No more the sour apples!

Apple products can be found in the remotest areas of the world. The logo on this boys' cap however, is a fake.
Article as analysis
The Apple tax avoidance scandal and the Federal Council's draft Law on Country-by-Country Reporting show that there is no way around publicly accessible corporate reporting by multinational corporations.

Corporate profit shifting to tax havens by multinationals is wreaking havoc in the global South. To maximize returns from commodities mined in Africa and from the sale of their products, corporations shift earnings from their subsidiaries in the global South to their branches or business offices in low-tax areas. In this way they pay just a fraction of the taxes for which they would normally be liable in the countries where most of their business activities in fact take place. This is done through what is known as transfer pricing manipulation: when two subsidiaries in a corporation sell goods or services to each another, the group's management must set the prices, which should really reflect fair market value. Where market prices are not taken as a reference, corporate managers often arbitrarily set exorbitant transfer prices, in this way shifting profits from a "high-tax country" to a low-tax area.

OECD countries keen to keep it among themselves

The latest example of such corporate tax avoidance came recently from Apple (see below). With a view to halting such tax evasion, the international tax justice movement has been militating since 2002 for the introduction of Public Country-By-Country Reporting (CbCR) for multinational corporations. This could be instrumental in the future in unmasking corporate tax avoidance constructs like the one involved in the current case of Apple. Introducing CbCR at the international level is, after all, one of the cornerstones of the project unveiled by the OECD a year ago to combat tax avoidance by multinationals, called Base Erosion and Profit Shifting (BEPS). The problem is that OECD countries do not favour public country-by-country reporting but instead wish to limit BEPS to automatic exchange of information between tax authorities. Developing countries will not be able to benefit under this scheme, even though the International Monetary Fund estimated in 2014  that profit shifting by corporations is costing the global South over USD 200 billion in lost tax revenue every year.

Federal Council not assuming its responsibility

As a tax haven for multinational corporations, Switzerland is as much loved as Ireland, whose special tax regime was being exploited by Apple. But apparently the Federal Council has not yet understood the special responsibility that consequently falls to Switzerland in building a sustainable global tax system. The draft of the Swiss Federal Act on the International Automatic Exchange of Country-by-Country Reports of Multinationals (the “ALBA-Gesetz”), which was tabled in the spring and designed to implement the OECD guidelines in Switzerland, still lags far behind the standards suggested by the OECD. Hence, the threshold of a CHF 900-million turnover set by the Federal Council as the trigger point for the submission of country-by-country reports does indeed roughly match the OECD level, but releases "small corporations" from the duty of submitting country-by-country reports to the federal tax administration. Yet it is precisely the taxes payable by small multinationals that are so crucially important to developing countries. Because the tax base of poor countries is a fraction of that of Switzerland, the threshold in this instance should be about 15 times lower, so as to effectively limit the harm to tax authorities in developing countries. Furthermore, the Federal Council is reluctant to request master and local files from multinational corporations active in Switzerland. This means that while it does meet the absolute minimum OECD requirements, it is also considerably reducing the informative value of transfer pricing documentation from multinational corporations with head offices in Switzerland. Even if Switzerland were to share information with the tax authorities of individual developing countries, those authorities would still lack the necessary overview of the specific transfer pricing risks associated with the Swiss corporation operating a subsidiary in their country.

Reciprocity at the expense of developing countries

The Federal Council wants to decide on a case-by-case basis whether Switzerland will automatically exchange country-by-country reports with countries that have signed the OECD's multilateral ALBA agreement. If in so doing the Federal Council will be guided by the Automatic Exchange of Information (AEOI) regarding bank customer data, to be introduced in 2018, most developing countries could come out losing under ALBA – quite probably including Senegal or Nigeria, which have already signed the multilateral ALBA Agreement. This makes it all the more crucial for Parliament – which is expected to discuss the matter in the winter session – to support the multilateral implementation of the ALBA Agreement by Switzerland. This would mean that all 30 countries currently participating in the ALBA Agreement would automatically receive company information from Switzerland. But even so, the job would still not be complete. Civil society forces advocating for tax justice worldwide will only be sustainably strengthened when Switzerland requires corporations with head offices in this country to disclose their country-by-country reports fully. Switzerland would not be alone in making such a move, as Britain's Conservative Government recently announced the introduction of public country-by-country reporting. This is already a reality for financial service providers across the EU.