The financial crisis has generated demands for greater transparency in international taxation, pushing tax avoidance up the political agenda. In the hunt for a solution, country-by-country reporting is being mooted as part of the new financial infrastructure to be constructed in the wake of the crisis. Some think of it as a means to bring about ‘tax justice’ and better government for developing countries; some expect it to tackle tax avoidance; others expect it to improve investor relations.
In an effort to shed more light on this complex and politically charged issue, the ICAEW hosted a breakfast event yesterday, bringing together a senior Treasury adviser with the IASB, tax justice campaigners, accountants, auditors and institutional investors.
Our contributors spelled out the complexities of implementing country-by-country reporting. First there is the sheer complexity of producing accurate data; the cost of audit could spiral. It’s not yet clear exactly which taxes and other benefit streams should be reported. Some governments in the developing world may not even want some of this information made public – confidentiality might be breached, to the detriment of nation states and companies.
There is also the the question of whether new accounting standards can really solve the problem of tax avoidance. As one contributor suggested, these are two separate issues, and tax avoidance needs to be tackled with more than just a new IAS.
In the face of this uncertainty, it is heartening that the Treasury is consulting with the City and other major stakeholders before any binding decisions are taken. Those with an interest in these issues should seize opportunities such as this morning’s event, or the IASB’s current consultation on country-by-country reporting in the extractive industries, to ensure that those decisions are as well-informed as they can be.