Beneficial openness? Weighing the costs and benefits of financial transparency
Public financial transparency is increasingly advocated as a solution to concerns over legal tax planning by multinational corporations, and illegal tax evasion, fraud and money laundering. In particular there are calls for mandatory publication of beneficial ownership (the ultimate owners of companies and trusts), and country-by-country reports by multinational corporations (detailing revenues, assets, employment, profits and taxes paid in each jurisdiction). Other proposals include publication of tax rulings and profit and loss accounts for all companies. The broad case is made that the problems are huge, and that public transparency is the only solution. However, the author of this Insight argues that caution is warranted since the scale of revenues at stake are in fact smaller than is often perceived, while experience suggests that data transparency is not a simple route to accountability.
For complex problems to gain political and public momentum, it is helpful to be able to point to simple, clear solutions. Public registers of beneficial ownership and country-by-country reporting have played this role for the issues of illicit financial flows and profit shifting. But, there is a danger both for governments and civil society that iconic transparency measures provide ‘form’ rather than the ‘function’ in seeking to solve these problems. Ultimately, the aim should be to iterate towards mechanisms that enable more responsive public institutions, trusted legal systems, more effective markets and a stronger social contract between governments and their people.