Expanded Reporting Needed to Fight Poverty

November 12, 2010 International Tax Cooperation

Tax by definitionThe fight against global poverty could be better supported if financial reporting requirements for multinational corporations were to be greatly expanded, allowing governments to fight tax evasion and collect appropriate amounts of taxes to fund services in developing nations.

On November 10th a new report was released by the international development charity Christian Aid, proposing extensive new reporting standards for any company operating on a multinational level. The report, Shifting Sands: Tax Transparency and Multinational Companies, claims that developing nations need to increase their ability to collect adequate levels of national tax revenues and decrease dependency on international aid, in order to effectively fight poverty.

In order for governments of developing nations to raise a fair amount of revenues, and combat tax evasion through illicit transfer pricing or tax evasion practices, greater levels of information will need to be provided by multinational corporations to local authorities. The report proposes that international companies should be required to disclose information concerning all of their activities across all relevant jurisdictions. The new data would be included in the company’s annual financial statements, and reveal the name of each country in which the company conducts its business; detailed information on the financial performance in each jurisdiction; and a complete list of assets and their value across all of the operating countries. Additionally, any enterprise participating in a mining or resource extraction industry would be required to provide complete information on the associated resource taxes paid in each country.

According to the report, multinational corporations are currently not required to provide such extensive information, and implementing the suggested standards could have far-reaching positive effects. Detailed international trading information would greatly hinder the ability of a corporation to abuse transfer pricing practices due to the boosted levels of transparency. Tax authorities in developing nations could have better grounds upon which to challenge a multinational corporation’s tax arrangements, if they are found to be inappropriate. Also, from a holistic point of view, Christian Aid also claims that the new standards could allow companies to demonstrate their commitment to corporate social responsibility and grant investors greater information for risk assessments.

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