As reported by Richard Murphy, the IASB has issued the convergence standard on segment reporting IFRS8. Richard notes from the press release that:
The Board will continue to examine the merits for a requirement of country-by-country disclosure as suggested by supporters of the Publish What You Pay campaign. A group of Board members will discuss this issue with other interested organisations.
- There is no mention of when any discussion goes on the agenda.
- Who are ‘other interested organisations?’
- How can this be reasonably included given the accumulated background to the standard.
My sense is that getting country-by-country disclosure is far from a done deal.
During the discussion phase, a series of potential scenarios were discussed that would obfuscate ownership and in earlier discussions, this particular disclosure requirement was rejected. The commercial argument put forward during discussions:
Legal entities within a consolidated group are often set up to comply with particular legal or regulatory requirements, yet the business can often be run on a cross-border/cross-entity basis. As a result, business performance is often not considered at a legal entity level, since it is a largely artificial distinction. Collecting segmental information for such entities, where it will typically not be readily available, is likely to be costly and of little benefit to users and because the information provided would not reflect how the business is run i.e. it is not conducted within the context of that single entity…the Board agreed to include in the final standard a scope exemption
This looks like a loophole. Companies will argue the effects of internal re-organisation (which just happens to involve cross border actions) plus M&A make such disclosure of limited value or too costly to obtain. Readers can argue the veracity of that unsupported prediction but you can be sure that if there is an option to exempt, it will be taken.
IFRS8 was originally envisaged as a way to provide a snapshot of how management views the business from an operational performance perspective. Discussions around how IFRS8 will operate have made this much harder to obtain.
PWYP’s argument is designed to ensure sufficient disclosure such that it is easier to see the impact of tax-motivated corporate transactions with little or no economic value. It is one of the principle legs of the wider anti-avoidance campaign orchestrated by Tax Justice Network. I anticipate they will see this as an opportunity to challenge amounts declared as due and paid against the amounts that are at least theoretically due under prevailing rates of tax in the countries concerned.
While I congratulate PWYP for keeping this issue on the agenda, I rather suspect they will have an uphill struggle.
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