Do the B Team’s Tax Principles Raise or Lower the Bar? A Debate with TJN

Adam Kanzer, Managing Director of Corporate Engagement, Domini Impact Investments (in dialogue with Alex Cobham, Chief Executive, Tax Justice Network)

On February 1, the B Team published “A New Bar for Responsible Tax: The B Team Responsible Tax Principles,” with the endorsement of nine corporations (Allianz, BHP, Maersk, Natura, Repsol, Safaricom, Shell, Unilever and Vodafone). I was privileged to serve as a member of the Company Working Group that oversaw the development of the Principles over the course of 2017, representing an investor perspective.

After several years of engagement with a variety of corporations on these issues on behalf of Domini Impact Investments, I am optimistic that the B Team’s work establishes a promising platform for meaningful dialogue with corporations about their tax practices. The Principles are not perfect, but I believe they represent an important step forward.

I was therefore very disappointed to see TJN’s critique of the Principles, The B-Team: Lowering the bar for tax transparency? I reached out to Alex Cobham, Chief Executive of Tax Justice Network, and both of us felt that our exchange would be worth sharing, as other organizations evaluate the B Team principles for themselves.

Our main points of disagreement (Alex’s position is in italics):
  1. The significance of the B Team Principles’ behavioral commitments in light of the fact that many companies are still proud of their aggressive profit shifting; although many others are already publishing at least some data on a country-by-country basis, some voluntarily and some as required by law; and
  2. The tactical advantage of celebrating an imperfect framework that offers room to improve, and momentum; against the risk of promoting an approach that is currently weaker on disclosure than a number of other initiatives.

I think our disagreement comes down to a matter of tactics. With tremendous respect for TJN, I’d like to suggest that their critique is both unfair and a tactical mistake.

First, it should be recognized that – for the very first time – a group of large multinationals has signed on to a common framework for responsible tax. It is not perfect. Any such effort requires compromise. But this process was open, with the active participation of corporations, investors and civil society organizations, and it does represent a step forward on a topic that frankly has been stalled for a long time without meaningful dialogue.

The B Team Responsible Tax Principles represent the start of a very long overdue conversation with multinationals about their tax affairs. Yes, there have been many such conversations. But they have failed to gain meaningful traction. We have an opportunity to use these Principles as the platform for a conversation about actual commitments that nine large companies have already made. That is far more than we ever had to work with before. This is a platform to build on.

Second, although TJN’s critique focuses on disclosure, the B Team framework is primarily a behavioral framework, not a disclosure framework (for one example of a disclosure framework that I helped develop with other members of the UN Principles for Responsible Investment’s Investor Taskforce on Tax, see Investors’ Recommendations on Corporate Income Tax Disclosure).

The B Team Principles include commitments to avoid the use of abusive tax structures, including avoidance of the use of tax havens, and to align tax payments with actual business activities. It is hard for me to see that as a lowering of the bar.

The Principles reference the concept of country-by-country reporting, without requiring it. In my view, this is not entirely satisfactory, but it is a step in the right direction – companies will provide understandable information on the taxes they pay in the countries where they operate. I have other gripes as well, but I strongly support the Principles as a meaningful step forward.

Alex responded with two reasons for TJN’s focus on disclosure:

First, the B Team project was originally presented to TJN as having the potential to take the B Team to public support for public country-by-country reporting. The Principles fell short on that point, prompting significant disappointment.

The more substantive issue, though, is that disclosure is really what it is all about, from the perspective of responsible tax. I don’t think there’s much debate that international tax rules open up space for profit shifting to the detriment of lower-income countries in particular. It seems somewhat optimistic to think that non-enforceable principles of behaviour which are largely framed around respecting those rules might significantly improve the actual outcomes.

As we’ve argued since our inception in 2003, a responsible multinational taxpayer would seek to demonstrate improved behaviour in an accountable way – and a champion would ideally seek to ensure standardised demonstration of behavioural change across the sector, to ensure accountability of taxpayers, tax policymakers and tax authorities alike. We’ve seen far too many nice words on tax in CSR reports that just don’t accord with any visible reduction in profit shifting.

You’re probably more than familiar with this argument, so apologies for labouring it. It is the reason, however, that responsible tax principles that do not include consistent reporting to ensure effective accountability seem to us an actual step backwards from where the debate has arrived. In the mid-2000s I would have been delighted to see these principles, as potential ‘normalising’ support for eventual disclosure standards. But we have disclosure standards for multiple industries in multiple jurisdictions already. Principles that fall short of that are hard to welcome.

As an investor, I certainly have no disagreement with Alex on the critical importance of transparency. Without meaningful disclosure, there can be no accountability.

But let’s not miss what the B Team Principles represent – a company-drafted set of norms. Some of these norms are already well established, although ignored in practice by many companies. Others establish a formidable challenge to numerous companies that believe it is acceptable to legally utilize tax havens to reduce their effective tax rate.

This group of companies disagrees. Until today, companies could argue it was impractical, imprudent, or even nonsensical, to intentionally miss an opportunity for a tax break. Those arguments must now be weighed against the B Team Principles. If these companies can do it, so can yours. Are the standards not high enough? Let’s work together to raise them.

Alex’s blog promoted Fair Tax Mark. Setting aside whether Fair Tax Mark is the right framework, it has not succeeded in gaining support from large companies. Perhaps more time is needed. Any company signing on to the B Team Principles is perfectly free to endorse the Fair Tax Mark framework as well. I don’t believe there is any conflict between them.

Alex responded:

On the second point you raise, it is fair to say that other standards haven’t gained traction. Only a couple of FTSE100 companies have signed up to the Fair Tax Mark; only a few first rank multinationals to the Responsible 100; and it will be a few months until the Global Reporting Initiative delivers a draft reporting standard. And yet – those principles are out there, and those discussions are ongoing. There are now a good many companies (and investors) involved in these various processes, and the UN PRI positions, as well as all of those that through the EU and EITI processes are subject to one or more forms of mandatory reporting of at least some country-by-country data. To say nothing of political moves afoot in various places in respect of OECD reporting…

Again then, it seems difficult to offer too much of a welcome to principles that fall so far short of where the debate and legislation already are. Perhaps to some extent this is a difference of perspectives between the EU and elsewhere, and the US. Perhaps it’s partly just a ‘glass half full or empty’ difference of view. And perhaps, ultimately, it is just too difficult for major businesses to lead on this – because an individual transparency champion risks being singled out for criticism of what is revealed, rather than necessarily being praised for revealing anything. But then this too seems like a reason for a group of leading businesses to act together; at the least, to call for mandatory publication that would ensure a level playing field.

The B Team Principles include several commitments to greater transparency, but the Principles are not a reporting framework and they do not endorse any framework. The Company Working Group was unable to reach agreement on country-by-country reporting, with several companies offering detailed critiques of the OECD framework during one of our working sessions that, they believe, would create unnecessary confusion if made public, and would not provide the information we’re seeking.

Much to my disappointment, the OECD framework wasn’t designed for public use. It is important to remember that many of us called for CbCR before there was an OECD framework. Our endorsement of CbCR therefore need not be an endorsement of the OECD’s version of CbCR, and we should be open to hearing reasonable critiques from corporate tax professionals. The Principles do endorse the concept of CbCR, but the B Team process was not designed, and did not have time, to develop a fully articulated alternative to the OECD framework.

Alex responded with some hopeful news:

We certainly agree that the OECD framework is imperfect for public reporting, and indeed this has been an important element in the discussions with investors, multinationals and civil society experts that have taken place in the Global Reporting Initiative process to develop a standard for public reporting. When the draft standard is published shortly, we would urge the wider stakeholders from these groups to engage closely – and ultimately to adopt the standard. Vodafone has not only become the first corporate champion to pledge to publish its OECD CBCR data from next year, it has also played a key role in the GRI process. It would be fantastic if their fellow B Team members were among the early adopters. The Tax Justice Network is delighted to see so much progress towards public reporting!

I hope that TJN and other respected tax justice organizations will offer constructive critiques of the B Team Principles while celebrating what has been achieved and urging other companies to sign on. The effort will need your constructive criticism – this will be critical to ensure that the Principles continue to develop, in the right direction.

I strongly encourage critical readers to reach out to the B Team to explain the benefits of the improvements you seek. I hope that FACT Coalition members – some of whom were engaged during the process of drafting the Principles – will take advantage of an open door.

Adam Kanzer is the Managing Director of Corporate Engagement at Domini Impact Investments.  Alex Cobham is the Chief Executive of Tax Justice Network