The piece about Vince Cable supporting the idea of country-by-country reporting in The Telegraph was curious. In it, Cable basically suggested that Starbucks hadn’t done anything wrong by saying that they’d got “a good story” and are one of “those companies have been traduced in a very unfair way”.
I understand that it’s an attempt at warming business to the idea by suggesting it’s good for them. But it just doesn’t follow. I think that country-by-country reporting would not have helped Starbucks at all.
The key to the story was that the UK accounts (but not actually the profits as adjusted for tax purposes) appeared to be at odds with the group position as stated under US GAAP. Now, I presume that country-by-country reporting would still be under US GAAP for Starbucks as a group because it is US-based.
If it wouldn’t be, does it mean we would have a third set of standards to refer to?
Would it make any difference if research had established the UK company’s “profitability” under US GAAP from the group accounts rather than transcripts of investor calls? I don’t think so.
But once that profitability was established, the researchers then looked at the accounts for the single trading entity in the UK and concluded that the UK accounts were a lie for tax avoidance purposes.
It looks like they didn’t bother looking any further. They found what they were looking for: a story.
And that story shows that it has been easy enough to misunderstand, or perhaps misrepresent, figures from the accounts for a single company in a single country.
So why do we think churning out more data is the answer? With more differences between different countries’ accounting principles and tax rules, will this information help people understand the situation better?
I doubt it. As does Dave Hartnett, it appears. He has this to say in an interview with Tax Journal:
‘But I have misgivings about country by country reporting if the aim of those seeking it is to compare tax paid in one country by a multi-national with what it pays in another. Such crude comparison is of very little value unless the reader has a good understanding of the different tax incentives available in each country and other features of each tax system.’
To my mind, country-by-country reporting appears to add another layer of interpretation on top of the group’s position. It just sounds like a bureaucratic scheme designed to produce more information.
I’ve no real interest or concern over it, in itself. But linking the rationale to companies being able to defend themselves against tax avoidance claims just seems odd to me.
With the information it would provide, you still wouldn’t know what’s going on for tax purposes. For that you still need to see the details of the tax computations and tax return.
Or you’d need to infer what is on them. Which is what failed to happen in the Starbucks story. The people writing the story just assumed this is what they wanted it to be, a case of tax avoidance.
Rather than being an argument in favour of it, I think the Starbucks story shows the inherent concern over country-by-country reporting.
“Information is not knowledge”