Why is the Ministry of Finance protecting tax havens?

*A two-year consultation process to prepare legislation intended to prevent tax evasion has ended in the Ministry of Finance proposing legislation to the effect that Norway shall protect the tax havens of the world*.image _Written by Mona Thowsen, sectretary general of PWYP Norway. This opinion piece was published in the Norwegian newspaper Dagens Næringsliv 31.st of October 2013_ "NORWEGIAN VERSION":/nb/hvorfor-beskytter-finansdepartementet-skatteparadiser-0 When the Minister of Finance Sigbjørn Johnsen submitted the national budget proposal to the Storting last week, he was not only carrying a national budget under his arm. He was also lugging along a broken promise. Norway has assisted countries in the South in combating capital flight, such as to enable them to raise tax revenues from their own industries, instead of receiving development aid. The US and EU have adopted minimum transparency standards, requiring companies to report tax payments in each country in which they operate. Unfortunately, the minimum standard is practically worthless because companies only need to disclose isolated figures. This offers companies considerable scope for circumvention. The process in Norway has focused on preparing a regulatory framework without such weaknesses. The key issue is that information concerning tax payments needs to be presented in a meaningful context that makes it possible to verify whether such tax payments are correct. However, when Sigbjørn Johnsen submitted the budget proposal, it turned out that he had made the proposed legislation entirely toothless: *The Act protects tax havens against disclosure:* The Act only requires companies to report from countries in which they are engaged in extraction activities. Consequently, the Ministry of Finance is ignoring tax havens, which enable companies to exclude large sums from taxation. The Ministry is arguing that it is limiting disclosure with regard to jurisdictions in which companies only have various support functions, because such disclose would only to a ”limited extent” contribute to uncovering corruption and realising the main objective of country-by-country reporting. This is a curious line of argument. Reporting of investments, sales income, costs and taxes in tax havens will not to a «limited extent» uncover capital flight, but will be decisive in uncovering capital flight, which is the main purpose of extended country-by-country reporting. *The Act excludes such reporting from the annual financial statement:* The proposed legislation implies that the reporting of accounting figures is excluded from the annual financial statement. Such a solution seems both peculiar and inappropriate, and will make it impossible to check the stated figures, especially when some countries (tax havens) are not included in the reporting. The logical and most effective place for obtaining financial information is of course the audited financial statement of a company. ? *The proposal does not entail country-by-country reporting:* The Ministry of Finance has proposed that companies themselves shall decide whether to break down the report at project level or at country level. Being permitted to report at project level is a boon to companies that operate in several countries and use complex corporate structures to reduce taxable income. The rationale behind country-by-country reporting is to disclose key information per country in which the company is registered, in order to provide access to comparable information. *The Act offers companies leverage and exemptions:* The proposal of the Ministry of Finance is based on the premise that companies themselves can decide whether to invoke exemption provisions that apply if other countries have less stringent requirements than Norway. This eliminates any possibility of getting an overview of multinational extraction companies. *What should the Storting do now?* The solution proposed by PWYP Norway is the cheapest, simplest and least bureaucratic. All we ask is for companies to publish 8 accounting figures in notes to the annual financial statement for each country in which they are registered. This will give us credible figures in a meaningful context. This proposal enjoys the support of the Ministry of Finance’s own working group, as well as that of organisations representing large and important stakeholder groups – investors, the media (the Association of Norwegian Editors), trade union members and various government bodies in Norway. This would give Norway a piece of legislation that could serve as an example to be followed by the EU, which will review its own regulatory framework in 3 years. Sigbjørn Johnsen confirmed that there was nothing to prevent country-by-country reporting from being incorporated in the annual financial statement. The Storting majority can contribute to the introduction of an effective Transparency Act by making two simple moves: *1. Requiring the eight key accounting figures to be included in notes to the annual financial statement:* *2. Ensuring that these figures are reported for all countries, including tax havens*. The new Storting majority will then have taken a large step towards protecting the world against capital flight. This will enable countries in the South to build their welfare, education and growth on the basis of their own tax revenues. It would be surprising for Norway to adopt legislation that protects tax havens.