Eleven years ago, the U.K. Labour Party issued a controversial proposal: Large multinationals should publicly report their profits and taxes in the countries where they do business.
It was a proposal meant to spark thinking and provoke discussion — at the time, Labour was the minority party and then-Prime Minister David Cameron, a Conservative, wasn’t interested in mandatory public country-by-country reporting. Despite Cameron’s disinterest, the conversation didn’t go away.
In 2016, U.K. lawmakers settled on a compromise as they negotiated that year’s finance bill: The finance bill wouldn’t mandate public CbC reporting, but HM Treasury could implement it whenever it liked.
The concept of public CbC reporting was fresh then, and its application seemed hypothetical. Increased transparency seemed viable, but the business community feared the information could be misinterpreted by the public or create competitive disadvantages. Because of that, the U.K. government said it supported transparency, but that it didn’t want to be a first mover on public reporting. It wanted the world to move multilaterally. And when the world did move on public CbC reporting, the U.K. government envisioned an expansive version that would require companies to publish data for all the countries in which they did business rather than aggregate the data.
Ever since U.K. lawmakers settled on that compromise, HM Treasury has remained quiet on public CbC reporting. Meanwhile, other countries and jurisdictions have taken the lead — chiefly the EU and Australia, which have legislatively approved CbC reporting. Now that Labour is in charge of the U.K. government, the question is whether the party might reignite this domestic public CbC reporting conversation, especially because the country no longer has to worry about being a first mover. And one of the core interests expressed by the U.K. years ago — multilateral coordination and standardization on public CbC reporting — hasn’t yet been achieved, which could provide an opportunity to advance that objective.
Tax Strategy Reporting
The United Kingdom already has a light form of public tax reporting whereby the largest companies operating in there are required to publish a U.K. tax strategy online. In that document, large businesses must explain how they manage their U.K. tax risks, their business attitude toward tax planning, and their appetite for risk. They’re also expected to explain how they interact with HM Revenue & Customs, among other matters.
However, they’re not expected to disclose the amount of taxes or duties they paid or commercially sensitive information.
It’s not a toothless requirement, at least not as written. Companies that fail to publish a tax strategy or do it incompletely could face at least £7,500 in penalties. In reality, few if any penalties are assessed, according to accounting firm RSM U.K. That’s because HMRC gives companies a 30-day warning period to comply with their publishing obligations before it issues a penalty.
In some ways, this tax strategy reporting requirement was the government’s way of responding to the corporate tax avoidance debate. But are these reports really doing anything? RSM U.K. views them as an administrative burden rather than an illuminating view into companies’ tax practices because the reporting requirements can be interpreted narrowly or expansively. In practice, it appears that companies are choosing to interpret their obligations quite narrowly, so tax strategy disclosures often amount to boilerplate language.
First Flint Attempts
The U.K. government implemented the tax strategy requirement through its Finance Act 2016. However, as lawmakers negotiated that year’s finance legislation, some believed the government needed stronger transparency legislation. In that year’s negotiations, then-Labour MP Caroline Flint tabled an ambitious proposal before the House of Commons. In March 2016, she introduced a so-called 10-minute-rule bill that would require large companies to include in their annual financial reports information from CbC reports prepared under the OECD’s action 13 standard.
Flint’s measure, the Multinational Enterprises (Financial Transparency) Bill, essentially challenged the government to act on the assurances it gave to the rest of the world. In a short speech before Parliament, Flint pointed out that then-Chancellor of the Exchequer George Osborne supported public CbC reporting and had encouraged his fellow EU finance ministers to adopt it in a multilateral fashion.
Given that support, Flint thought: Why not now? However, her measure failed to advance within the House of Commons. In response, Flint tried another tactic. As lawmakers negotiated the Finance Bill 2016, Flint introduced an amendment that would require multinationals to publish their CbC reports within their tax strategy reports. The House of Commons rejected that amendment on a close vote of 295 to 273.
David Gauke, then the financial secretary to the Treasury, believed the time was not yet ripe to adopt public CbC reporting and that the government should implement it in tandem with other countries so that both U.K. and foreign companies would face the same requirements at the same time. If the United Kingdom moved first, U.K. companies could find themselves at a “competitive disadvantage,” he said.
“I do not think that the U.K. should be the last mover in this respect by any means,” Gauke added. “The United States seems to be some way away from moving in this direction, and I do not think that we should wait for the United States; I think we should be there before it. We should be able to deliver, especially given that such good progress is being made at the European Union level. We remain members of the European Union, and there is appetite for this in other EU states.”
Another Flint Attempt
Undeterred, Flint reintroduced the proposal in September 2016 using a different approach. Lawmakers were finalizing the Finance Bill 2016, and Flint introduced amendment 145 to schedule 19 of the measure. According to Flint, her amendment sought to “enshrine in law support for the principle of public country-by-country reporting with the power for the Government to introduce when the time is most appropriate.”
The government said it was fine with the amendment, agreeing that it followed the spirit of Osborne’s words. And again, the government emphasized that the United Kingdom should use its momentum to advocate for multilateral CbC reporting.
Part of Gauke’s prediction came true, as the EU now has public CbC reporting. The United Kingdom, however, has not reopened the discussion — at least not seriously — in the eight years since its Finance Bill 2016 negotiations.
Changed Times
Meanwhile, the public CbC reporting landscape — and conversation — has changed since 2016. First, Flint suggested multinationals publicly release their CbC reports. The ensuing years have demonstrated that that isn’t a viable approach. When Australia originally envisioned its public CbC reporting scheme, it said that most of the information to be released would already be reported under multinationals’ existing CbC reports. However, it reversed course after commentators pointed out that the business community agreed to the OECD’s CbC reporting framework because international stakeholders assured them the reports would be shared only with tax authorities and would remain confidential. (Prior coverage: Tax Notes Int’l, July 17, 2023, p. 302.)
Publicly releasing CbC reports would violate the understanding that businesses and tax administrations brokered when they created the OECD’s CbC reporting framework.
Second, the broad, multilateral reporting partnership that the United Kingdom sought has only partially materialized in the sense that the EU now has public CbC reporting — an idea the United Kingdom championed. However, U.K. lawmakers thought that an even larger multilateral collaboration could work.
“I think we all agree that the ideal situation would be multinational and multilateral —preferably an OECD or a G20 requirement — so that most of the developed world was doing it. If we cannot have that, we would like the EU to do it,” then-Treasury Minister Jane Ellison said during the 2016 discussions. There’s been no mandate issued by the OECD or G20, but there has been increasing recognition that some sort of standardization might be ideal. That’s because there now are several different public CbC reporting rules across EU jurisdictions and Australia, and businesses are concerned about their reporting burdens.
Third, the U.K. government wanted a public CbC reporting law that’s broader than that of any other jurisdiction. In initial talks with the EU, the U.K. officials argued that there was a valid case for requiring multinationals to publish CbC information for their EU and non-EU operations. Doing so would enable the public to have a broader picture of a multinational’s activities and tax practices, they said.
However, EU countries disagreed and argued only for disclosures for EU countries and countries listed on the bloc’s compilation of noncooperative jurisdictions. That led Ellison to recommend that the U.K. government front the effort for international public CbC reporting, so it could have a better chance of getting its vision implemented.
Labour’s Other Promises
In the years since Flint’s amendment, the Labour Party has briefly mentioned public CbC reporting. Anneliese Dodds, a Labour shadow minister, said in 2018 that her party supported the measure. In a 2019 tax program, the party said it would advance public CbC reporting multilaterally. However, those vows have remained just that — vows — because the government has never acted on Flint’s public CbC reporting amendment.
Even if it wanted to act on the amendment, one major thing would have to be reckoned with. It’s now clear that a suggestion for multinationals to release the CbC reports they privately share with tax authorities will receive considerable resistance.
In some respects, the United Kingdom got its wish — it’s not a first mover on public CbC reporting. There’s also time for the country to fulfill its other wish of showing international leadership on public CbC reporting. There is no broad, international standardization on public reporting, meaning that the United Kingdom could be the first to seriously advance this conversation. And it’s an important conversation to be had — as Australia developed its public CbC reporting regime, some stakeholders made clear that they wanted some sort of standardization. (Prior analysis: Tax Notes Int’l, Apr. 8, 2024, p. 249.) Also, neither the EU nor Australia public CbC reporting regimes mandate worldwide reporting. There too, the United Kingdom could be the first to show how it’s done, if the Labour Party has the appetite.
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