Tax Notes Discusses Multinationals with Peter Barnes

Countries and companies keep throwing obstacles in the way of the European Commission's plan to require multinational enterprises to make information in their 2017 country-by-country reports public. The EU presidency's recent compromise proposal (2016 WTD 244-21) addresses these obstacles, however, and companies doing business in Europe should ready their CbC stats and explanations not just for tax authorities but for the public as well.

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MNEs: Prepare to Explain Your Numbers

No matter what Europe does or what the OECD standard says about confidentiality, Peter A. Barnes of Caplin & Drysdale in Washington said he recommends that companies prepare to explain their results. "The CbC reports are going to end up in the public domain, whether disclosure is required by law or the reports are simply leaked and aggregated by nongovernmental entities," Barnes said. "Treaty exchange and secrecy provisions will not be sufficient to prevent all leaks, and you only need one leak to make these reports public."

Advocates of public CbC disclosure haven't made a convincing case for why disclosure is useful, Barnes said. "Advocates must believe that publicity will push government examiners to be smarter and tougher than they would be in the absence of publicity," Barnes said. "Or, advocates believe that publicity will cause taxpayers to structure their operations to pay more tax, either voluntarily or because shareholders push the corporations to pay more tax." He said it's unclear to him why either of those ideas would be true, however.

Barnes didn't go so far as to suggest that companies should take the initiative and post their reports on company websites -- at least not until the SEC requires that, which he said may happen in the next few years. However, he said companies should be ready when data become available to reporters, NGOs, and academics to answer questions about country-to-country variations or what appear to be anomalies in those variations. In some cases, a taxpayer may have a lot of activity in a country, but that activity is only distribution with a thin profit margin. In another country, the taxpayer may have fewer people but many intangible assets. In another country, the taxpayer may have large start-up expenses or losses to explain what it pays in taxes. Taxpayers will need to explain those questions to government tax examiners; whether they want to explain (and debate) the issues more broadly is a different question, and one that will be answered differently by each taxpayer, Barnes said.

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Excerpt taken from the article “Multinationals: Ready Your Public Cbc Explanations” by Rita McWilliams for Taxes Notes International.