:
- The purpose of the current disclosure requirement is that the person requesting access wants to exercise their convention protected right to receive and share information and opinions with others.
- The public interest in the current information
- The person requesting access does so in their capacity as a public watchdog function
- The information in question is "ready and available".
The organizations also write that the Ministry "in our view does not faithfully follow up on the Parliament's request dated 19th June 2015, in connection with inst. 360 S (2014 2015) (revised national budget)". The organizations wrote that "On the basis of what we perceive as clear guidelines from Parliament's side, we find it astonishing that the Ministry, in the beginning of the consultation document, openly writes that "The proposal follows up on part of Parliament's request for decision no. 792 (2014-2015) "(our emphasis)." The organizations propose specific suggestions for changes, such as "The reporting obligation must apply to all countries", "The ability to exclude subsidiaries must be removed," and that "Reports must be included in the financial statements."
The consultative bodies point out: "We are quite skeptical that CBCR regulations allow for a separate report, independent of the financial statements and where only "some of the disclosure requirements ... can be obtained from the reporting entity's financial statements". We fully support PWYP's view that it should be possible to obtain all the figures in the reports from the financial statements submitted to the auditor. It is of great importance that, among others, journalists should be able to have verified and reliable figures to build on. "A separate report, where only "certain figures" are extracted from the financial statements, is not good enough."
Tax Justice Network - Noway (TJN) consultation response also supports PWYP Norway's consultation response and writes that it is essential that all the figures reported can be linked directly to the entity's financial statements. "This is an important step to reduce multinational companies' aggressive tax planning and tax evasion, particularly for developing countries", TJN writes. They also emphasize that "open reporting will ensure that everyone, including developing countries, gain real access to the information. This also means that the quality of the information becomes far better, as it will be questioned by the media, civil society and others. The ongoing international political processes clearly show that we are heading towards public country-by-country reporting". TJN also supports PWYP Norway's arguments concerning the quality of information: "Until now, companies have been able to choose for themselves how they want to retrieve the base data for country-by-country reports, which weakens the credibility of the report. It is therefore very important and positive that the Ministry of Finance
proposes to amend the regulation so that information will be retrieved from the the reporting entity's financial statements, as this will be numbers that are subject to external audit. However, there is a weakness in the proposal, in that the wording used is open to interpretation to circumvent this. It states that the information "as far as possible" should be obtained from the financial statements. It is essential that all the figures to be reported can be linked directly to the entity's financial statements. It is positive that the Ministry proposes to include the entity's full costs, instead of being limited to "purchase and sale of goods and services".
Transparency International Norway (TI Norway) write in their comments that "TI Norway is positive towards the proposed changes" and "asks the government to expand the circle of CBCR to include companies in all sectors". TI Norway writes that "Social contributions must be explicitly written into the text of the regulations" because "this will be contributions that are not necessarily payments to the government of a country, and therefore will not be covered by this regulation". "As a model, it may be appropriate to refer to the standard Extractive Industries Transparency Initiative (EITI)," writes TI Norway. The organization also notes that "TI Norway are critical towards the fact that there should be an exception for payments of 800.000 NOK to authorities". "TI Norway would also point out that the exemption clauses will make the entire CBCR scheme more administratively burdensome for companies than if the companies were open about all payments regardless of the amount."
Skattedirektoratet (The Norwegian Tax Administration) in their consultation response supports that accounting figures should be used as a basis for reporting. The Tax Administration writes: "In our opinion, the requirement to use figures obtained from the annual financial statements will increase the credibility and quality of the reported information, and make it possible to verify the information. We suggest that the wording 'as far as possible' is removed from the proposal."
Read more about the debate in 2015.
Statoil and tax advisor negative
In their consultative input, Statoil ASA initially supported the requirement that the information should be included in the annual report. Statoil writes: "Statoil is concerned that reporting should be as cost effective as possible, while simultaneously it should be built on consistent sources and be user friendly. We want to gather as much data as possible in an annual report, and this should be valid for the vast majority of jurisdictions we operate in. We are therefore positive towards more integrated reporting requirements". Then Statoil questions "the civil society's ability to understand and compare the companies reporting", and apparently for this reason it seems that the group concludes that "Norwegian authorities are awaiting a final treatment of the European Commission's proposal for new rules on country-by-country reporting for tax purposes". (So Statoil in their input again mix up the the processes around "OECD's BEPS-track ("CBCR for tax purposes") and the original country-by-country reporting according to the Accounting Act ("CBCR for accounting purposes").
A consultative input submitted by "Dr. K. Olsen, Global Tax" ("chartered Transfer Pricing Advisor"), describing themselves as "a leading tax consulting firm", writes that "The reporting obligation is extensive and will require major resources from the companies". The company refers to large and international clients like PwC, BP, and RyanAir on their list of clients.
Only rhetorics about transparency?
Norway boasts internationally of being a leader in transparency. Norwegian politicians have stated that tax evasion is undesirable.
But at the same time, the Government's failure to follow up on the work on the proposal on extended country-by-country reporting (ECBCR) that can counteract undesirable tax adjustments, shown how unwilling the Government and the Ministry of Finance are in practice to put in place a regulation that can function as intended.
The Government's lack of follow-up also led to an unanimous Parliament on 19 June 2015 approving a request for decision no. 792 (2014-2015), because existing regulations in the Accounting Act were not suitable to highlight undesired tax adjustments:
"Parliament asks the Government to review the impact of the regulation on CBC reporting, measured against Parliament's objective to highlight the unwanted tax adjustments and ensure that relevant information related to CBC reporting from subsidiaries and support functions in third countries are shown in the accounts".
Because this concerns a regulation, it means that this case does not automatically come up in Parliament, so that Parliament can assess whether Parliament got what they asked for. It may seem as if the Ministry of Finance in this way wants to "sign out" from the case.
The question that now should be asked to members of the Parliament is, whether they want to highlight undesired tax adjustments? If so, then Parliament should not allow the Ministry of Finance to determine that Norway should not highlight undesired tax planning.
The consultation is still open until Friday 25th November 2016.
PWYP Norge encourages those interested in corporate transparency to submit their own suggestions.