The Beginning of the End of Tax Secrecy

As social pressures on companies build, Shell has voluntarily published the taxes it pays in each country

By Rochelle Toplensky

While President Trump has battled to keep his tax returns private, global companies are deciding to go public with the taxes they pay—or don’t pay—before they are forced.

This week, Royal Dutch Shellvoluntarily published its revenue, profit, taxes and other business details in each of 98 countries. The disclosure aligns with a drive by the energy company, which often attracts criticism from environmental activists, to present itself as forward-thinking, transparent and socially-minded.

That didn’t stop the information feeding a predictable host of headlines in the U.K., where the company is partly based, that it didn’t pay taxes in the country (because of losses carried forward and tax refunds). In the U.S., Shell accrued $137 million of tax—a rate of 8%.

This kind of detailed reporting is required by tax authorities in about 100 countries including the U.S. since 2017, based on rules agreed by the Organisation for Economic Cooperation and Development, but it is rarely made public. Shell is hoping to entice others to follow its lead. Mobile-phone company Vodafonepublished similar information earlier in the year.

Companies that don’t jump may soon be pushed. Economy ministers from European Union countries are considering a proposal that would require all large companies with total revenue of more than €750 million ($834 million) operating in the bloc to publish the information annually. The Global Reporting Initiative, an organization that establishes sustainability standards, recently agreed to include a similar requirement.

The information may prove useful to investors in helping them understand companies better. Warnings that the public disclosure could give rivals insight into a company’s competitive advantages are likely overdone—unless a firm’s skill is avoiding tax. It is true that the information may be too complex for some media and civil groups to properly understand, but that doesn’t prevent a lot of other very complex disclosure.

Greater transparency could also spur reform efforts and reduce incentives for complex tax arrangements. Investors should probably brace for higher tax rates as pressure builds for companies to follow Shell’s example. The EU has required all large EU-headquartered banks and extractive industries, such as mining companies, to publish some country-by-country information publicly since 2014. An academic study of the European banking sector concluded that banks with activities in tax havens paid a higher effective tax rate after the reporting requirements came into force.

Companies, investors and states all agree that it is best to find a global solution to the problem of aggressive tax planning. The OECD is focused on reforming the rules that allocate corporate taxing rights to countries to try to better incorporate digital earnings and assets. Nearly 140 countries are involved.

Progress has been slow as the overhaul could change states’ tax revenue and their ability to attract investment. Hopes had been high for an agreement next year, but there are indications that the U.S. may be getting cold feet.

Corporate tax reform at a global level is no sure thing, but it says something that some companies want to get ahead of the transparency trend.

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