Civil society has been calling for a long time for measures to improve the transparency and accountability of companies, in particular through country-by-country reporting (CBCR).
Currently, multinational companies publish their accounts by combining data about tax compliance from multiple countries into one single aggregate report, making it difficult to distinguish between the contributions they make to all the individual countries they operate in. As last year’s LuxLeaks scandal confirmed, many of these companies have been engaging in profit shifting and relocation, systematically over-reporting their profits in low tax jurisdictions or tax havens whilst under-reporting them in high tax jurisdictions, where they are usually based or have major centres of operation. Had CBCR – a geographical breakdown of key financial data – been already mandatory for European multinational companies and all economic sectors, the damage would have certainly been limited.
CBCR is an essential element of corporate transparency, as it allows for an increased monitoring by stakeholders and citizens, which will also help to reduce tax avoidance. It will help monitoring corrupt practices between governments and multinational companies and will also be extremely useful to investors, who will be able to make sound investment decisions, by identifying risk factors and better deciding which companies they wish to engage with.
Despite civil society’s calls and advocacy for measures furthering corporate transparency, including CBCR, the European Commission and Council have been relatively reluctant to develop strong and meaningful provisions. Although EU officials have frequently made rhetorical statements in favour of the fight against tax avoidance and evasion, companies’ mandatory and public disclosure of financial information seems to remain a taboo for some Member States and Commissioners.
By Association of Certified Fraud Examiners (ACFE)
However, also other professions have recently aligned themselves to NGOs’ calls for public CBCR, raising concerns about the current system. One of these categories is the one of accountants and auditors, as proved by the support they expressed on the occasion of the Audit Conference organised in Brussels by the Federation of European Accountants on 22 June 2015. When asked by Transparency International’s EU Office Director Carl Dolan whether the audit profession has a role in developing a global CBCR standard, around 80% of the audience responded positively (read Carl Dolan’s full speech at the Federation of European Accountants). So far, the role of auditors in corporate transparency in general and CBCR more specifically has not been explored enough. However, in the current challenging financial environment in times of economic crisis and austerity all over Europe, their role in promoting and increasing transparency, and fighting corruption, is more important than ever. According to recent figures, companies’ tax avoidance, in combination with tax fraud and tax evasion, is the cause of the yearly loss of an estimated 1 trillion Euro of potential tax revenue in the EU.
Unfortunately, a survey carried out by the Association of Chartered Certified Accountants in 2012 showed that the level of public trust in accountants was only 55%. Auditors and accountants should therefore rethink their role and responsibility towards society by operating ethically and keeping an objective distance from their clients in order to provide accurate financial information.
This autumn trialogue negotiations between the European Council, Parliament and Commission will begin on the Shareholders’ Rights Directive, which includes a provision on CBCR, and an impact assessment on corporate tax transparency will be carried out by the European Commission. We hope that auditors and accountants will add a strong voice to the one of civil society groups and join us in our call for corporate transparency and public CBCR.