With Robust Reporting Requirements, Australian Public Country-by-Country Reforms Could be a Game Changer in the Global Trend Toward Transparency
Washington, DC – The Financial Accountability and Corporate Transparency (FACT) Coalition commends the Australian Treasury for its commitment to implement public country-by-country reporting (PCbCR) and submitted comments last week encouraging the adoption of PCbCR best practices. FACT encourages the U.S. Securities and Exchange Commission (SEC) to move quickly to also adopt PCbCR best practices to address information asymmetries between multinationals, investors, policymakers, and other users of financial statements.
“This is a major milestone in the making. Australia may soon lead the globe in tax transparency as the first major jurisdiction to mandate comprehensive, public country-by-country reporting requirements,” said Ian Gary, Executive Director of the FACT Coalition, “Compared to Australia’s leading stance and Europe’s moderate progress towards PCbCR, the U.S. is falling far behind on corporate transparency. It is time for Washington to catch up.”
The Australian Treasury welcomed comments on PCBCR as a part of their Multinational Tax Integrity and Tax Transparency consultation. The proposal marks the new Australian Labor Party government’s interest in creating more sustainable revenues and restoring faith in Australia’s tax systems. Aggressive tax avoidance practices by multinational enterprises cost governments globally an estimated $500 billion dollars annually. Australian and foreign multinationals likely shifted an estimated $25 billion (A$35.8 billion) in profits out of the country to low- or no-tax jurisdictions abroad.
The FACT Coalition made three key recommendations for PCbCR in Australia:
- Large multinationals should report information for every jurisdiction of operation. PCbCR is most effective only when it provides a complete and comparable picture of a multinational’s operations.
- Reporting requirements should be expansive. FACT supports Australia in including a definition of reporting entities that would include Australian and foreign headquartered multinationals to better support Australia’s stated goals .
- Reporting should be aligned with global standards through the Global Reporting Initiative (GRI). The GRI’s existing, voluntary standard 207-4 takes into account best tax governance practices and would enable easier comparison with existing voluntary reports.
“Investors, policymakers, and other users of financial statements are looking to Australia to move on long overdue transparency reforms,” said Ryan Gurule, Policy Director for the FACT Coalition, “If Australia adopts comprehensive, inclusive, and standardized reporting, that would be a boon to policy-makers seeking to implement more sustainable global tax standards and investors seeking to make more efficient capital allocation decisions. It would also improve multinational accountability and galvanize other investor-led movements for PCbCR in other jurisdictions.”
In the United States, investors from around the world representing trillions of dollars in assets have turned out repeatedly for legislation that would mandate PCbCR, the Disclosure of Tax Havens and Offshoring Act. In June of 2021, the U.S. House of Representatives heeded calls for action in passing the legislation, but progress has since stalled. The FACT Coalition has urged the Senate to follow suit and pass the bill. The FACT Coalition is also calling on the SEC to use its existing authority under the Securities Exchange Act of 1934 to advance PCbCR for large, U.S. multinational enterprises. Lastly, the FACT Coalition has joined with investors with trillions in assets under management in urging the Financial Accounting Standards Board (FASB) to respond to growing investor interest by incorporating PCbCR in their Generally Accepted Accounting Principles (GAAP) for U.S. enterprises.
As appetite for greater tax transparency has outpaced changes in policies, shareholders have turned to take action themselves. In recent months, investors have filed resolutions encouraging tech giants, like Amazon, Microsoft, and Cisco Systems, to implement PCbCR reporting in line with Global Reporting Initiative (GRI) voluntary standards. Amazon’s efforts to keep the resolution out of its 2022 annual meeting mobilized investors representing $3.6 trillion in assets to write to the Securities and Exchange Commission (SEC) in support of moving the PCbCR vote forward. Ultimately, independent investors representing 21% of Amazon’s outstanding shares voted in support of PCbCR.
Notes to the Editor:
- The FACT Coalition’s recommendations to the Australian Treasury can be found here.
- FACT also supported the submission of PIRC, Europe’s largest independent corporate governance and shareholder advisory consultancy. Their submission can be found here.
- FACT also supported the submission of PRI, a United Nations-supported international network of responsible investors. Their submission can be found here.
- The Australian Treasury’s original Multinational Tax Integrity and Tax Transparency consultation can be found here.
- FACT included its recent report, “A Material Concern: The Investor Case for Public Country-By-Country Tax Reporting,” in its submission to the Australian Treasury. The report highlights where existing reporting requirements fall short and highlights reforms the SEC could take to improve transparency.
- Aggressive tax avoidance practices by multinational enterprises cost governments globally an estimated $500 billion dollars annually. An estimated $25 billion (A$35.8 billion) in otherwise taxable profits were likely shifted out of Australia in 2018. UN estimates of the revenue cost of profit shifting practices can be found here.
- Investors representing $2.9 trillion in assets under management wrote to Congress in support of the Disclosure of Tax Havens and Offshoring Act. Their letter can be found here.
- Separately, investors representing $2.9 trillion in assets under management wrote to the Financial Accounting Standards Board in support of greater public country-by-country reporting requirements. Their letter can be found here.