PwC scandal should remind Albanese to stay strong on multinational tax secrecy

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It was a breath of fresh air to hear Anthony Albanese, when sworn in as prime minister, commit to tackling inequality. There was a palpable shift in one of America’s closest allies. It brought hope to everyone pushing for a new economic paradigm.

Reversing the enormous growth of inequality of recent decades is one of the great challenges of our time. It won’t happen if corporations don’t pay their fair share of taxes, and today, by and large, they don’t.

Prime Minister Anthony Albanese with Nobel laureate Joseph Stiglitz in July 2022.Credit: Twitter

Australia is a wonderful place to do business, with good infrastructure, a well-trained labour force and a well-functioning government that effectively implements a rule of law. All this requires money. Yet some of the richest companies seem unabashedly willing to accept these benefits without reciprocating by providing their share of the costs.

Multinationals are particularly successful in tax avoidance. We all know the tricks these global giants play, setting up complex structures to ensure profits are declared in tax havens rather than where the real economic activity occurs. Governments lose hundreds of billions of dollars in tax revenue every year. This undermines local business, forces increases in taxes paid by ordinary citizens, and siphons revenue that’s crucial for a well-functioning society, even for services on which their profitability depends. A crucial step in addressing tax avoidance is to strip away the secrecy that shields this activity from public scrutiny.

This is why the Independent Commission for Reform of International Corporate Taxation (ICRICT), the international body of eminent experts that I co-chair with economist Jayati Ghosh, demands that states require multinational corporations to file country-by-country reports and to make this information public.

The PwC scandal should serve as a reminder to the government that big businesses often help each other to avoid tax.Credit: Martin Ollman

A country-by-country report is a simple spreadsheet mapping out a multinational’s activity everywhere that it operates, its employment, revenues, profits (or losses) and taxes paid. This information, if made public, would allow all – governments, citizens, workers, academics, investors, and journalists – to assess a corporation’s tax practices. This would allow for an informed say in tax policy and efforts to reduce inequality.

The Global Reporting Initiative (GRI) has developed a tax standard, including public country-by-country reporting, that is regarded as the gold standard. It is supported by large global corporations and some of the world’s biggest investors. While many companies have adopted this standard, it remains voluntary.

Many corporations, and especially the tax dodgers, do not disclose this information, which means no one can assess whether a corporation is a tax avoider. Because the information is already collected by virtually all corporations, the costs of requiring such disclosure is minimal. Not surprisingly, there is opposition – mainly from the tax avoiders whose nefarious ways would be exposed.

It was heartening to hear the Australian government commit, through draft legislation, to make all large corporations operating in Australia publish an annual report using the GRI template. This was an important step in putting Albanese’s rhetoric about inequality and transparency into action.

This single act would remove one of the most important barriers to tackling corporate tax avoidance in Australia and globally, while not raising the tax rate.

So it was surprising that the Australian government appears to have succumbed to the lobbying of global corporations like Meta, whose tax avoidance activities are legion, and, most disturbingly, the OECD, headed by former Liberal finance minister Mathias Cormann, which was supposed to be committed to reducing tax avoidance. Despite the election commitment to pass this legislation by July 2023, the government announced a delay to “consult with stakeholders”. This is despite two previous public consultations.

This creates significant potential for watering down the transparency requirements to please corporate tax dodgers and keep the public in the dark.

Corporations argue that releasing this information will compromise business secrets. With Australia’s PwC tax scandal, we know what that really means. European banks have been required to publish country-by-country reports for nearly a decade with no apparent competitive disadvantage.

The OECD itself has failed to specify what valuable secrets – other than how to avoid taxes – would be revealed. But it has implied that making this data public will risk access to current confidential exchanges of information. Yet it has provided no hard evidence, theory or empirics that that is so. Recent Financial Times reporting shows these arguments are promoted by foreign business interests, including Swiss-based multinationals, the Bank of China and none other than PwC Australia.

Many argue that Australia should adopt the recently passed European standard for firms that are not banks. While a step forward, it fails where it matters most – there is no country-by-country reporting outside the European Union. The rest of the world – including the US, China and tax havens like Singapore and Switzerland – are treated as one lump. Adopting the EU model would mean the Albanese government is giving in to large foreign corporate tax dodgers and failing to shine a bright light on rampant multinational profit shifting. Secrecy must be attacked globally – offshore and onshore. There should be no place to hide. And one can only assess whether corporations are hiding with full country-by-country reporting.

Australia still has the chance to end the secrecy surrounding multinational profit shifting and set a new standard for others to follow. Anything less than the GRI standard, already released in draft legislation, will be a victory for the tax avoiders.

Professor Joseph Stiglitz is a Nobel Prize-winning former chief economist of the World Bank. He is also co-chair of the Independent Commission for Reform of International Corporate Taxation.

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