In July the OECD published aggregated corporate tax data for the first time. This sheds a small amount of light on the still obscure workings of the international system for taxing multinational corporations. In the absence of transparency stipulations for corporate bookkeeping, however, it is still difficult for outsiders to grasp the tax strategies of major companies and to draw attention to profit shifting and other tax avoidance activities. The country-by-country reporting (CbCR) between national tax authorities introduced in many countries since 2016 – including in Switzerland since 2017 – is of little help in this regard.
The CbCR for tax authorities was just one small step in the direction of greater transparency in the worldwide system for taxing multinational corporations. This is so, first, because it is precisely those countries in the global South feeling the worst impacts of corporate tax avoidance that are unable to take advantage of this instrument. They are excluded from this information exchange as they do not (cannot) meet the relevant criteria. Second, tax authorities disagree as to whether this limited sharing of data from corporate bookkeeping really supplies enough information to allow for a proper understanding of profit shifting between different units of the same company in different countries. And even when the authorities are capable of tackling it, many places lack the requisite legal basis for doing so. Third, this system is devoid of democratic checks and balances: public institutions concerned with economic policy often find themselves caught between promoting a location and sanctioning unfair practices by companies. This is yet another reason why CbCR data should be made public, as that would enable journalists, academics, NGOs, activists and politicians to understand the corporate activities concerned. It would allow them to hold corporations accountable without being dependent on the authorities.
All this notwithstanding, the OECD corporate tax revenue data first published in July 2020 for the countries participating in the information exchange do provide an additional measure of transparency. Although these data come from the very first reporting year (2016) and encompass only 26 countries and 4000 enterprises, they do make clear once again that the Swiss tax authority is among the big winners in the dysfunctional worldwide tax system that allows multinational enterprises not to pay tax on their profits where they are generated but instead in jurisdictions where they are taxed at the lowest rate – including in Switzerland’s low-tax cantons. At the same time, the situation regarding information on the tax practices of local companies is much worse in this country than in EU low-tax jurisdictions such as Ireland, the Netherlands or Luxembourg. The reason is that in Switzerland, financial reporting obligations require even less transparency from enterprises regarding internal financial flows than is the case in the EU, for example. This makes it all the more urgent to introduce greater tax transparency for corporations in Switzerland.
Switzerland is well-known for its willingness to make progress in tax matters only when outside pressure is brought to bear. It is difficult at this time to say whether there will be any near-term changes in that regard. In November 2019, a proposal by the EU Commission and Parliament for public CbCR was defeated in the EU Council of Ministers in Brussels because of the abstention of the German Finance Minister. His name is Olaf Scholz, he is a Social Democrat and SPD Chancellor candidate for 2021. Without Germany’s support, no public CbCR will succeed in Brussels in the next few years either.
It is noteworthy that greater tax justice in and by Switzerland not only serves the interests of the general public in the countries being short-changed, but is also meaningful in domestic policy terms: the publication of CbCR data would make it easier to understand the tax optimisation practices of corporations, which play off not just countries, but also Swiss cantons against one another.