As our Tax Justice campaign goes from strength to strength, the UK Government has agreed that country by country reporting is vital for developing countries to hold foreign tax dodging companies to account. ActionAid UK's Policy Team investigates Europe's progress.
The European Commission is running into criticism from NGOs, including ActionAid, for awarding the job of assessing the impact of country-by-country tax reporting by banks to the accounting firm Pricewaterhouse Coopers (PwC), which has declared in public that it opposes this kind of reporting.
This issue matters because citizens in developed and developing countries alike won’t trust the international tax system without a much clearer sense of where multinational companies are making their profits and paying their taxes, and how much tax they are paying.
The European Union has already decided that banks must report their turnover, profits and taxes by country. The assessment is meant to decide whether these reports should be made public or not. Since PwC has made clear that it thinks they shouldn’t be, the firm is clearly an inappropriate choice to carry out the assessment and should withdraw at once.
As it happens, Barclays Bank has voluntarily released such a report this week, saying that it wants to engage with its stakeholders “on an informed basis”. The report is significant because, whatever PWC may think, a very large European bank has shown that it not only can publish this information but evidently thinks it’s a good idea to do so.
Barclays’ new report shows big profits in tax havens
What Barclays has published is a breakdown by country of its turnover, pre-tax profits and taxes paid in 2013, plus the number of people it employs in each country. The report underlines the point that transparency is essential to understanding big companies’ tax arrangements, provided the right kinds of information are published. But it also shows why more disclosure can only be a first step towards addressing problems which have brought the global tax system into disrepute.
Among other things, the figures show that in 2013, Barclays reported 27% of its worldwide pre-tax profit in tax havens, almost all of it in Luxembourg and Jersey. The corporate income taxes which the bank paid in these places would only amount to 2.2 per cent of this profit (see important footnote below). By way of comparison, the headline rate of corporate tax in the UK is 21%.
We aren’t drawing any conclusions here as to what these figures might say about Barclays’ tax arrangements: there are a number of possible explanations for them, none of which would imply any wrongdoing by the bank. What the figures clearly do, however, is to give detail and specificity to the general point that tax havens are very important to the profitability of big banks. That’s why the evaluation of the pros and cons of publishing such reports can’t be left to those who oppose the very idea.
Transparency and beyond
But the figures also underline the point that transparency often poses questions rather than answering them. Should a bank be able to book more than a billion pounds in pre-tax profit in a jurisdiction where it only employs fourteen people, like Barclays does in Luxembourg? And if not, then what should be done about it? The answer to that question takes us beyond transparency and into a much deeper debate about the large and often harmful effects that one country’s tax rules can have on others.
Important footnote: Barclays reported pre-tax profits totalling £2,464 billion for Luxembourg, Jersey, Switzerland, the Isle of Man, Monaco, Mauritius and Guernsey in 2013 and paid total corporation taxes of £53 million in these jurisdictions. Total pre-tax profits reported by country, before deduction of intra-group eliminations, dividends, recharges, asset transfers, hedging and other items, were £9.081 billion. Barclays points out that taxes are often paid over multiple years, so there may not be an exact equivalence between the pre-tax profits reported in a given year and the amount of tax actually paid in that year.