One in nine US multinationals ‘fail to comply with tax transparency law’
Analysis of more than 600 US multinational corporations has revealed that 12 per cent failed to comply with UK law requiring them to publish their tax strategies. With the UK estimated to lose £25 billion in corporate tax revenue each year due to multinational corporations shifting profits out of the country, campaigners are calling on the UK government to enforce the law fairly and to also make use of a more rigorous transparency legal power that the government acquired in 2016 but has so far shied away from exercising.
The Tax Justice Network has identified 71 US multinationals operating in the UK and handling hundreds of millions of pounds each year for which public tax disclosures could not be found. These companies included Hewlett Packard Enterprise, Wayfair, UPS, Clorox and Delta Airlines. Altogether, the 71 non compliant US multinationals had a UK revenue of over £10.4 billion in 2017.
Among the US multinationals that did comply with the law, the average length of all published tax disclosures was 621 words – just a little over a third the length of a Nando’s menu.
The study also found that the tax disclosures published by the US multinationals on average were at least 30 per cent identical to tax disclosures published by other multinationals. The tax disclosures published by NIKE Inc and Alphabet Inc, Google’s parent company, were 86 per cent identical. Despite the major differences between the two companies and their industries, the only significant differences in their tax disclosures were the names of the companies and their subsidiaries. Other well-known brands with a high similarity rate included Gap Inc (85 per cent), Harley-Davidson Inc (80 per cent) and Goodyear Tire and Rubber Co (71 per cent).
The Finance Act 2016 requires all UK based companies that have either £2 billion in total assets or £200 million in revenue to publicly disclose their tax strategies. This duty also applies to UK companies that are part of a multinational group with a global revenue of €750 million. The reports’ findings suggest that given the opportunity to self-report on their tax strategies, more than a third of US multinationals either ignored their legal responsibility or published brief declarations that were possibly copied from other companies’ tax disclosures or generically written by a hired accounting firm.
The Finance Act 2016 also gives the UK government the power to require US multinationals to publish data on their profits and other economic activity broken down for each country they operate in – an approach developed by the Tax Justice Network and subsequently adopted by the OECD, known as country by country reporting. The UK government has yet to exercise the power despite research saying county by country reporting can prevent an estimated £2.5 billion in tax from being dodged in the UK each year.
Alex Cobham, chief executive at the Tax Justice Network, said: “Let this be the end of the big four accounting firms’ stories about the ‘responsible tax behaviour’ of their clients. Given the opportunity to be open and honest with the public about their tax strategies, one in nine US multinationals chose to ignore the law while at least as many published copy and pasted declarations.”
“The UK government can no longer sit on its hands while it has the legal power to prevent multinationals from shifting profit out of the country to the tune of £25 billion in lost corporate tax each year. Research shows that requiring companies to publish a country by country breakdown of their activity, profits and taxes helps prevent profit shifting – but US multinationals’ tax disclosures have shown that many of them won’t come clean on their own, and the UK government seems to have done nothing to enforce its own laws.”
