draining development.pdf - Khazar University

Accounting for the Missing Billions 295cation of a full profit and loss account for each country in which theMNC operates, plus limited cash flow and balance sheet information.Radically, the profit and loss account would break down turnoverbetween turnover involving third parties and turnover involving groupentities. Costs of sale, overhead, and finance costs would have to be brokendown in the same way, while a full tax note would be required foreach country, as is presently necessary for IFRSs.In addition, if the company operates within the extractive industries,one would also expect to see all those benefits paid to the government ofeach country in which the MNC operates broken down across the categoriesof reporting required in the Extractive Industries TransparencyInitiative.As Murphy (2009a, 18) notes, “country-by-country reporting doesnot [stop transfer mispricing]. What it does do is provide data that . . .tax departments . . . can use to assess the likely risk that exists within theaccounts of a multinational corporation. They can do this by• “Assessing the likelihood of risk within the group structure;• “Reviewing the overall allocation of profits to countries within thegroup to see if there is indication of systematic bias towards low-taxjurisdictions;• “Assessing whether the volume and flows of intragroup trading disclosedby country-by-country reporting suggests that this outcome isachieved as a result of mispricing of that trade;• “Using that information to assess where that abuse is most likely tooccur so that an appropriate challenge can be raised.”So far, the International Accounting Standards Board has only indicatedwillingness to consider this issue with regard to the extractiveindustries, and current indications are that, despite the considerable lobbying,there is little prospect of an advance on this issue. The conclusionis inescapable: as one board member said when the issue of country-bycountryreporting was being discussed by the International AccountingStandards Board, “this looks like it deals with the issue of transfer pricing,and we do not want to go there.” 24 The comment is succinct andneatly summarizes the design of current accounting standards, whichseem purpose-made to hide the subject of transfer pricing from view.