The Minister of Finance wriggles away from the facts in the debate over measures against tax evasion in tax havens
This opinion piece is written by Mona Thowsen, Secretary General, PWYP Norway. It was published in Klassekampen June 15 2015.
In order to counter financial secrecy and tax evasion by use of tax havens, the Socialist Left Party has suggested to introduce a so-called extended country-by-country-reporting. This measure will expose unwanted tax adjustments, by obliging companies to add information about income, costs, tax, production and investments per country, to the notes of their financial accounts. However, during the parliamentary debate about the suggestion on June 5, it became clear that the Minister of Finance, Siv Jensen, uses a language that hides the facts. These claims have to be countered, in order to avoid misinterpretations from flourishing.
The Labour Party supports the Socialist Left Party’s suggestion. Truls Wickholm (Labour) therefore posed a question in the form of an interpellation to the Minister of finance:
“From 2003 to 2012, developing and newly industrialized countries were drained of 6600 billion USD by illegal capital flight. In the period, illegal capital flight increased by an average of 9,4% per year, twice as fast as the global GDP. IMF figures show that some countries loose as much as 15% of their tax income. The International Bar Association thinks that actions by jurisdictions that ‘encourage or facilitate the abuse of tax regulations may constitute a breach of international human rights commitments’. When companies pay too little tax, regular people have to pay more. Norwegian companies, employees and investors are the losers. Extended country-by-country-reporting will expose unwanted tax adjustments by requiring that income, costs, tax, production and investments for all countries has to be declared in notes to the financial accounts.
Is the Government willing to fight the problem and introduce these transparency demands of extended country-by-county-reporting?”
In her answer, Jensen claimed that the law on extended country-by-country-reporting (extended CBCR) already is in effect in Norway. However, if that were true, the parliamentary debate would have been superfluous.
Norway has not introduced an extended CBCR. An extended CBCR demands that full costs are reported from every country where a company is registered. In the additional information, no demand to publish full costs has been included, only the purchase of goods and services. Due to that, the reporting of taxes in a greater context is flawed. Only when full costs are reported, the tax will be published in its right context. Today’s regulation cannot even be considered country-by-country reporting, because it does not require companies to report from all countries.
The Ministry of Finance developed a regulation that only demands a separate report, which may be kept away from the annual accounts. The result of this is unreliable and useless figures.
Publish What You Pay Norway therefore believes that we need to put in place an extended CBCR, because that is a financial reporting requirement developed in line with how companies already report. That makes it cheaper, simpler and more reliable.
It is therefore wrong when Jensen claims that such notes lead to a more expensive reporting. There are no additional costs related to adding extended CBCR to the financial accounts’ notes. It simply requires the reporting of already revised information. The way the reporting is set up today, there is no demand for a connection between what is reported country-by-country and what is reported in the financial accounts. It is this lack of connection that fosters the need for extra revision. By introduction extended CBCR, and requiring it to be published as notes to the accounts, one avoids the extra costs.
An extended CBCR requires companies to report on eight basic accounting figures, which are to be published as notes to the annual financial accounts, and that are public. Therefore, it is also a sidetrack when Jensen refers to tax exchange agreements as a kind of counter argument against an extended CBCR. The tax exchange agreements may give the tax authorities some transparency. But, they do not require making figures public, a publication that could provide a standardized transparency across countries. Therefore, the tax exchange agreement is not a tool that can tackle the problem of an annual increase in capital flight of 9.4%.
Jensen’s story of political powerlessness in the meeting with interests in other countries that do not want transparency on companies in tax havens is also incorrect. The attitude is founded on a premise that there are no measures or tools available. This makes it seem like the Ministry of Finance refuses to take responsibility. An extended CBCR requires for home countries to demand of companies to report from all countries. A tax haven cannot require a company to avoid the reporting requirements of its home country.
The Ministry of Finance seems to think that their responsibility goes no further than issues concerning increased transparency in tax matters. That reduces the problem to transparency in individual cases.
Jensen argues that the regulation should be allowed to stay in effect as it is for three years before we can evaluate the reporting requirement. But, as long as companies are not required to report costs, are not required to report from tax havens, are given exceptions clauses, and the reporting is kept separate from the annual accounts, it is obvious that the regulation cannot work as intended. We do not have to wait three years to understand that.
Both the Christian Democratic Party and the Liberal Party state their support for extended country-by-country reporting, but Erna Solberg and Siv Jensen have bound the political parties that support the government by a demand for unanimity in the cooperation agreement. This prevents them from promoting the law’s intent and from reinforcing it by adding the three final demands of an extended CBCR.
Do the Government’s supporting parties hear that Siv Jensen’s rhetoric avoid the facts on extended country-by-country-reporting? We hope that they will follow their own convictions and get behind the suggested note when the revised national budget is processed today.