Policy Analysis

FACT Sheet: Business Case for Ending Anonymous Companies

Anonymous companies are behind just about every financial crime.  They are the vehicle of choice for laundering money obtained through illicit activity.  Schemes involving terror financing and the trafficking of drugs, illegal weapons, and humans all use anonymous companies to move money, fund operations, and allow bad actors to escape with the proceeds of their crimes and impunity.

The pervasive use of secret shell companies has also begun to impact the broader economy.  As such, more and more businesses are speaking out.

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Muddled Markets

Investors are at an increasing risk due to the lack of information disclosed by companies about their tax practices, according to this November 2018 report published by the Financial Accountability and Corporate Transparency Coalition (FACT Coalition). Titled “Muddled Markets: Investors Increasingly at Risk from Lack of Disclosures about Corporate Tax Practices,” the report finds that multinational companies have become increasingly reliant on offshore tax avoidance practices to boost short-term earnings in recent years, yet disclosure requirements haven’t kept pace with this changing world.

As governments around the globe struggle with growing budget deficits, tax authorities are increasingly cracking down on aggressive tax avoidance practices, which can have a significant impact on shareholder value. At the same time, shifting national policies around international taxation — including, but not limited to, the recent tax overhaul in the United States — create complexity and uncertainties with respect to returns for investors.

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Briefing Memo: Publicly Traded Companies Should Publicly Report Where They Are Booking Profits and Paying Taxes

As governments around the world begin to crack down on aggressive offshore tax avoidance, numerous companies find themselves in the crosshairs of tax authorities.  Alphabet (Google),3 Amazon,4 Apple,5 Caterpillar,6 Gap,7 Facebook,8 Hewlett-Packard,9 McDonalds,10 Microsoft,11 Shell,12 and Starbucks13 have all faced penalties or are in disputes with tax authorities over their aggressive tax avoidance practices.

The new tax law will do little to change the risk factors.  While Congress eliminated deferral of taxes for profits booked offshore, the new 50% (or greater) discount on the overseas rate creates a powerful new incentive to move money overseas.14

For policymakers, investors, and other stakeholders to better understand how the tax laws operate in practice, there is a need for public country-by-country reporting (CbCR) of certain revenue, profit, tax, and other information for multinational corporations (MNCs).

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