FACT coalition calls for greater tax disclosure ‘to protect investors’

13 Sep 16

The US Securities and Exchange Commission should require greater tax disclosure from multinational companies in order to protect investors as well as the public, according to the Financial Accountability and Corporate Transparency Coalition.

A series of high profile revelations have led to increasing calls for tax justice among the public. But the report, published yesterday, highlighted that investors are also becoming increasingly concerned by companies’ aggressive international tax schemes.

The FACT Coalition represents a network of government, civil society and business organisations calling for an end to harmful tax practices.

In the report, the coalition said that many investors “have begun to openly question” whether the practice of stating that profits have been “permanently reinvested” abroad is beneficial to investors or to the company. This technique is employed by many US companies to avoid US taxes, it claimed.

For example, these billion dollar reinvestments are often parked in extremely low-yield investments, where they sit unproductively, achieving very little return.

As governments start to crack down on companies’ tax schemes, investors are also increasingly vulnerable to financial risks, the report said, but are not given enough information to identify these when putting money into a company.

It highlighted that analysts from institutions like Goldman Sachs are urging clients to avoid firms with high foreign sales and low tax rates, presumably because of the risks associated with aggressive corporate tax practices overseas.

“This report demonstrates that hiding money offshore even harms the very people who invest in these companies,” said Eric LeCompte, a member of FACT’s executive committee. “Financial transparency is also essential to protect the most vulnerable. The SEC should adopt country-by-country reporting as soon as possible.”

Country-by-country reporting is a key standard that tax justice advocates have long been campaigning for and that was recommended by the OECD in its plan to overhaul the international corporate tax system finalised last year.

It would see companies obliged to supply detailed information on their operations in every country in which they have a presence, making efforts to avoid tax by exploiting international loopholes easier to spot.

The report also called on the SEC to make a number of other changes to the information it requires companies to disclose, such as providing an explanation as to why it is charged a lower than statutory rate whenever this is the case. Also, it recommended that tax incentives or benefits provided by foreign jurisdictions should be disclosed.  

Many investors and multinational firms worldwide will have been spooked by the European Commission’s recent judgement against Apple, which retroactively ruled that two decades’ worth of tax benefits guaranteed to Apple by the Irish government were illegal state aid and should be repaid. 

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