The legislation on country-by-country reporting (reporting of tax payments for accounting purposes which the law in the USA and EU demands), is necessary to make transparent potential corruption, but unfortunately insufficient to reveal potential tax adjustments. Companies can move significant profit out of a country before it is taxed. Because the adjustment occurs before the company pays taxes, it is insufficient to know which tax payments a company has made.
PWYP Norway has for this reason developed the idea and reporting-solution for an extended country-by-country reporting (ECBCR). We introduced our first discussion notes in 2010 and the first report on how the reporting could be implemented in 2011. Extended country-by-country reporting is an extension of the minimum standard “country-by-country” reporting (CBCR) as it is adopted in the USA, EU, and Norway. ECBCR includes requirements which are already part of the country-by-country reporting, but in addition, demands requirements to content which makes the reporting suitable to make transparent potential unwanted tax adjustments.
We have documented progress and results on our own websites (see timeline at the bottom). An external evaluation concluded that there is broad agreement that PWYP has had a deciding influence on Norwegian transparency legislation and that Norwegian legislation would not have been the same without PWYP Norway.
Through their work, PWYP Norway have lifted policy proposals on extended country-by-country reporting to a national and international priority. Both national and international organizations have supported and promoted extended country-by-country reporting.
An extended country-by-country reporting (ECBCR) is a reporting of tax payments in their natural context; investments, production, revenue, expenses and employees; country-by-country in notes to the company`s group accounts for all countries.
The purpose of the reporting rule is to document connections between among other investments, revenue, expenses and tax receipts, and to prevent unwanted tax adjustments because it is very socially harmful that (1) societies lose revenue that should finance common benefits, (2) it is a competitive disadvantage for companies that do not wish to utilize such techniques and (3) because building up financial muscle in tax havens outside the open market is often converted to political influence where special interests (tax havens) are protected at the expense of the common good (transparency).In order to more closely make transparent potential unwanted tax adjustments it is necessary to first break down five accounting variables country-by-country:
- Investments, production, revenue, expenses (purchases of products and services, wages and other operating costs) and taxes are all accounting variables.
In addition, the companies must report actual paid taxes, id. Est. a cash size, which consists of three accounting variables:
- Payable tax debt 1.1 + payable tax in the income statement – payable tax debt 31.12.
This will agree with what group auditor has audited in connection with the consolidation, because these numbers have already been audited. Which means the sum of all countries in addition to group eliminations will automatically add up with the main numbers in the consolidated accounts. Eliminating the need for an expensive audit or cumbersome additional reporting.
PWYP Norway has produced a rapporteringsmal (reporting template) which allows reporting agents to report this information with a detailed overview on taxes required in the American Dodd-Frank amendment or the EU directive. This template can be adjusted in order to incorporate changes and more detailed requirements in the amendment, if the need arises.
This type of reporting is in line with how mining companies consolidate their accounts, which means that this will not increase the expenses. All the information that EBCBR asks for is already readily available in the company`s group accounting and tax information that is gathered in connection with the delivery of tax returns in their home countries.
Simple country-by-country reporting can make transparent corruption if it is shown that tax payments to authorities do not coincide with what the authorities report to have received. With country-by-country reporting the payments to authorities are put in context and show in which countries the cash flows end up. When tax payments are placed in a meaningful context, it is possible to verify whether the tax payments are correct. Reports without meaningful context do not go far enough in supplying investors and other stakeholders the insight they need to maintain the vested interest tied to whether the capital and resources they have available is managed in a responsible way.
The meaningful context does not arise until we know how much the extracting industries extract of natural resources in the course of a year, how many natural resources are left behind, what the extracting companies` profits were before taxes, how they transferred the financial gain before it became an object of taxation and what type of expenses have been accrued, what types of companies they create in various jurisdictions, what the names of the companies are, who the owners are, what sales the company has done internally and how they set their prices, and what sales they have made externally and what assets they have. All this is information that is necessary for investors, authorities, and citizens to know how the money and society`s resources are managed.
Secrecy is damaging for those the resources are managed on behalf of: a poor population. Generations of poor people are robbed of an economic base which could have provided opportunities for development, but instead has gone to keep corrupt leaders in power. Investors want this information so that they can give preference to those companies that are worthy of their trust.
The robustness in extended country-by-country reporting lies in that control is tied to the extraction of raw materials and information in each jurisdiction the company operates in. An extended country-by-country reporting will produce data of high quality which is comparable to companies that operate across country borders. This causes the companies to be treated equally, as opposed to currently when anyone can operate with impunity using devious techniques in order to save on taxes and abuse funds that are made available by investors or by nation states. The main objective is for investors, citizens and media, all legitimate users of financial information, to have the opportunity to hold both authorities and companies accountable for how they manage resources that have been made available to them in the best way possible.
Country-by country reporting (CBCR) is reporting of tax numbers for the sole purpose of comparing what various countries state they have received so that it is possible to control whether tax revenues are benefiting the country, or “disappear” on the way through corruption etc. Norway adopted “simple” country-by-country reporting already in 2013. The intent was to expose potential corruption by providing details of tax payments. PWYP Norway has analysed Statoil`s reports for the fiscal years 2015 and 2016 and documented why the amendment has had significant weaknesses right from the start.
Extended country-by-country reporting (ECBCR) is reporting of taxes placed in the context especially with investments, revenue, and expenses for all countries. The purpose is for ECBCR to expose potential unwanted tax adjustments by requiring companies to provide: audited accounting figures for investments, production, revenue, expenses and taxes for ALL countries. Audited accounting numbers are provided in notes to the annual accounts. This regulatory amendment is still not adopted but can be solved quite easily.
Videos about ECBCR
What are the results in Norway?
Norway`s largest oil company, Equinor /formally knows as Statoil), has changed their reporting as a result of the analyses completed by PWYP Norway.
Norway is one of two countries that has gotten furthest with extended country-by-country reporting (Norway because of extracting companies and France because of finance companies). In Norway a couple of regulatory adjustments are still needed (ALL countries must report independent of taxes paid and in notes) before extended country-by-country reporting is complete.
The existing amendment for country-by-country reporting cannot make visible unwanted tax adjustments since it does not require reporting the extended information of all countries. The way the current amendment is formed, space is allowed for adjustments since some countries do not need to be reported on. This can be solved by minor adjustments to the amendment. For starters the amendment must require that information on revenue, expenses, etc. must be provided regardless of the level of payments to authorities. Secondly, the amendment must be changed so that the main figures in the country-by-country reporting are included as a note in the financial statements. This is a simple measure, but crucial to ensure that the reported numbers correspond with the audited accounting numbers. Several of PWYP Norway`s inputs have resulted in powerful improvements to the amendment for country-by-country reporting after the Accounting Act. Read more about the process with extended country-by-country reporting under year by year.
E.g. Statoil showed that the company easily could have reported on extended country-by-country reporting requirements on one page. This shows how little is required before extended country-by-country reporting can be implemented.
PWYP Norway`s bill has received support for ECBCR from more than half a million tradeunionist in Norway, KLP, Norway`s largest life insurance company, The Foreign and Defense Committee, The Green Party (MDG), Telemark AUF (link is external) (political youth organization), Sosialistisk Venstreparti SV (Socialistic Left), Finans Norge, The principal organization for the financial service industry in Norway which represents approximately 240 finance companies with approximately 50,000 employees and several civil society organizations, Global Financial Integrity, an American thinktank, Norsk Økoforum, an interdisciplinary interest organization aimed at combating economic crime, Global Witness(link is external), an international civil society organization that works to break the connections between natural resource exploitation, conflict, poverty, corruption, and human rights abuses world-wide.
What has happened since 2011
On the 12th of December the proposal from The Standing Committee on Finance and Economic Affairs` members from Ap, SV and MDG came up for debate in Parliament, where they asked Parliament to change the amendment concerning country-by-country reporting. The proposal will ensure that where extended information is required, this will be done in line with annual accounts and independent of the materiality limit. There was some suspense as to whether KrF, Venstre, and Senterpartiet would support Norwegian business by voting for transparency?: The proposal is supported by Ap, Sv, Sp, and Rødt.
But the government parties unfortunately did not want transparency concerning shell companies and capital in tax havens. KrF, Venstre, Sp, Høyre and Frp voted against such transparency.
PWYP Norway show in a summary that almost 80% of the consultative bodies support PWYP Norway`s transparency demand. Our transparency demands and arguments, that were presented in a consultative input regarding an evaluation report concerning country-by-country reporting legislation, got massive support from other consultative bodies, including Finance Norway, The Norwegian Accounting Association, the Media Companies` National Association, Norwegian Journalist Team, Norwegian Press Association.
On November 18. Klassekampen published PWYP Norway`s chronicle; “Tax havens – paragraph in Sleeping Beauty Slumber” "Skatteparadis -paragraf i tornerosesøvn" (Norwegian article). The chronicle explains why the amendment on extended country-by-country reporting does not function, and what is needed to put in place the amendment so that it functions as intended. The chronicle draws parallels to sleeping beauty slumber to explain the complicated issue in a way that is easier to understand.
On November 10th. PWYP Norway submitted their consultative input (Norwegian article) concerning their evaluation report on country-by-country reporting legislation. In their input PWYP Norway pointed out that the evaluation report did not evaluate, and cannot evaluate, the objective of making transparent tax adjustments because the mechanism for such transparency is still not in place. PWYP Norway opined that there is no need to distinguish between legislation for transparency of payments to authorities versus legislation for transparency of unwanted tax adjustments – the legislation is already separate.
PWYP Norway`s recommendation to the Ministry of Finance is clear: Stop fooling around, make the reporting requirements according to §4, 3. paragraph independent of the materiality limit in §4, 2. paragraph. If it is desirable that more companies report in line with extended country-by-country regulations, then make the amendment universally valid for all companies over the materiality limit and let the extracting companies and the forest companies only report one extra number in addition to what everyone else already have to: production. This fixes both transparency of unwanted tax adjustments and ensures that there is only one legislation to adhere to.
Read more in the Norwegian article: Høringsinnspill om Deloittes evalueringsrapport om LLR-regelverket.
Consultation letter, consultation paper, all consultative bodies, and all consultation responses are available on the Ministry of Finance`s webpages here (link is external).
On October 25th the Ministry of Finance sent out for hearing the evaluation report “Evaluation of CBCR legislation” compiled by Deloitte AS.
PWYP Norge opined that the evaluation did not discuss or problematize to a adequate degree the weaknesses in the regulations and that the recommendations to split the regulations were illogical when compared to the desired goal.
Read more about the case (Norwegian article): Knask eller knep? Høring av Deloittes evalueringsrapport om LLR-regelverket
The Ministry of Finance starts work with the evaluation of country-by-country reporting rules (CBCR) that apply to activity within the extracting industries and/or forestry within unplanted forests. Implementation of the evaluation was outsourced to the auditing industry.
Read more on the case (Norwegian article) "Finansdepartementets evaluering av LLR etter tre år"
PWYP Norway has analysed and published a briefing on Statoil`s CBCR for 2016. The analysis was presented in the briefing "Hullene blir mindre" and showed that Statoil`s country-by-country report was improving, but still had holes. One main problem is that there is not yet a complete report in one place, a reader must collect numbers from several places to see the whole picture. And it is still not possible to combine taxes in the accounting with paid taxes per country. In addition, PWYP Norway has researched extended CBCR in other companies in their analysis.
Read about PWYP Norway`s analysis here (Norwegian page): "PWYP Norges evaluering av LLR gjennom fem regnskapsår"
In connection with the deadline being May 30. for the parties to support one of the most important transparency measures (Norwegian article) that can do something with such issues as the Panama Papers, PWYP Norway, in cooperation with IndustriEnergi, arranged an emergency meeting; ”Sudden stop for transparency measures in Norway?” (Norwegian article) on May 29. At the meeting PWYP Norway´s Secretary General Mona Thowsen showed how little is needed to put in place the transparency legislation extended country-by-country reporting (ECBCR) which can make transparent potential tax adjustments – 6 words can get the facts on the table (to the left – the amendment text such as it is currently, to the right – the amendment text that includes requirements in ECBCR): (illustration here)
On April 4, Parliament representative Snorre Serigstad Valen (SV) presented a representative proposal (Norwegian article) on measures against a black economy and tax evasion.
Snorre Valen wrote in his representative proposal:
«The objective with this representative proposal is to ensure that the amendment on country-by-country reporting (CBCR) to tax authorities is altered so that the companies are required to report entirely basic accounting numbers. The way the amendment is currently formulated opens for adjustments in that some countries do not have to be reported on. This can be solved with small changes in the amendment.
- For starters the amendment must require that the information on revenue, expenses, etc. must be given independent of the level of payments to authorities.
- Secondly, the amendment must be changed so that the main numbers in the country-by-country reporting are included as a note to the financial accounting. This is a simple measure, but crucial to ensure that the reported numbers match audited accounting numbers.”
In April Foreign Affairs launched the development report “Common responsibility for our common future – sustainable goals and Norwegian development policy” (link is external). The purpose with the development report is to stake out the course for Norwegian development policy ahead.
Social effect: Political change In chapter «1.5 The sustainability goals and development impact” the development report provides an example of dialogue with civil society that has contributed to changes in politics: «The dialogue has contributed to increased awareness in Parliament surrounding the development-related effects of Norwegian politics and increased mutual understanding of opportunities and dilemmas. It has also contributed to changes in the politics, for example in the revision of the regulations for country-by-country reporting which is in progress.” PWYP Norway has through many years contributed with formidable knowledge and input to changes in policymaking. An external evaluation of PWYP Norway`s work points out that Norwegian regulations would not have been the same without PWYP Norway. The evaluation points out our knowledge production, our thorough and solid expertise concerning financial transparency in the extracting industries and a hard-working secretariat that is very active in conveying expertise surrounding financial transparency in Norway to our politicians, bureaucrats, journalists, trade unions, and investors. The evaluation also points out a factual, subject-oriented line in the work. PWYP Norway has analysed Statoil`s reporting country-by-country for three years in a row. PWYP Norway`s analyses show that companies currently have already reported for two financial years, both 2015 and 2016, with significant weaknesses in the reporting, weaknesses PWYP Norway has documented starting when the amendment was adopted on December 20, 2013 and has led to changes in Statoil`s reporting country-by-country. Through several years PWYP Norway has contributed with several consultative inputs to Norwegian transparency legislation and in 2016 the Ministry of Finance showed in their consultation paper – Changes in amendment on country-by-country reporting that the consultation proposal contained elements from proposals originating from civil society, including Publish What You Pay Norway(PWYP Norway). PWYP Norway`s questions and input to the Ministry of Finance has to a reasonable degree been correctly specified in the consultation paper. Several of PWYP Norway`s inputs resulted in strong improvements to the proposal in the consultation paper.
On March 13, Snorre Valen (SV) sent a question on why the amendment that is supposed to work against tax havens is written so that it does not do this.
Question: I am posing the following question for a written response from the Minister of Finance (link is external); Is it the case that the amendment intended to counteract unwanted tax adjustments has connected the requirement to give information about investments, production volume, revenue, and expenses only to countries where the companies pay more than 800,000 NOK to authorities, and in that way gives the companies the opportunity to avoid reporting countries, for example tax havens, where they pay less than 800,000 NOK in taxes?
The Minister of Finance confirmed that the regulations meant to prevent unwanted tax adjustments do not prevent unwanted tax adjustments in her response to a written inquiry from Snorre Serigstad Valen (SV).
On March 22, PWYP Norway sent an open letter to all members of The Standing Committee on Finance and Economic Affairs. In the letter we described how the Ministry of Finance has proceeded so that result will be the exact opposite of Parliament`s petition resolution, specifically that Parliament will NOT receive reports of companies` key figures from tax havens (“support functions in third countries”), and Parliament will therefore NOT get insight into unwanted tax adjustments.
On March 31 Gillian Caldwell, leader in Global Witness, explained (link is external) why it is important that Norway adopt extended country-by-country reporting now, in PWYP Norway`s Vlog.
On January 6th PWYP Norway sent an open letter to the Committee on Scrutiny and Constitutional Affairs. In the letter PWYP Norway warned that Parliament`s petition resolution on «visibility of unwanted tax adjustments» is not followed up by the Ministry of Finance. Read more: «Still protecting the tax havens"
Right before Christmas eve, on the 22. of December, the Ministry of Finance fixed the changes in the amendment on country-by-country reporting (CBCR), without Parliament having processed the case.
PWYP Norway believed that Parliament`s petition resolution no. 792 (2014-2015), concerning making transparent unwanted tax adjustments, was not sufficiently followed up in the existing changes to the amendment.
November 14. PWYP Norway sent their consultation response (link is external) on changes in the amendment on country-by-country reporting to the Ministry of Finance. In this consultation response PWYP Norway pointed out that the consultation paper contained some strong improvements, but that the same improvements are pulverized – in the same consultation paper – by requiring limits and using formulations and concepts that provide wide access to circumvent said improvements. PWYP Norway therefore opined that Parliament`s petition resolution nr. 792 (2014-2015), on making transparent unwanted tax adjustments, still was not adequately followed up in this consultation paper, and that the proposal, until the weaknesses are improved, is in contradiction to Parliament`s petition resolution, especially where “support functions in third countries” (tax havens) are concerned.
PWYP Norway`s arguments received support from other consultative bodies (link is external).
Global Financial Integrity (GFI), an American think-tank that has made important estimates on the world`s capital flight and advices various countries` authorities in the field, gave PWYP Norway their complete support for their consultation response to hearing on changes in the amendment on country-by-country reporting. Finans Norge, the main organization for the financial sector in Norway that represents approximately 240 finance companies with around 50,000 employees, agreed with the views promoted in the submission from PWYP Norway in their consultation response to the Ministry of Finance.
The Ministry of Finance sent to hearing a proposal for «some changes” in an amendment on December 20., 2013 nr. 1682 on country-by-country reporting (CBCR). The proposal contained suggestions for change of amendment of December 20, 2013 nr. 1682 on country-by-country reporting (link is external).
With this consultative document the Ministry of Finance followed up “parts of” Parliament`s petition resolution nr. 792 (2014-2015), and was based on the EU commission`s proposal (COM (2016) 198 final) (link is external) for change of EU`s consolidated accounting directive (2013/34/EU) (link is external). Main points in the proposal from the Ministry of Finance were partly based on the EU Commission`s reporting requirements.
The Ministry of Finance showed in their consultation paper that the consultation proposal contained elements from proposals derived from civil society, including Publish What You Pay Norway (PWYP Norway).
The Standing Committee on Finance and Economic Affairs held an open hearing in the case on changes in the tax law, and OECD`s BEPS-proposal, so-called “country-by-country reporting to the tax authorities” in Prop. 120 L (2015-2016), Changes in the tax law.
There were several organizations that presented 5-minute inputs at the hearing.
PWYP Norway warned that the information OECD`s BEP-measure asks for, makes the measure unfit and irrelevant as a tool because it doesn`t provide the necessary information for the objective, which is to protect the tax base against profit shifting. It is unlikely that OECD`s BEPS-proposal can protect Norway against profit shifting, because OECD`s reporting proposal:
•is not based on real accounting numbers
•does not encompass all countries
•does not make transparent all the expenses
•does not provide timely information
•cannot be quality checked across countries or groups of companies
•cannot easily be put in notes to the annual accounts
•is not public, and
•substantial exception and manipulation opportunities exist.
Because of this, PWYP Norway compared OECD`s BEPS proposal with PWYP Norway`s proposal for extended country-by-country reporting (ECBCR). An extended country-by-country reporting does not contain such weaknesses. Because an extended country-by-country reporting is based on real accounting numbers directly tied to public group accounting, encompasses all countries, makes expenses transparent, provides timely information, and can be quality checked across countries or groups of companies, it requires the necessary information to make transparent potential unwanted tax adjustments, it can easily be put in notes to the annual accounts, it can be completed transparently simultaneously with the accounting numbers that belong together, and no exception or manipulation opportunities exist.
At the hearing, NHO was quite alone in wanting the Government to not go further than OECD`s minimum standard and argued that the purpose with CBCR is to provide tax authorities with a better basis to develop risk analyses for use in their control activities.
NHO were very critical to publishing these types of reports and to the wish to go ahead with a good example. NHO opined that one-sided publishing of such information might have unfortunate competition related effects. In addition. NHO thought the reporting is prepared for tax purposes and not suitable for publication.
If the reporting were to be published, this would entail increased administrative expenses for the businesses and stretch far beyond the objective which is an exchange of information between various countries` tax authorities.
In June PWYP Norway published the briefing «What Statoil reported and what Statoil should have reported”. Statoil reported at the minimum transparency requirement, called country-by-country reporting, on half a page in their sustainability report for 2014, PWYP Norway showed in the briefing that Statoil could have easily reported a meaningful transparency requirement called extended country-by-country reporting.
In May PWYP Norway warned against an existing lobby danger:
Politicians must be on the alert if companies use rhetoric that they “only want one CBCR” and refer to “country-by-country reporting for tax purposes”, that is OECD`s BEPS proposal. They should not allow themselves to be pressured into “pulling back” extended country-by-country reporting even if they publish BEPS information.
A securities Law Committee suggested supervision with CBCR according to the Securities Trading Act in May. The committee opined the follow up of country-by-country reporting will use a two-tracked system where compliance of the reporting will be maintained by The Financial Supervisory Authority (of Norway) for businesses which fall under vphl. §5-5a, and by the Accounting Register for businesses that solely have reporting duty according to the Accounting Act §3-3d. Equivalently the sanction decisions would follow respectively the Security Trading Act chapter 17 and the Accounting Act chapter 8.
The committee reasons that the country-by-country reporting falls under the supervision provision in vphl, §15-1 third paragraph. The committee further proposes that a clarification is made in §15-1 third paragraph to make it unmistakably clear that country-by-country reporting falls under this decision.
PWYP Norway supports such a solution.
Truls Wickholm (AP) sent an interpallation to the Minister of Finance which was processed in a meeting on Monday May 23.
«In June of 2015 Parliament decided that the regulations for country-by-country reporting (CBCR) in the extracting industries must include companies and capital flows in and via third countries. The Ministry of Finance will now propose how Norway can implement CBCR for tax purposes in line with OECD-BEPS. The existing CBCR regulation is an important tool for civil society, the media, and developing countries, while the regulation that OECD recommends, is restricted to be an internal tool for national tax authorities. A transparent CBCR reporting for all companies would make the proposal on closed CBCR to tax authorities superfluous. The events this spring with the Panama Papers have contributed to show the importance of transparency, including for arrangements that obey the letter of the law, but contribute to tax base erosion.
Will the minister place full transparency as the basis of her proposal, and will she add up to harmonization between the two CBCR regulations?”
Jensen responded to Wickholm`s questions in part, but referred to old information exchange agreements, to OECD and to EU, and that the regulations for country-by-country information to tax authorities are not scheduled to be evaluated until 2020.
Jensen also pointed out that the EU commission, the way she interprets its work until now, does not support full harmonization of public reporting and tax reporting. Jensen pointed out that the premise for agreement in the project is that country-by-country reports should be confidential with tax authorities, and opined that a lack of follow-up on this point would result in foreign tax authorities refraining from sending their received reports to Norway, which in turn would weaken the tax authorities control basis and thereby undermine the purpose of the project.
Siv Jensen opined that «it is premature to say anything more closely about how possible new EØS-relevant rules on public country-by-country reporting for tax purposes should be implemented in Norwegian law court, including whether or optionally to what degree it should be harmonized with current requirements in Norway. Final EU rules must first be negotiated in the European Parliament and in the Council of Europe, where there are already currently apparent differing views on the Commission`s proposal.”
The Government and the Minister of Finance highlighted that civil society, media and other actors play “important roles”, but maintained her stance that it is most important that relevant information is shared between authorities, while simultaneously the Minister of Finance wanted to safeguard the needs of the companies.
Siri Meling (H) participated in the Parliament debates and referred to actors having the ability to extract natural resources from developing countries without the corresponding countries getting their rightful share of this wealth. She referred to Parliament`s petition resolution on country-by-country reporting in the Accounting Act, a type of information that is presented in full transparency.
- It is with the background of this latter factor that a collected Parliament in June 2015 decided that the regulations for CBCR in the extracting industries shall include companies and capital flows in and via third countries. Every year poor countries are drained of billions because of tax evasion and capital flight. This is money that the countries could have used for education, health, infrastructure, and other important purposes. Tax evasion is likely a problem in most countries, but it is still the developing countries, the poor countries, that are hit the hardest, Meling pointed out.
Her next point is that the question interpellator Truls Wickholm raises, is “in what way this type of information should be available”. But the information in country-by-country reporting in the Accounting Act (CBCR) is already presented in full publicity.
So when Meling comments that “full transparency is to be preferred, but in these cases we are dependent on being in step with our international partners”, she is speaking here about the other type of country-by-country reporting for tax purposes, that is about whether OECD`s BEPS-information called “country-by-country reporting for tax purposes”, ought to be made public. In this question Meling took the view of the Minister of Finance, Siv Jensen.
- If Norwegian tax authorities want to gain access to this information, they must also accept the system the way it presently stands with its opportunities and limitations, she said.
The Minister of Finance has simultaneously said that she will cooperate with Parliament on transparency. PWYP Norway expects that the Government addresses the issues raised in the population and that the Government`s transparency work does not just settle for whatever comes floating down from OECD or EU.
Knut Falk Qvigstad`s (MDG) input in the interpellation pointed out that these companies can continue business-as-usual with OECD`s BEPS measures (also called CBCR to tax authorities). Even if OCED`s BEPS information is made public, the information is based on the same weaknesses. Which is why Parliament should adopt the requirements in extended country-by-country reporting which does not have those weak points and that can provide the necessary insight.
In April, the Committee on Scrutiny and Constitutional Affairs was pulled into the CBCR process. The background was that The Standing Committee on Finance and Economic Affairs had sent a letter to the Committee on Scrutiny and Constitutional Affairs with a remark on follow-up of the petition resolution that came on June 19, 2015.
There has been much mixing – wanted and unwanted – about the various tracks for transparency. Several actors have referred to the measure «country-by-country” (CBCR), but the designation has been utilized in two completely different tracks for transparency. It looks like the same, but it is not.
So far the Parliament`s own control bodies have not been connected. They will be when Parliament takes this step. The point is the same: the Government has not followed up Parliament`s wish. This is the background for the Committee on Scrutiny and Constitutional Affairs being dragged into the process.
MDG (Miljøpartiet de Grønne – the Green Party) got involved to promote a strengthened country-by-country reporting in April. On April 21. Rasmus Hansson (MDG) delivered a written question to the Minister of Finance. Hansson asked: Will the Minister of Finance advance a consultation paper concerning country-by-country reporting under the Accounting Act §3-3d during Parliament`s spring session?
In its response the Ministry of Finance writes that “The Ministry is also in the process of considering changes in the CBCR regulations in line with Parliament`s request, with the intent of sending a consultation paper to hearing during the summer of 2016.
The Ministry of Finance also writes that they “currently work with starting the notified evaluation of the CBCR regulations, so that these can be implemented in spring of 2017 at the latest.”
Siv Jensen further writes in her response the following that the BEPS process can risk “influencing” the CBCR process:
“In closing, I will refer to the EU commission April 12, 2016 putting forth a proposal concerning public country-by-country reporting for tax information purposes. If it is adopted by EU, it would be relevant for Norway to join this legislation. The proposal can thus be of importance to Norwegian rules on country-by-country reporting according to the Accounting Act.”
This means that the EU commission is under pressure to publicize BEPS information. But it is important to note that BEPS still has the same weaknesses. It comes too late, any kind of database can be used, and opportunities for circumvention are many.
The companies most likely will prefer to report on “country-by-country reporting for tax purposes”, which is OECD`s BEPS proposal.
In March PWYP Norway explained the difference between CBCR and CBCR for tax purposes.
It may appear that these are the same, but they are not. “CBCR reporting» is not the same as “CBCR for tax purposes”. These are two different tracks and a totally different basis for transparency and insight which in turn will have enormous consequences for what kind of insight the public will get.
“The CBCR reporting» that PWYP Norway asks for refers to the existing amendment for country-by-country reporting in the Accounting Act §3-3d. This is the amendment for CBCR reporting the way it appears currently. This was the amendment that Parliament wanted to change so that the amendment can do something about unwanted tax adjustments so that relevant information emerges in the accounting.
It is this amendment that must be changed so that the requirements in extended country-by-country reporting are put in place. In addition to the reporting applying to all countries, there must be a requirement that only accounting numbers must be reported and nothing else. In addition, it is necessary that complete expenses be reported because it is easy for companies to manipulate expenses by using financial tools that result in the companies profiting off it and authorities lose insight and tax revenues.
The hearing the Ministry of Finance sent out December 2, 2015 concerned the recommendations in Base Erosion and Profit Shifting (BEPS) – the project and recommendations from the Public Accounts Select Committee about country-by-country reporting for tax purposes in group relationships.
What will the reporting reveal?
OECD`s BEPS versus PWYP Norway`s ECBCR
Are these real accounting numbers?
Are all countries covered?
Are reports presented with complete transparency?
Are complete expenses reported?
Is the information timely?
Can it be quality checked across countries and groups of companies?
Can the information easily be put into notes in the annual accounts?
Is the reporting effective in making transparent unwanted tax adjustments?
Are there exception and manipulation opportunities?
On January 25th PWYP Norway sent their consultation response concerning country-by-country reporting for tax purposes to the Ministry of Finance. In this consultation response PWYP Norway pointed out that the consultation on CBCR for tax purposes does not respond to Parliament`s petition resolution, and it remains necessary that the Ministry of Finance strengthens the CBCR amendment entirely independently of this consultation.
On December 2nd The Ministry of Finance sent out a hearing on CBCR for tax purposes (link is external). PWYP Norway believed that the Ministry of Finance had not followed up Parliament`s objective on CBCR according to the Accounting Act. Instead they had followed up a completely different track and another basis, in fact the recommendations in OECD`s BEPS project, which concern information that only tax authorities were to get access to.
The Ministry of Finance has thus not taken any initiative this autumn in order to follow up that necessary and relevant transparency demands are implemented in the existing country-by-country reporting so that it can start to function according to its objective, which is to make transparent unwanted tax adjustments and ensure that information should flow to the public.
The hearing was thus not in line with the expectation of the Norwegian civil society or what is desired from poor countries in the South.
The hearing deadline was set for January 25th 2016.
The Minister of Finance Siv Jensen (Frp) responded to the written question that Truls Wickholm (Ap) posed on October 1. She wrote that she wanted to wait to evaluate the country-by-country amendment until two accounting years had passed. The current country-by-country amendment went into effect on January 1, 2014, and a hearing would therefore not have taken place until 2016.
And yet, in response to a written response from Terje Breivik (Venstre) Siv Jensen nevertheless wrote that the proposal on country-by-country reporting which a unified Parliament had agreed to before summer, would be sent out for hearing during autumn. Which is why PWYP Norway took contact with the Ministry of Finance to get an answer to when the hearing will actually take place, and we got confirmation via Twitter that the plan was to send the case to hearing already in autumn of 2015. PWYP Norway does not see any reason why two years need pass before evaluating the amendment since we already know that it does not function according to its intent.
In September Truls Wickholm posed a question to the Minister of Finance Siv Jensen (Frp) concerning the continued process with strengthening the country-by-country amendment.
On June 5. there was a debate in Parliament concerning extended country-by-country reporting. With the exception of Senterpartiet and Miljøpartiet De Grønne, all the Parliamentary parties came with input.
An interpellation from Truls Wickholm (Ap) to Minister of Finance Siv Jensen (Frp) was the basis for the debate:
«Developing and emerging industrial countries were in the period 2003-2012 drained of 6,600 billion USD in illegal capital flight. The capital flight in the period increased on average 9.4 percent per year, twice as quickly as GDP globally. Numbers from IMF reveal that some countries lose up to 15 percent in tax revenues. The International Bar Association believes that actions from jurisdictions that “encourage or facilitate abuse of tax rules, can constitute a breach of international human rights commitments.” When companies pay too little taxes, regular people must pay more. Norwegian companies, employees and investors are the losers. Extended country-by-country reporting will make transparent unwanted tax adjustments in that revenue, expenses, taxes, production and investments for all countries must be given in notes to the annual accounts.
Will the Government fight the problem and adopt these transparency requirements in extended country-by-country reporting?”
Snorre Valen from SV began his input by explaining that this is a very important case that Parliament now has had several opportunities to do something about. SV has this year, just as they did last year, put in a notice on extended country-by-country reporting in the revised national budget.
The interpellator Truls Wickholm (Ap) encouraged Krf and Venstre to also support the notice for financial transparency. He pointed out that there is broad agreement in the population that this is a problem that must be fought. Only the politicians stand in the way before we can progress
Kjell Ingolf Ropstad from Krf said they have worked to expand the requirements in country-by-country reporting for a long time.
All the politicians, also Frp and Høyre, were in agreement that the problem with corruption and capital flight is untenable. However, it is only Ap that has supported the notice that SV has put forth.
The Minister of Finance`s main argument is that the current regulations will not be evaluated until after three years. PWYP Norway believes that Siv Jensen is using this as a disclaimer. She uses the argument: “We have to know what we are joining, and we have to know what the problems are that we are supposed to solve.”
-It is sad that this will be the basis for Norway`s attitude in the work against corruption, unwanted tax adjustments and unwanted tax evasions. We already know that it is not functioning according to its purpose, we don`t need three years to comprehend that, is the opinion of PWYP Norway.
The government and the supporting parties Venstre and KrF entered into one unanimity requirement in the final agreement for a revised national budget for 2015.
In the unanimity requirement of the agreement it states: «The contractual partners cannot create a majority for verbal suggestions or notes beyond what is stated in this agreement, unless all contractual partners agree on this.”
The individual parties that signed the agreement have previously gone out and said that they will support increased transparency and fight corruption and capital flight.
PWYP Norge believes that the unanimity requirement goes against the expressed will the individual parties have where this case is concerned, and not least the objective with the legal provision to avoid tax adjustment. It seems very strange. The agreement that the government parties have signed is potentially an obstacle to verifying corruption and tax evasion.
On June 15 Parliament voted on the notes to the revised national budget. The note on CBCR, which was promoted by Ap, Sp, and SV, did not get a majority vote.
On June 15 PWYP Norway published a chronicle which was published in Klassekampen. The chronicle was printed in connection with the treatment of the revised state budget and had an objective to counter erroneous statements in the debate on extended country-by-country reporting. Siv Jensen argues that the amendment should be allowed to function for three years before we can evaluate the reporting requirement. But as long as companies do not have to report expenses, do not have to report from tax havens, are given exception opportunities, and the reporting is kept away from the annual accounts, it is self-evident that the amendment cannot work according to its objective. It is not necessary to wait three years to understand that according to PWYP Norway.
On June 19th all the parties in Parliament agreed to intensify the work on financial transparency. PWYP Norway viewed this as a great victory for transparency and an important step in the right direction.
The proposal (link is external) was put forth by The Standing Committee on Finance and Economic Affairs` leader Hans Olav Syversen (KrF) at Parliament and it sounded as follows: “Parliament asks the Government to go through the effect of the amendment for CBCR reporting as measured against Parliament`s objective of making transparent unwanted tax adjustments and ensure that relevant information tied to CBCR reporting from daughter subsidiaries and support functions in third countries emerges in the accounts. Parliament asks the Government to also consider how it can establish supervision into the reporting agents under the CBCR regulations.”
– It is an important victory that a collected Parliament wishes to strengthen country-by-country reporting. But it is important to remember that this is not a full resolution, and not a resolution to put in place an extended country-by-country reporting. But the resolution opens for putting in place an extended country-by-country reporting and PWYP Norway will be following closely to see how the resolution is followed up so that its content is defined in the right way. Then we can get in place the relevant and necessary reporting which can make transparent unwanted tax adjustments, says General Secretary in PWYP Norway Mona Thowsen.
After PWYP Norway`s analysis revealed that Statoil in their country-by-country reporting had mixed in numbers from the downstream business, Truls Wickholm (Ap) sent a written inquiry to Minister of Finance Siv Jensen (Frp) where he asks whether the Ministry of Finance will require Statoil to report over again. The company did not follow the rules in the amendment when they delivered their first country-by-country report.
Siv Jensen responded (link is external) that the Ministry of Finance does not control the reporting agents` country-by-country reporting and that the Ministry of Finance therefore has not taken a position on whether Statoil`s country-by-country reporting for 2014 is compiled in line with the amendment rules for country-by-country reporting.
On May 8. Truls Wickholm (Ap) sent an interpellation to the Minister of Finance on extended country-by-country reporting. In the inquiry to the Minister of Finance Wickholm wonders if the government is going to adopt the transparency requirements in extended country-by-country reporting.
The support for PWYP Norway`s proposal on ECBCR is becoming more and more visible. In their consultation response to the Scheel selection the Trade Union told the Ministry of Finance that they should adopt extended country-by-country reporting.
Statoil delivered the world`s first country-by-country report on March 19th. PWYP Norway analysed Statoil`s report and concluded that Statoil in their reporting had mixed in numbers from downstream activity.
When downstream numbers pollute upstream numbers
The Norwegian country-by-country amendment has the same definition as the EU directive on what is meant by upstream activities: “…with “business within the extracting industries” is meant activity that comprises searching after, prospecting for, finds, development of and extraction of minerals, oil, natural gas deposits, or other materials.” This is what is called upstream activities in the extracting industries. Downstream activities include refining, trade and marketing/sales of the final production. The downstream activities are not part of the definition of the current country-by-country reporting as stated in the EU Directorate, nor in the Norwegian amendment.
PWYP Norway believes that the way Statoil reported in 2015 is harmful to the work for more transparent reporting in the extracting industries the world over. Because it does not provide clear contexts between taxes paid in upstream activities nor the context that the taxes are paid within (upstream activities).
When the amendment only requires that companies report purchases of goods and services, the full extent of the upstream activities are not visible. This in turn means that what appears to be the profit in the individual country is higher than it really is, which in turn has the effect that the taxes reported appear relatively lower than they really are. This leads to the company attracting criticism for paying too little taxes relative to the apparent profit. Norwegian authorities therefore expose Statoil and other companies to unnecessary and unjust criticism when they create an amendment that contains such weaknesses. Publish What You Pay Norway has worked intensely since long before the amendment even came out so that Norwegian authorities can clear up weaknesses in the reporting, to ensure that the reporting is as correct as possible.
We have come a long way, but the amendment is short on three central elements to work according to its objective. The politicians have the responsibility to create good legislation, and to ensure that the relevant numbers are reported: Only upstream activities or upstream activities separated out and with all expenses included.
Read PWYP Norway`s briefing that describes how Statoil har polluted the numbers in reporting here: “Downstream pollution of upstream numbers”
In a chronicle «Will the Conservative Party and the Progress Party prevent tax flight» in Dagens Næringsliv PWYP Norway reminded the public of the three existing holes in CBCR that prevents legislation against corruption and tax evasion from working according to its objective.
On June 19th, PWYP Norway sent a letter to all the members of Parliament`s Standing Committee on Finance and Economic Affairs. In the letter PWYP Norway encouraged members of The Standing Committee on Finance and Economic Affairs to vote for this notice from SV in the adjustment to the revised national budget:
«Parliament asks the Government to come back to Parliament in connection with the State Budget for 2015 with proposals for improvements in the amendment on country-by-country reporting that ensures the necessary transparency, including proposals that ensure a stronger connection between country-by-country reporting and annual accounts.”
In June PWYP Norway presented a policy briefing named “Three red flags”. In the briefing PWYP Norway explains about three existing critical holes in the amendment on CBCR which need to be sealed so that the transparency legislation can work according to its objective.
Only three elements
1. The first hole we wish to seal is about content. In the amendment from the Ministry of Finance they have written “purchase of goods and services” instead of expenses. We believe that this will not result in credible reporting. Because it becomes difficult to see the real profit of the companies. PWYP Norway wants the amendment to contain requirements to specify the full expenses country-by-country, so that both revenue and expenses can be read from the country-by-country reporting. 2. The second hole is about form. The amendment does not require that country-by-country reporting is reconciled with the companies` accounting numbers from extracting activities, that is already audited numbers. We want the information to be specified in notes to the annual accounts because this is the most logical and effective place from which to retrieve financial information. 3. The last hole that must be sealed is also about form. The amendment limits itself to the companies only being able to report this information to production countries and gives the opportunity for exceptions. We demand that the information must be specified for all countries, no exceptions. There should be no opportunity to except daughter subsidiaries from the reporting.
On June 20. the revised national budget was processed in Parliament. They voted on SV`s notice about extended CBCR:
«To begin with all countries that are included in the financial reporting of upstream results must be covered in the amendment for the country-by-country reporting. This member will refer to the prevailing doubt about whether it is only the producer countries, or all the countries involved in the revenue and cost chain tied to upstream activity, that are covered by the regulations, and believes the reporting becomes ineffective if only the production countries are included.”
The notice was overruled.
In April Marianne Marthinsen (Ap) posed a written inquiry (link is external) to the Minister of Finance Siv Jensen (Frp). In the inquiry Marthinsen asked whether the Minister of Finance is willing to show companies` total profit per country. In the amendment to country-by-country reporting the Ministry of Finance limits the reporting to only include production countries and does not contain any requirement to specify the total expenses per country.
In her answer Siv Jensen explained that she would do an evaluation in three years to see if the legislation works according to its objective.
In February PWYP Norway wrote a letter to the Ministry of Finance where PWYP Norway pointed out the four weaknesses in the formulation in the amendment on country-by-country reporting which arrived before Christmas in 2013. In the letter PWYP Norway asks whether the Ministry of Finance can produce written clarifications on each of these four points:
1. The statute does not require that all expenses shall be reported, only purchases of goods and services. PWYP Norway asks whether the Ministry of Finance really wants total expenses to be reported according to the new lifestyle standard, or if this is not the case, asks the organization to provide a justification for this.
2. PWYP Norway has consistently emphasized that the reporting standard is only credible if it requires a connection to accounting numbers. The legislation appears to add up to a group reporting that should be in line with the financial statements, PWYP Norway requests that the Ministry of Finance confirms whether this is correct.
3. The amendment adds up to a “consolidated line-up” in the reporting, this unsettles PWYP Norway. Does this mean the companies must create two consolidated accounts – one consolidated account for total upstream activity and one which shows consolidated numbers for country-by-country reporting? If this interpretation is correct, then this is not a reporting of total upstream activity.
4. The amendment gives three avoidance opportunities to except daughter subsidiaries from reporting. PWYP Norway asks the Ministry to omit these opportunities for exception, so that all activities included in upstream reporting will also be reported country-by-country.
Read the letter here: Brev_Finansdep_spm_om_forskrift_LLR_18FEB2014
On January 1. the legislation on country-by-country reporting (CBCR) was adopted in Norway. The amendment in Norway is a copy of the amendment in EU.
Along with Arbeiderpartiet and Sp, SV proposed to make the legislation more stringent for CBCR. Snorre Valen, member of the Standing Committee on Finance and Economic Affairs for SV, launched plans for a rematch for a stricter CBCR that also includes tax havens to NTB (Norwegian News Agency Reliable) and the Nation (link is external) He said to PWYP Norway that the case would be discussed in May when Parliament will handle a revised national budget.
In a chronicle to Dagens Næringsliv PWYP Norway argued for Norway moving away from subjective to objective appraisals of the Oil Fund`s (SPU – The Government Pension Global Fund) investments. And that a concrete transparency requirement on extended country-by-country reporting will create a situation where we acquire more objective information.
On December 5. Parliament adopted the bill, and PWYP Norway promised to continue to fight for a strong transparency legislation.
Right before Christmas the Ministry of Finance laid down a new amendment for country-by-country reporting which complements the legal text (link is external).
The new government indicated no change of course when they set forth a proposal for changes to the state budget. The supporting parties Venstre and KrF still managed to reach the goal of making transparent unwanted tax adjustments into the legislation, budget bill November 15. This goal also made it into the Standing Committee on Finance and Economic Affairs` recommendation to Parliament.
On October 14. the Minister of Finance Sigbjørn Johnsen put forth a bill on country-by-country reporting for Parliament. The bill was presented along with the state budget.
PWYP Norway was very disappointed with the legislation what had two great weaknesses:
- •It protects tax havens from insight.
- •It does not require reporting of real, audited numbers.
PWYP Norway`s chronicle «Johnsen`s breach of promise» was printed in Dagens Næringsliv on October 31., and asks Why the Ministry of Finance is protecting tax havens?
Several Norwegian politicians have engaged themselves in extended country-by-country. Hans Olav Syversen sent a new written inquiry on September 6. to Minister of Finance Sigbjørn Johnsen, where he asked; «Will the Minister of Finance promise that extended country-by-country reporting is based on transparency on the eight central accounting numbers that are sought by the public?” In his response, Johnsen allows that extended country-by-country reporting can require real accounting numbers (link is external).
PWYP Norway has made several statements in Norwegian media where we encourage the elected officials to choose transparency. In addition, PWYP Norway has sent letters to the members of the Standing Committee on Finance and Economic Affairs in Parliament.
Large sections of Norwegian civil society have fought for extended country-by-country reporting, among others Changemaker, which in their new campaign “The Search for Honesty” emphasized the transparency law as one of the most important measures to limit the use of tax havens.
In the wake of the hearing Klassekampen published a notice (link is external) on Statoil`s attempt to water out the requirement for country-by-country reporting. In their consultation statement Statoil proposed that the regulations ought to be a recommendation for the companies, not a concrete requirement. “Statoil has gone from being a driving force for transparency to becoming a saboteur for the transparency we want”, said Minister of Development Heikki Holmås to the newspaper. Dagsavisen confirmed in their lead editorial that the Government should have a talk with Statoil`s leadership (link is external).
In May the Ministry of Finance sent a consultation letter (link is external) with the executive committee`s report.
The report contained rules that went further than what has been proposed in the USA and EU, and that require more factors to make it possible to see the tax payments in context. PWYP Norway were positive to this. The weakness in the report was that it did not propose connecting the reporting to the companies` annual accounts. PWYP Norway viewed this kind of solution as crucial, it would make the reporting based on already audited and verifiable numbers, and there would be no need for additional auditing or drafting an additional report. In a chronicle in Klassekampen PWYP Norway warned that Norway could get a Transparency Law without transparency.
In April agreement was achieved in EU oppnådd enighet i EU(link is external) between the EU commission, the European Parliament, and the Council concerning a compromise proposal for a new CBCR. PWYP Norway called it a historical demand for transparency. The Norwegian workgroup took this compromise text into account.
On April 30. the Ministry of Finance`s workgroup published a report with a proposal for what kind of country-by-country reporting Norway should adopt. The workgroup recommended extended requirements to country-by-country reporting, requirements that included reporting on investments, sales revenue, production, purchases of goods and services, and number of employees. These requirements went further than EU`s proposal, which only required reporting of payments to authorities.
The workgroup gave these reasons for the extended requirements:
“- An extended reporting like this will have a greater value for the stakeholders since the payments to authorities are put in a larger context. In addition, it is suggested that the reporting agents shall give information about their daughter subsidiaries, along with information on where the various daughter subsidiaries reside. In the workgroup`s estimation this kind of reporting will contribute to increased transparency which is likely to assist tax authorities pertaining to their information needs as well.”
The Foreign Affairs and Defence Committee supported the extended requirements for country-by-country reporting. The Committee emphasized that:
“Country-by-country reporting for multinational companies is a device to get insight into the cash flows of multinational groups of companies (..). A transparency guarantee would ensure developing countries sufficient access to information from extracting companies, and the Government wishes to promote an initiative for the development of a transparency guarantee to be used by authorities in developing countries.”
The Ministry of Finance`s workgroup wrote in their press release (link is external) that:
«CBCR shall contribute to make transparent extraction of natural resources in the extracting industries and the cash flows connected to such extraction and thereby create greater transparency and control of the cash flows. The workgroup was asked to emphasize that requirements for CBCR should be formulated so that they relatively speaking get the best use in the work to fulfil the Government`s goal of fighting corruption, and later tax evasion, set up against the administrative burdens that such reporting requirements will result in for the businesses.”
PWYP Norway explains why Norway needs country-by-country reporting in Financial Transparency: Steps to strengthen democracy and fair distribution, a collection of articles published by Foreign Affairs.
PWYP Norway registered their consultative input, along with a report with concrete proposals for extended country-by-country reporting and a short 3-minute briefing on how the reporting can easily be set up in one Excel sheet.
The investor KLP Assessment Management supports the proposal from PWYP Norway on extended country-by-country reporting, as did more than half a million trade unionists.
Towards the end of the year, the Ministry of Finance appointed a workgroup with a mandate to study country-by-country reporting (CBCR) in Norwegian legislation. The workgroup was to be based on the EU commission`s proposal for rules on whether CBCR would be adopted and incorporated into the EØS agreement, and that the rules then would have to be implemented also in Norwegian law.
The Ministry of Finance sent out EU`s proposal on country-by-country reporting for hearing in Norway (link is external). EU proposed that large companies within the extracting and forest industries must report on an annual basis on payments to governments in the individual country where such activities are run.