The Ministry of Finance deny that they are protecting tax havens. PWYP Norway demonstrates why we believe that they are.

The Ministry of Finance. Photo: Christian A. Calmeyer (CC BY-NC-ND 2.0)

PWYP Norway explains how the protection of tax havens can be repealed by removing a link between two paragraphs.  

PWYP Norway, in the consultation process concerning changes in the amendment about country-by-country reporting, pointed out that the consultation document contained some powerful improvements, but that those same improvements were pulverized - in the same consultation document - by imposing restrictions and using formulations and concepts which gave broad access to avoid said improvements. The consequence, in our opinion, was that the Ministry of Finance suggested protecting tax havens.  

The Ministry of Finance then established changes to the amendment concerning country-by-country reporting (CBCR) on December 22, 2016. PWYP Norway supports the changes that where made, but is critical that the Ministry of Finance has failed to remove the weaknesses. Both the timing over many years, and the extensive documentation and several rounds of consultation indicate that the Ministry of Finance has had plenty of time and adequate basic documentation to weigh the dangers of omissions. It seems peculiar to PWYP Norway that the Ministry of Finance, despite extensive documentation, chooses to maintain critical weaknesses in the amendment.

Weaknesses in the amendment

PWYP Norway pointed out two weaknesses in the amendment:

  1. The requirement for information concerning paid taxes does not apply to payments less than NOK 800,000 within the same fiscal year. This means that no tax havens need to be included in the country-by-country reporting because the tax payments in these countries will be zero or less than NOK 800,000. The duty to report other information about each country (investments, retail income, production volume and expenses) are directly linked to and dependent on reporting of paid taxes. One will therefore not obtain this other information from tax havens. This is a big weakness with the established amendment, because it means that investors, authorities, civil society, and other stakeholders will not obtain the information which was the basic purpose behind country-by-country reporting. The Ministry of Finance has therefore failed to deliver with regard to the purpose behind country-by-country reporting, which PWYP Norway thinks should entail that the Committee on Scrutiny and Constitutional Affairs will have to scrutinize the Ministry of Finance´s follow-up of Parliament´s resolution.
  2. The reporting is still not locked to the financial accounting, and this is also considered a great weakness with the stipulated amendment, because it means that one cannot control that all the information used in the company´s financial accounting is also illuminated in the country-by-country reporting. It would therefore only be possible to determine that there is a discrepancy, and one has to simply trust the explanation given by the company where any discrepancies are concerned.

As long as these weaknesses remain in the amendment, the tax havens are protected, in the opinion of PWYP Norway.

Bistandsaktuelt (a magazine about aid and development) addresses the case in the article "Finance denies that they protect tax havens". State Secretary Tore Vamrakk (H - Conservative Party), comments to Bistandsaktuelt about the case:

-The businesses have a duty to report regardless of how much tax they pay. The new requirements for group reporting are well suited to make transparent unwanted tax adjustments and to catch activity in tax havens, and provides the following reasoning:

"The limit of NOK 800,000 applies to a unit level, and is tied to any payments to authorities which have to be included in the country-by-country reporting at a minimum. The concepts "payment" and "authority" are more closely defined in the country-by-country reporting amendment paragraph 3 nr. 3 and nr. 5.​

The Norwegian rules are in line with current EU regulations in the field.

According to recently established extended reporting requirements that are tied to country-by-country reporting at the group level, there is no lower limit amount, ref. the amendment paragraph 5, 3. subsection.

According to the decision the group report shall, independent of any duty to report payments to authorities, contain specific information about the daughter subsidiaries in the group, including tax information, ref. in particular letters e)-i).​

The new requirements for group reporting are well suited to make transparent unwanted tax adjustments and catch activity in tax havens."​

Different ways of argumentation​

The Ministry of Finance solely makes a case about tax payments. PWYP Norway thinks that tax payments must be placed in context. It makes the debate more difficult when the Ministry of Finance does not deal with the context when they comment.

PWYP Norway exposes why that is a problem and how the Ministry of Finance can correct the amendment and put in place an amendment which will be effective against the harmful effect of tax havens in the following omission.

PWYP Norway wrote the following post pertaining to the case:

"The Ministry of Finance in the article rejects that they protect tax havens. Bistandsaktuelt in an article dated Jan.17, 2017 mentions the requirement for extended country-by-country reporting from PWYP Norway and an amendment correction which was implemented on Dec. 22, 2016.

Bistandsaktuelt writes the following: "The PWYP networks´anger is due to the Ministry of Finance´s corrections in an amendment concerning country-by-country reporting tied to the Law of Accounting".

The Omission​

PWYP Norway wants to make clear that our viewpoint does not concern the actual changes the Ministry of Finance has made to the amendment, because PWYP Norway agrees with these. The disagreement concerns what the Ministry of Finance has not changed in the amendment.  

As of today, the companies have already reported for the fiscal years 2015 and 2016, including significant weaknesses in their reports, weaknesses that PWYP Norway has been documenting since the inception of the amendment on Dec. 20, 2013. We face an amendment which has been particularly well illuminated following a lapse of many years in proceedings, in a number of basis reports, in hearings and input, both before and after implementation.

We wish we were wrong

PWYP Norway wishes we were wrong as the Ministry of Finance claims to Bistandsaktuelt. Nothing would be better because it would mean that we already had a water-tight amendment to make transparent unwanted tax adjustments. Unfortunately that is not the case.

There still exists a major loophole in the amendment and some minor loopholes. The largest loophole is the existing risk that no investments, income or costs will be reported from tax havens. This is caused by a technicality in the amendment.

The Ministry of Finance refers to the amendment´s paragraph 5, 3. subsection which specifies that some information must be reported "independent of" payment to authorities. This is entirely correct, but ignores PWYP Norway´s point, which concerns reporting country-by-country according to the amendment´s paragraph 4, 2. and 3. subsections.

According to paragraph 4., 3. subsection, companies do not need to report investments, production, income, or costs to countries where according to paragaph 4., 2. subsection, there have been payments of less than NOK 800,000 to authorities.

According to paragraph 5., 3. subsection, companies must declare some information, but not concerning investments, production (not particularly pertinent to tax havens), gross income or costs. But they do have to declare "net turnover", a figure which cannot be compiled with investments, gross income and costs in country-by-country reporting.

The binding that must be repealed

The problem is that the Ministry of Finance has "locked" the duty to declare information to only apply to countries where companies have made payments to authorities whcich exceed NOK 800,000. Therefore PWYP Norway is asking that the binding between paragraph 4., 3. subsection and paragraph 4., 2. subsection be repealed, and that extended information according to paragraph 4., 3. subsection must be reported for all countries.

It is great that certain information has to be reported according to paragraph 5., 3. subsection, but this is additional information which cannot be connected to extended country-by-country reporting according to paragraph 4., 3. subsection. Allow us to review the reporting according to paragrah 5, 3. subsection:

According to a) it must be declared where the subsidiary resides. As far as PWYP Norway understands, it is a minimum requirement to declare where a subsidiary resides, but in the current situation where ownership appears in completely other forms than a subsidiary, this is not suitable for a complete overview of the group structure in multinational companies or the countries in which they reside.

According to b) the number of employees must be declared. This is also a requirement in extended country-by-country reporting. PWYP Norway appreciates that this information is included in the report, but notes that companies in tax havens don´t normally have employees while employees in other countries perform the "work" for these tax havens.

According to c) interest expenses must be declared for other business within the same group of companies that belong to other jurisdictions than the subsidiary. This is misleading relative to companies in tax havens that normally are listed as the recipient of interest income.These interest incomes don´t have to be declared, and since they don´t have interest expenses there will be no reporting on this.

According to d) a short summary of the subsidiary´s activities should be submitted.  For companies in tax havens, this would indeed be very brief. Most likely one would not be able to decipher from the description what is actually happening in the copmany in tax haven (support for financing- and marketing-activities?).

According to e) net turnover, including turnover with businesses within the same group, is declared. Net turnover deviates from income in country-by-country reporting, and as long as investments, income, and costs are not reported according to paragraph 4., 3. subsection, the country-by-country reporting will not be complete. An incomplete reporting cannot be revised.

Subsections f), g), and h) are tax-related, and there will not be anything here to report for tax havens.

According to i) accummulated profit shall be included in the report. For those who still have not seen the design for those companies that wish to hide information (why are they in tax havens with complete confidentiality?), let it be known that accummulated profit lends itself to manipulation with contracts and financial tools.

Make the amendment water-tight now​

The above review of the amendment´s paragraph 5. 3. demonstrates why PWYP Norway wants the binding between paragraph 4., 3. subsection and paragraph 4., 2. subsection be repealed, and that extended information according to paragraph 4., 3. subsection must be reported on for all countries. Only when a company must report gross income and gross costs, society will have adequate basis to ask the necessary questions. This can be had through country-by-country reporting according to paragraph 4., 3 subsection, but not according to the supplementary reports in compliance with paragraph 5., 3. subsection.