October 28th, 2010
October 28th, 2010
International consensus on almost any policy usually happens step by (excruciating) step. Even reforms that seem obvious in retrospect, like the international laws with respect to bribery and foreign corruption, are initiated by a pioneer (in this case the U.S. in 1977), but take years or even decades for the international community to follow suit. One poignant example is the case of women’s suffrage, which originated in France in the late 1700s, but didn’t take its first big step until the early 1900s, when Australia and Finland granted their citizens universal suffrage. Even with these early pioneers, it took another 50 or so years before voting rights for women were adopted into international law with the United Nations’ Universal Declaration on Human Rights. It’s worthwhile to note that while the overwhelming majority of states have followed suit (some as late as a few years ago), Saudi Arabia still does not extend the right to vote to its women.
Change takes time, even change as morally obvious as human and equal rights. Those of us who feel compelled to move the world forward must come to terms with that fact that change is slow, but yet must simultaneously continue pressing as if the change must happen today. We push a few countries to be pioneers first and then wait for international and universal consensus later. It’s patient persistence.
With regard to country-by-country (CbC) reporting, which is reporting by multinational corporations (MNCs) on a country basis for tax purposes, the change seems obvious. Almost 60% of world trade is intra-group, yet current accounting practices allow MNCs to obscure all of it from view. The result is dishonest profit-shifting that leads to tax evasion on a massive scale worldwide. It is particularly damaging to developing countries. As with any other change, despite how obvious and intuitive it may seem, there is resistance to this change.
It is for these reasons that I was both startled and thrilled to see a recent announcement by the European Commission (EC) that it is launching a public consultation on the introduction of new rules on country-by-country reporting. It seems the recent U.S. law requiring companies listed on the SEC to report on a country-by-country basis in extractive industries (e.g. minerals, oil, or natural gas) inspired the EC to press forward on this front. The U.S. law—an amendment to the Dodd-Frank Act—was a huge step in country-by-country reporting (though I would note that the Hong Kong Stock Exchange enacted a similar set of listing requirements for mineral companies in June of this year, before Congress passed the Dodd-Frank Act). The EC noted in its press release that “the Dodd-Frank Act…requires all extractive companies…listed on US stock-exchanges to publish payments made to governments on a country-by-country basis. Some EU based companies active in the extractive industry are listed in the US and will therefore in the future be subject to this Act.”
But the EC didn’t stop there. The EC is also interested in developing “general country-by-country reporting by multinational corporations…to (a) help investors to better assess the different national activities of multinational companies…and (b) to enhance transparency about capital flows for instance, to better enforce tax rules.”
It is truly exciting to see the Dodd-Frank Act have such an immediate international implications. It seems that—just this once—we might not have to be quite so patient. Then again, we are still a long cry from global country-by-country reporting, so let’s stay on, patiently persistent.