transparency

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Human Rights Council heats up during informal talks on inequality, international solidarity, and intellectual property

Published by Anonymous (not verified) on Thu, 30/06/2022 - 3:51pm in

UPDATE: On Monday, 4 July 2022, a revised version of the Core Group’s access to medicines, vaccines, and other health products resolution (A/HRC/50/L.13) was circulated. The current co-sponsors include: Argentina, Brazil, China, Ecuador,* Egypt,* India, Indonesia, Malaysia, Namibia, Nepal, Paraguay, Peru,* Senegal, and South Africa. The next can be found here:
A_HRC_50_L.13_Rev.1 as received

On Wednesday, 29 June 2022, the Core Group (Brazil, China, Egypt, India, Indonesia, Senegal, South Africa, Thailand) tabled a resolution on “Access to medicines, vaccines, and other health products in the context of the right of everyone to the enjoyment of the highest attainable standard of physical and mental health” for consideration by the 50th session of the Human Rights Council in July 2022 The text of the resolution can be found here: https://hrcmeetings.ohchr.org/HRCSessions/RegularSessions/50/DL_Resolutions/A_HRC_50_L.13/L.13%20as%20received.docx

For the previous, REV. 1 version of the text, please see here: Access to Medicines, Vaccines and other Health Products REV1

The 2022 text included references to delinkage, the WHO transparency resolution (WHA72.8), the WHO Cancer resolution (WHA70.12), the WHO Cancer Report, United Nations High-Level Panel on Access to Medicines, and the recent Ministerial Decision on the TRIPS Agreement. On Monday, 27 June 2022, the Core Group convened the third and final informal consultation to review the text; Knowledge Ecology International (KEI) participated in this informal.

Right off the bat, the European Union objected to language describing the “exacerbation of economic and social inequalities within and among countries”.

PP4. Recalling also General Assembly Resolution 74/306 of 11 September 2020, which recognizes that the coronavirus disease (COVID-19) pandemic is one of the greatest global challenges in the history of the United Nations and noting with deep concern its negative impacts on the enjoyment of human rights and the exacerbation of poverty and hunger as well the exacerbation of economic and social inequalities within and among countries, which have reversed hard-won development gains and hampered progress towards achieving the 2030 Agenda for Sustainable Development and all its Goals and targets,

The new text has been modified to accommodate the European Union’s previous objections language referencing the exacerbation of economic and social inequalities “within and among countries”

PP4. Recalling Human Rights Council resolution 41/10 of 11 July 2019 and all relevant previous resolutions and decisions on the right of everyone to the enjoyment of the highest attainable standard of physical and mental health adopted by the Council, the General Assembly and the Commission on Human Rights, including resolutions 44/2 of 16 July 2020, 46/14 of 23 March 2021, 49/25 of 1 April 2022 and 49/19 of 1 April 2022, which highlight the need for ensuring equitable, affordable, timely and universal access for all countries to vaccines in response to the coronavirus disease (COVID-19) pandemic and for promoting and protecting economic, social and cultural rights within the context of addressing inequalities in the recovery from the COVID-19 pandemic,

The REV 1 version of the text had the following text on the WHO transparency resolution:

PP20. Reaffirming the importance of improving the transparency of markets for medicines, vaccines and other health products across the whole value chain, and taking into consideration resolution WHA72.8 adopted by the World Health Assembly at its seventy-second session,

At the request of Argentina, “costs” was inserted into the text to now read “Reaffirming the importance of improving of markets, costs, and supply chain for medicines, vaccines, and other health products across the value chain,”

PP21 Reaffirming the importance of improving the transparency of markets, costs and supply chain for medicines, vaccines and other health products across the whole value chain, and taking into consideration resolution WHA72.8 adopted by the World Health Assembly at its seventy-second session

In relation to WHO’s 2018 technical report on the pricing of cancer medicines, the REV. 1 text had the following language:

PP36. Considering the report by the Director-General of the World Health Organization on cancer medicines, which, pursuant to resolution WHA70.12, examined the impact of pricing approaches, including transparency, on the availability and affordability of medicines for the prevention and treatment of cancer, and looking forward to a possible update and expansion of this study, which could shed light in raising prices of medicines in the context of the COVID-19 pandemic,

At the informal on 27 June 2022, the United Kingdom of Great Britain and Northern Ireland objected to the last part of this paragraph which read “and looking forward to a possible update of this study, which could shed light in raising prices of medicines in the context of the COVID-19 pandemic”. The United Kingdom asserted that this was an overreach of the HRC’s mandate to “steer WHO member states”. The tabled text now reads:

PP39 Considering the report by the Director-General of the World Health Organization on cancer medicines, which, pursuant to resolution WHA70.12, examined the impact of pricing approaches, including transparency, on the availability and affordability of medicines for the prevention and treatment of cancer, and looking forward to a possible update of this study, which could shed light in raising prices of medicines in the context of the COVID-19 pandemic,

In relation to TRIPS flexibilities, the Doha Declaration on the TRIPS Agreement and Public Health, and the recent 17 June 2022 Ministerial Decision on the TRIPS Agreement, the REV. 1 text stated:

PP30. Recalling that the Doha Ministerial Declaration on the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) and Public Health confirms that the Agreement does not and should not prevent members of the World Trade Organization from taking measures to protect public health, and that the Declaration, accordingly, while reiterating the commitment to the Agreement, affirms that it can and should be interpreted and implemented in a manner supportive of the rights of members of the Organization to protect public health and, in particular, to promote access to medicines for all, and further recognizes, in this connection, the right of members of the Organization to use to the full the provisions of the above-mentioned Agreement, which provide flexibility for this purpose, including the World Trade Organization Ministerial Decision WT/MIN(22)/W/15/Rev.2 on the TRIPS Agreement, of 17 June 2022,

The United Kingdom requested that “in accordance” preceded reference to the “World Trade Organization Ministerial Decision WT/MIN(22)/W/15/Rev.2 on the TRIPS Agreement”.

PP33 Recalling that the Doha Ministerial Declaration on the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) and Public Health confirms that the Agreement does not and should not prevent members of the World Trade Organization from taking measures to protect public health, and that the Declaration, accordingly, while reiterating the commitment to the Agreement, affirms that it can and should be interpreted and implemented in a manner supportive of the rights of members of the Organization to protect public health and, in particular, to promote access to medicines for all, and further recognizes, in this connection, the right of members of the Organization to use to the full the provisions of the above-mentioned Agreement, which provide flexibility for this purpose, in accordance with the World Trade Organization Ministerial Decision WT/MIN(22)/W/15/Rev.2 on the TRIPS Agreement, of 17 June 2022,

The final paragraph in the preamble of the REV 1 text contained a reference to “international solidarity”.

PP41. Stressing that the universal realization of the human right to the highest attainable standard of physical and mental health should be guided by a strong spirit of international solidarity and in accordance with the principles proclaimed in the Charter of the United Nations, particularly the recognition of the inherent dignity and of the equal and inalienable rights of all persons.

The European Union and United Kingdom objected to the reference of a “strong spirit of international solidarity” in this resolution before the Human Rights Council. The European Union noted that “international solidarity” is not a “concept of international human rights law” while stressing that “there is no obligation of states to exercise international solidarity”

Consequently, the new language in the tabled text reads:

PP44 Realizing also that during the time of global pandemics and other health emergencies the fulfillment of the right to the highest attainable standard of physical and mental health should be guided by a strong spirit of solidarity, in particular solidarity with the poorest and with people in vulnerable situations.

With respect to cooperation, it is perhaps worthwhile revisiting paragraph 13 in Committee on Economic, Social and Cultural Rights’ (CESCR) General Comment 3 on the nature of States parties’ obligations (art. 2, para. 1, of the Covenant) which states:

A final element of article 2 (1), to which attention must be drawn, is that the undertaking given by all States parties is “to take steps, individually and through international assistance and cooperation, especially economic and technical …”. The Committee notes that the phrase “to the maximum of its available resources” was intended by the drafters of the Covenant to refer to both the resources existing within a State and those available from the international community through international cooperation and assistance. Moreover, the essential role of such cooperation in facilitating the full realization of the relevant rights is further underlined by the specific provisions contained in articles 11, 15, 22 and 23. With respect to article 22 the Committee has already drawn attention, in general comment No. 2 (1990), to some of the opportunities and responsibilities that exist in relation to international cooperation. Article 23 also specifically identifies “the furnishing of technical assistance” as well as other activities, as being among the means of “international action for the achievement of the rights recognized …”.

Operative paragraph 1 of the Core Group’s tabled resolution states:

1. Recognize that timely, equitable and unhindered access to safe, affordable, effective and quality medicines, vaccines, diagnostics and therapeutics, and other health products and technologies is one of the fundamental elements for the full realization of the right of everyone to the enjoyment of the highest attainable standard of physical and mental health and the correspondent objectives of universal health coverage and health for all, without discrimination, with special attention to reaching those furthest behind first,

2. Stresses the responsibility of States to ensure timely, equitable and unhindered access for all, without discrimination, to safe, affordable, effective and quality medicines, vaccines, diagnostics and therapeutics, and other health products and technologies, as well as access to immunization as a global public good,

During the informal on 27 June 2022, the United States of America requested to replace the phrase “timely, equitable, and unhindered” with the word “universal”. The request of the United States was not taken on board. With respect to the word “unhindered”, Canada mentioned that it had “legal redline” with this word; one wonders about Ottawa’s justification for opposing this word. In addition, the United States requested that ‘ensure” be replaced with “promote”. The original wording in operative paragraph 2 had the phrase “securing immunization as a global public good.” However, the United Kingdom and the United States objected to this. The United Kingdom noted that their delegation did not recognize the responsibility of states to secure immunization as a global public good.

In relation to the operative paragraphs on the TRIPS Agreement, the tabled resolution contains the following language:

    3. Calls upon States to promote timely, equitable and unhindered access to safe, effective, quality and affordable medicines, vaccines, diagnostics and therapeutics, and other health products and technologies, for all, including through the full use of the provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), which provide flexibility for that purpose, while recognizing that the protection of intellectual property is important for the development of new and innovative medicines and vaccines, and the concerns about its effects on prices and public health,

    4. Also calls upon States to take steps to implement policies and plans to promote access to comprehensive and cost-effective prevention, treatment and care for the integrated management of noncommunicable diseases, including, inter alia, increased access to affordable, safe, effective and quality medicines, vaccines and diagnostics and other health products, including through the full use of TRIPS Agreement provisions and flexibilities,

On delinkage, the resolution states:

5. Reiterates the call upon States to continue to collaborate, as appropriate, on models and approaches that support the delinkage of the cost of new research and development from the prices of medicines, vaccines and diagnostics for diseases that predominantly affect developing countries, including emerging and neglected tropical diseases, so as to ensure their sustained accessibility, affordability and availability and to ensure access to treatment for all those in need,

Perhaps the most ambitious aspect of the resolution’s operative text is paragraph 6 on technology transfer:

    6. In order to ensure timely, equitable and unhindered access for all persons to safe, affordable, effective and quality medicines, vaccines, diagnostics and therapeutics, and other health products and technologies towards advancing the realization of the Sustainable Development Goals (based on OP9 res. 46/14), urges States and all relevant stakeholders to:

    (a) promote research and capacity-building initiatives, and to enhance international cooperation on and access to science, innovation, technologies, technical assistance, and knowledge sharing, including through pooling initiatives, while appreciating the substantive efforts many states have already made to this end,

    (b) take all necessary measures to strengthen regional and local production, by promoting innovative modalities of global partnerships and technology transfers, on mutually agreed terms, and facilitate the trade in medicines, vaccines and other health products,

    (c) share data and results in line with internationally agreed principles, including sharing of pathogens, samples, and genetic sequencing data, and ensure the fair and equitable sharing of benefits that arise from their utilization, in accordance with international access and benefit sharing instruments,

    (d) promote transfer of technology and know-how on mutually agreed terms, and encourage research, innovation and commitment, where possible, to voluntary licensing in all agreements in which public funding has been invested in research and development,

    (e) assist in efforts to build capacity through training and financial support to developing countries to produce health technologies, including the mRNA vaccine technology,

    (f) explore approaches with the view to establishing a global end-to-end platform to promote equitable access and fair distribution of health products, and

    (g) advance the health and care workforce investment agenda, with a special focus on the primary health care workforce and employment of women at all levels,

    (h) to take measures to ensure accessible and affordable access to health care systems for persons with disabilities.

With respect the role of innovative funding mechanisms, operative paragraph 8 states:

8. Recognizes the innovative funding mechanisms and arrangements that contribute to the availability of vaccines and medicines in developing countries, such as the Global Fund to Fight AIDS, Tuberculosis and Malaria, the Gavi Alliance, UNITAID, the Access to COVID-19 Tools (ACT) Accelerator and the COVID-19 Technology Access Pool (C-TAP), especially for those living in poverty, children and other persons in vulnerable situations, and calls upon all States, United Nations agencies, funds and programmes, in particular the World Health Organization, and relevant intergovernmental organizations, within their respective mandates, and encourages relevant stakeholders, including companies involved in the research and development, manufacture, importing, distribution and supply of pharmaceuticals, while safeguarding public health from undue influence by any form of real, perceived or potential conflict of interest, to further collaborate to enable equitable access to quality, safe and effective medicines and vaccines that are affordable to all, including those living in poverty, children and other persons in vulnerable situations,

In relation to supply chain management, operative paragraph 10 states:

10. Encourages States, in cooperation with other stakeholders, to redouble efforts to achieve a continuous supply of quality, safe, effective and affordable health products through research and development that meets public health needs, for the efficient application and management of intellectual property standards, to carry out evidence-based selection of health products and to seek fair and affordable pricing, to adopt good procurement and supply chain management and to promote appropriate prescribing, dispensing and rational use of health products,

In relation to the work program of the United Nations High Commissioner for Human Rights, the resolution requests the following:

16. Requests the United Nations High Commissioner for Human Rights to enhance its work, within its mandate, including with the support for dedicated capacity to continue to carry out research, organize three expert workshops, and provide technical assistance to States throughout the next three years on the human rights dimension of access to medicines and vaccines in the context of the right of everyone to the highest standard of physical and mental health, including good practices, key challenges and new developments, and to provide a compendium of good practices to the Human Rights Council at its fifty-third session and an analytical study on key challenges at its fifty-sixth sessions with a view to presenting a comprehensive report, including new developments, at its fifty-ninth session, and prepare these in an accessible and easy-to-read format.

The Core Group’s resolution on Access to medicines, vaccines, and other health products in the context of the right of everyone to the enjoyment of the highest attainable standard of physical and mental health will be considered by the 50th session of the Human Rights Council during the week of 4 July 2022 to 8 July 2022.

The post Human Rights Council heats up during informal talks on inequality, international solidarity, and intellectual property appeared first on Knowledge Ecology International.

Country-by-country reporting is beating transfer mispricing, as I always said it would

Published by Anonymous (not verified) on Wed, 04/05/2022 - 6:21pm in

As Accountancy Age has reported:

A 49% uptick in the amount of extra tax collected from investigations into large corporates shifting profits overseas is an indicator that HMRC is ramping up its scrutiny multi-national tax avoidance arrangements, according to specialist law firm Pinsent Masons.

“HMRC is now much more aggressive in tackling what it sees as artificial profit shifting, and much more stringent in its interpretation of what makes an acceptable transfer pricing arrangement,” said Steven Porter, partner and head of tax disputes and investigations at Pinsent Masons.

According to new figures from the 2020/21 tax year, the amount of extra tax collected from transfer pricing investigations into multinational corporates increased from £1.45bn to £2.16bn – HMRC’s highest yield on record.

So, why the uptick? Because country-by-country reporting data is available, of course.  I first created country-by-country reporting in 2003. I campaigned pretty tirelessly for it from then until 2015 when the OECD adopted it, very largely as I first proposed it. The aim was to beat transfer mispricing. It is.

I should ask for a cut (that's a joke, by the way).

The UK has a constitutional duty to impose direct rule on the BVI to bring its role as a secrecy jurisdiction to an end

Published by Anonymous (not verified) on Mon, 02/05/2022 - 6:35pm in

The FT has noted that:

The acting premier of the British Virgin Islands, Natalio Wheatley, has rejected as “unacceptable” the reimposition of direct rule from London, setting up a confrontation with the UK over the central recommendation of an official inquiry into corruption and maladministration in the Caribbean tax haven.

He is wrong. And the fact that he does not recognise that the BVI is so systemically corrupt shows that, because that is what it is. That he comes from an old political family within the islands, also suggesting that he is part of the architecture that created this systemic problem is also indicative of why he is wrong and change must be imposed. It is apparent that the required changes cannot come from within the BVI now.

Let me offer some theory to support this argument. In 2009 I wrote a paper for the Tax Justice Network that has had some significance since then, not least in still shaping most of the work of the tax justice movement in putting a focus on secrecy, as it has also done for most regulators. The preamble to the paper noted:

The summary was quite short:

What the paper did was develop a schematic summary of the new language that I proposed to explain the offshore world, which when fully developed looked like this:

An example demonstrated the idea in this way, showing how abuse existed in a secrecy space resulting from the interaction of many secrecy providers operating from secrecy jurisdictions:

What I suggested was that there was a systemic, deliberately created, interlocking network of secrecy jurisdictions and secrecy providers (banks, lawyers and accountants) who created a secrecy space in which abuse could take place beyond regulation. The book that I co-authored that resulted from this work is still one of the most cited in academic offshore literature.

The BVI is an enormous player in the creation of this secrecy space. It hosts 370,000 companies of which almost nothing is known. That is by continuing choice. The result is massive opacity in the world that undermines fair competition and effective markets and simultaneously permits corruption. I stress, this is deliberate.

The UK has the right to intervene for this reason. It is responsible for the maintenance of good governance, law and order and stable international relations in the islands. Law and order has obviously failed: the premier and a senior official are under arrest in the USA. Good governance has failed, as indicated by the choice to supply corruption services. And this is a foreign affairs issue. The companies the BVI creates are deliberately intended to undermine the law, order and tax systems of other states.

The BVI remains a key component in the creation of the secrecy space. It has to be taken out of action. But I stress, direct rule without ending this secrecy would make the UK responsible for it. And that would be intolerable, so direct rule c9mes with conditions, which is that BVI secrecy  goes.

What does that mean? Full beneficial ownership of all companies on public record plus full accounts on that same record. That’s the minimum demand for the BVI.

The UK must take control of the BVI now. It has a constitutional duty to do so. But if it does it cannot duck its own duty to end BVI secrecy. We will be watching.

The International Financial Reporting Standards Foundation is failing society with its proposals on accounting for climate change

Published by Anonymous (not verified) on Mon, 04/04/2022 - 4:21pm in

I noted that the International Financial Reporting Standards Foundation had issued, through its International Sustainability Standards Board, two new standards on accounting for environmental change on Friday.

I admit that I have still not read all of these in every detail as yet, but one training as an academic that comes in very useful is to find the key arguments in a piece of work very quickly.

In this case, the first standard relates to what it describes as 'The General requirements for the disclosure of sustainability-related financial information'. This suggests that a review of three things that they have to say really matters.

The first is what is sustainability-related financial information. This they define as follows:

Sustainability-related financial information is broader than information reported in the financial statements and could include information about:

(a) an entity’s governance of sustainability-related risks and opportunities, and its strategy for addressing them;

(b) decisions made by the entity that could result in future inflows and outflows that have not yet met the criteria for recognition in the related financial statements;

(c) the entity’s reputation, performance and prospects as a consequence of the actions it has undertaken, such as its relationships with people, the planet and the economy, and its impacts and dependencies on them;

(d) the entity’s development of knowledge-based assets.

An alternative more succinct definition also provided is:

Information that gives insight into sustainability-related risks and opportunities that affect enterprise value, providing a sufficient basis for users of general purpose financial reporting to assess the resources and relationships on which an entity’s business model and strategy for sustaining and developing that model depend.

The second issue of significance is who the users of this data are meant to be, as it will be defined for their benefit. These primary users are stated to be:

Existing and potential investors, lenders and other creditors.

You have to read in the words 'of the reporting entity' for this statement to make sense.

The third issue to consider is where it is suggested that this disclosure is to be made. The following is said:

Subject to any regulation or other requirements that apply to an entity, there are various possible locations in its general-purpose financial reporting in which to disclose sustainability-related financial information. Sustainability-related financial disclosures could be included in an entity’s management commentary when management commentary forms part of an entity’s general purpose financial reporting. Management commentary complements an entity’s financial statements. It provides insights into the factors that have affected the entity’s financial performance and financial position and the factors that could affect the entity’s ability to create value and generate cash flows. Management commentary can be known by or incorporated in reports with various names, including management’s discussion and analysis, operating and financial review, integrated report and strategic report.

An entity might disclose information required by an IFRS Sustainability Disclosure Standard in the same location as information disclosed to meet other requirements, such as information required by regulators. The entity shall ensure that the sustainability-related financial disclosures are clearly identifiable and not obscured by that additional information.

So, what do we learn as a result of this consideration of just three key issues?

First of all, sustainability-related financial information is not what might be called accounting data. That conclusion is confirmed by the evidence from the third review, which suggests that wherever this financial information might be supplied it is not in the income statement or balance sheet of any reporting entity covered by this new accounting standard.  At best, this is data designed for inclusion in the front end of the accounts, where most information is closer to a public relations press release than it is to useful data of verifiable use to the person interested in the activities of a reporting entity. At worst, it need not even be in the accounts at all, but can be included in another statement that the reporting entity might produce.

Why is that? The second issue answers that point. This data, it turns out, is not general-purpose accounting information (although the IFRS standards relate to the production of what they call general-purpose financial statements). It is instead highly specific data  intended to assist one very limited appraisal to be undertaken by a tiny proportion of the users of accounts, of who there are at least seven groups in all:

  1. Shareholders
  2. Other suppliers of capital
  3. Trading partners
  4. Employees
  5. Regulators
  6. Tax authorities
  7. Civil society in all its forms

Just the first, and maybe the second of these groups are considered by this standard: the rest are left without any useful information at all, which is because, as the very first sentence of the proposed standard says:

These proposals respond to calls from primary users (investors, lenders and other creditors) of general purpose financial reporting for more consistent, complete, comparable and verifiable sustainability-related financial information to help them assess an entity’s enterprise value.

I added the emphasis. I do so deliberately. It is firstly because of the poverty of this ambition, which has nothing to do with climate change or sustainability or the impact of a business on society,  and secondly is because nothing that I can see so far in the proposal made comes remotely close to achieving this stated aim. After all, how can you indicate the impact of an event on the scale of climate change and not require that the accounting consequences of it be reflected in the actual financial reporting (i.e. the income statement and balance sheet) of the entity it impacts?

And how, come to that, can anyone without a measure of that impact on the balance sheet have any chance of appraising the impact of the demand for sustainability in a way that might let them meaningfully allocate their capital?

How even can they tell if the reporting entity might survive the process of transition demanded of them?

I do, of course, address all these issues in my alternative draft standard that happened to be published on the same day last week as the International Financial Reporting Standards Foundation chose to publish their own draft standard. I would suggest only one of them met their own stated, and decidedly limited, goal, and that is mine. I would also suggest that whilst doing so my own version went a lot further in seeking to provide information to meet the needs of all users of accounts.

The International Financial Reporting Standards Foundation is failing society with its proposals. And that is not good enough.

Accounting for Environmental Change: the Corporate Accountability Network issues a new draft Financial Reporting Standard that says its time to account for net-zero

Published by Anonymous (not verified) on Thu, 31/03/2022 - 5:00pm in

The Corporate Accountability Network is launching a new report today, which includes a draft Financial Reporting Standard for Accounting for Environmental Change. This embraces the ideas previously described in sustainable cost accounting.

The draft standard and supporting paper is here. The introductory note is as follows, with the references being available within the report.

It is now widely acknowledged that there is a climate crisis (G20 2021, UN PRI 2021).

Accounting initiatives have been made in response to this crisis, including those from the Task Force on Climate-related Financial Disclosures (TCFD) (TCFD 2017) and the International Financial Reporting Standards Foundation (IFRS) linked International Sustainability Standards Board (ISSB 2021), both of which seek to provide data on the scale of this crisis. The EU is taking a slightly broader approach (EFRAG 2021a) in its accounting response. In addition, wider recognition of the need for enhanced sustainability reporting has also emerged indirectly through the UK government’s Brydon review’s recommendation for new resilience statements (Brydon 2019).

This paper will argue that these proposals are useful steps forward but are fundamentally limited in scope, meaning that they fail to deliver the accounting reforms required in response to the environmental crisis. There are three reasons for this.

First, none of the above proposals require properly integrated reporting (Flower 2015, Dumay et al 2016). Integrated reporting would require that the accounting consequences of environmental change would be reflected on the balance sheet of a reporting entity. This is not envisaged by any currently proposed climate accounting standard. That is because none of the currently proposed standards break down the silos between sustainability reporting and financial reporting (Unerman et al, 2018).

The IFRS Foundation’s ISSB will instead likely steer the TCFD towards ‘front end’ rather than ‘back end’ financial reporting[1]. In addition, the IFRS’s implicit endorsement of the Australian Accounting Standards Board (AASB 2019) approach requires no change to general purpose financial statements whereas this paper argues that this is precisely the change that is required. The same is also true of the IFRS’s own statement on this issue (Anderson 2019).

First, this unwillingness to integrate climate and financial reporting means that the latter will misrepresent the risk inherent in many public interest entities (PIEs) arising from climate change. Serious investment errors are likely to result as a consequence, whilst essential climate change responses may also be deferred, which is a risk that society cannot afford to take.

Second, these proposals avoid any suggestion that changes be made in those who are considered to be the primary users of what the IFRS calls general purpose financial statements, which definition currently excludes most in society (IFRS 2018, para 1.2) by focusing solely on the needs of shareholders and other suppliers of capital to a company. Nor is any such change likely to result from the UK government review of audit (BEIS 2021). As a result, only a small sub-section of the potential users of accounting data remain the focus of this proposed reporting on climate change (Young 2006), which means that the proposed climate reporting now on offer does not meet public need, by design.

Third, whilst the proposals might create a new emphasis within financial reporting, effectively delivering a form of natural capital reporting (Wackernagel et al 1999), the result is that an artificial asset (carbon emissions as defined by regulation) is promoted as another financialised asset for disclosure purposes (Perry and Nolke 2006). We argue that this form of accounting does not meet user needs, even by the IFRS Foundation’s definition of decision usefulness.

This paper presents an alternative model of climate reporting by arguing that accounting for environmental change is not an addition to existing financial reporting or a mere variant to it, but fundamentally changes the focus and purpose of financial statements. This change can be achieved through adoption of a new Financial Reporting Standard on Accounting for Environmental Change, a draft of which with explanatory notes is attached to the paper. The resulting changes to the conceptual framework of accounting are the focus of this explanatory paper.

At its core the proposed Financial Reporting Standard makes a straightforward demand. Rather than require a reporting entity to disclose its emissions and its progress in reducing them, which is the focus of most existing climate change accounting proposals, the draft Financial Reporting Standard requires the reporting entity to estimate the cost of eliminating those emissions in order to align its activities with the goal of achieving a 1.50 Celsius global temperature change (IGCC 2021). This cost, plus the cost of any new investment required to achieve this goal if the reporting entity is to continue to be considered a going concern, must be provided on the balance sheet of the reporting entity, with that liability being matched by what is deemed to be a realised reserve that reduces the capacity of the reporting entity to pay dividends until the goal of sustainability is achieved.

This paper notes that these changes are possible, but that delivering them will require changes in the IFRS conceptual framework for accounting (IFRS 2018). These changes primarily relate to a reappraisal as to who the users of accounts are, with a range of stakeholders being suggested in place of the existing focus that is solely upon shareholders and other suppliers of capital, and a reappraisal of what form of capital has priority when it comes to accounting, with environmental capital taking priority over financial capital.

We argue that accounting for these provisions for the cost of adapting to environmental change on an ongoing basis will provide users of financial statements with the data they need to monitor the reporting entity’s success in becoming net-zero compliant. In the process we turn issues relating to environmental change into hard accounting data capable of being recorded within the audited books and records of any PIE. As a result the Board of any such PIE will have to focus its attention on this issue since it has direct impact on its financial reporting.

Notes:

[1] The ‘front end’ of financial reporting is largely narrative-based data. The ‘back end’ comprises the financial statements drawn from the general ledger of the reporting entity.

 

Trust registration starts from 1 September: another barrier to tax transparency is falling

Published by Anonymous (not verified) on Tue, 22/03/2022 - 7:27pm in

In 2005 John Christensen and I wrote this in Tax Us If You Can - the manifesto of the fledgling Tax Justice Network that went on to become the de facto manifesto, then and now, of that movement.

Trusts are a principal vehicle of tax injustice:

  • They are used to hide wealth from tax.
  • Discretionary trusts hidden behind nominee trustees create a secrecy space that is hard to regulate.
  • In common law countries, trusts are equivalent to secret bank accounts. This is a valid complaint of those countries that are being asked to remove their banking secrecy laws.
  • Incredibly, charitable trusts own many of the offshore ‘special purpose vehicles’ that are used by so many companies as part of their international tax planning. This is an abuse of the concept of charity.

Trusts have been widely abused and they clearly need to be better regulated. They serve useful functions in such areas as:

  • The promotion of genuine charities.
  • The protection of children and the disabled who are unable to look after their own affairs.

There is, though, no reason why every trust should not be required to disclose on public record the following:

  • who created it
  • what the trust deed says
  • who the trustees are who the beneficiaries are, and in the case of discretionary trusts any potential beneficiaries listed in the settlement
  • trust accounts

Trusts are given rights and privileges similar in many respects to those of limited liability companies. These rights and privileges should be balanced by a requirement for transparency and social responsibility.

I was therefore pleased to note this in the Financial Times this morning:

As many as 1mn trusts in the UK could be caught by a new requirement to register on a government list, with the risk of fines and difficulties accessing professional advice for those failing to sign up, tax experts have warned.

New rules due to come in on September 1 will require most new and existing trusts to register on HM Revenue & Customs’ online Trust Registration Service.

As they add:

The list will be accessible to people with a “legitimate interest”, including journalists, leading some to worry about an erosion of privacy.

There will be much wailing and gnashing of teeth about this, but if we are to beat offshore secrecy we have to lead the way, which the EU did with this requirement, which we had to adopt last year as a result.

No one thought of doing this until Tax Us If You Can was published. I'll take some credit for those gnashed teeth. This is a step forward for tax transparency in a world that so obviously needs it.

We need open corporate registries now

Published by Anonymous (not verified) on Thu, 10/03/2022 - 6:57pm in

Tax Research UK was one of 127 signatories to this statement, issued yesterday:

This statement, signed by 127 leading transparency, anti-corruption, journalist and open data organisations call upon the European Union Institutions and Member States: act now and open up all company and beneficial ownership registers across the European Union to the public! This is crucial in exposing assets and money of Russian oligarchs in the EU.

We are deeply horrified by Putin’s incursion into Ukraine and the violation of the rule of law, human rights, and state sovereignty. We support the European Union in collectively taking a strong stance to defend democracy and our common values. The sanctions imposed – freezing assets, impeding financial transactions, and closing financial markets – which target Russian oligarchs, businessmen, and companies supporting or profiting from Putin’s regime, are an important step. Yet, for these sanctions to be enforced effectively, a robust and transparent system of company and beneficial ownership needs to be put in place. Moreover, we need this transparency to prevent dirty money becoming embedded in our economies in the future.

The European Union has been lauded for its progress in curbing the abuse of anonymous companies, in particular, with the adoption of the 2019 Open Data Directive, which calls for company ownership information to be made freely accessible in open data format. It is therefore of great concern that the Commission has not yet adopted the Implementing Act, which should set out exactly which company information must be published and how. This means that Member States have no guidance on how to open up their company registers, in effect blocking company ownership transparency across the EU. This directly undermines the commitment to transparency agreed by the Member States in the Council and MEPs in the Parliament.

In terms of beneficial ownership transparency, the EU delivered a breakthrough with adoption in 2018 of the 5th Anti-Money Laundering Directive, which requires the creation of publicly accessible beneficial ownership registers. In reality, Member States are failing to act, and some have yet to set up these registers. Where these registers are in place, there are often barriers for public access, as the Directive leaves room for this, with many establishing fees that are way beyond cost recovery, and registration that severely restricts public access.

The result is that journalists, civil society, business, and even cross-border law enforcement cannot access the data they need. Right now, this means that information crucial for detecting and investigating companies and assets connected with the Putin regime is hard to obtain. The lack of transparency of company ownership is what allowed oligarchs to hide and launder their money in the first place, as a result buying assets and political influence inside the EU.

We know what needs to be done – we need a strong and robust system of company and beneficial ownership transparency in the EU. Denmark, Latvia, the UK, and Ukraine have shown us that opening up company and beneficial ownership registers is attainable. Our time to act is passing, let’s act now before it’s too late!

We call on the European Union Institutions to:

  • Provide for transparency of company and beneficial ownership registers, published as free of charge and open data, across the EU, through both the Open Data Directive and the Anti-Money Laundering Package;
  • Prioritise the Implementation Act of the Open Data Directive, ensuring that it calls for complete public access to company ownership information as open data, in line with the letter and spirit of the Directive.

We call on Members of the European Parliament to:

  • Raise concerns with the Commission about lack of action and urge it to move forward immediately with implementation of the Open Data Directive, ensuring that the rules requiring full transparency of company ownership are in place as soon as possible.

We call on EU Member States to:

  • Open up company registers as open data, with access free of charge and unrestricted reuse;
  • Establish publicly-accessible beneficial ownership registers, where these are not yet in place, and all Member States should provide free and unrestricted access to this data.

A political commitment to transparency has to be our reaction to this war. Our contribution to ‘never again’, if you like.

Published by Anonymous (not verified) on Sun, 06/03/2022 - 10:00pm in

I have just posted this thread on Twitter:

To pretend that the world is anything like that we lived in two or so weeks ago. War in Ukraine poses threats that are unprecedented with many now wondering what the risk of nuclear annihilation might be. Some thoughts on this and many other issues that we face in this thread…..

It is the ultimate paradox of life that we must live it based on the assumption that we will live forever knowing full well that we will not. Right now many are questioning how long we have because of the renewed threat of nuclear war.

I can offer no answer to that question. I have no more idea what Putin might do than anyone else. So I carry on with the assumption that life will continue, albeit differently. I can offer no other useful working assumption.

What does interest me instead is how things might change, and most particularly, how we might want them to change. Nothing does, after all, alter our right react to what is happening.

There are many things we can change as a result of this war. One is our attitude to nuclear weapons. As someone old enough to have gone on CND marches 40 years ago my position on these has always been unambiguous. Surely when this is over we have to seek their elimination?

We have too to decide what to do about nuclear power. War involving nuclear power stations is dangerous, as we have now seen. The world is vulnerable whilst we rely on nuclear power. There is a decision to be taken. No more, I suggest, is the minimum requirement.

But there is another decision to be made regarding power, and that comes down to our dependence on oil and gas. Russia’s economy relies upon the sale of them. Without them it would not be a power. Our carbon dependency has to end for that reason too.

If we are to live in a world where we cannot be held to ransom we are learning that there is real merit in putting a focus on local energy. If ever there was a reason for local renewable energy other than tackling climate change, this is it.

The bedrocks on which our economies are built - across Europe and beyond - all have to change as a result. Nuclear power and the burning of carbon cannot be the foundations of our lives in the future if we are also to have security.

Of course, we already knew that. Climate change demanded the change with regard to carbon. It also challenges so many assumptions with regard to nuclear power - most especially when so many nuclear power facilities are in vulnerable locations.

But the changes that are required that this war makes very clear go very much deeper than this. The whole of our political economy - which is term to describe how power relationships influence economics rewards - is now open to question.

Let’s start with the politics, and then move to the economics.

First, we now know (beyond reasonable doubt) that Russian influence has been deeply destructive of UK politics. Brexit was funded by Russia. The Tory party has been funded by Russia. It seems very likely that major think tanks are Russian influenced.

The media is heavily Russian influenced, and some of it is oligarch controlled. More may be than we know.

I think it very likely that some policy agendas, e.g. the deeply disruptive No. 10 policy on Northern Ireland that makes no rational sense in isolation does when viewed as an instrument for Russian influenced disruption.

The fight against climate change is, I suspect, as heavily funded by Russia as it is by the US far-right. Indeed, it is hard to spot the difference in interests.

And because of the UK first past the post electoral system and the inclination of some to vote Tory because their parents and grandparents always did at a time when that did not involve voting for agents of Russian policy, Russian influence is deep in our hierarchies of power.

There is corruption at the heart of the UK in other words. For more than twenty years a far-right Russian regime has cooperated with far-right funding from the USA to take control of the Tory right-wing in UK politics and make it an instrument for anti-democratic activity.

The goal of this activity has been very straightforward. It has been to create an economy whose interests are aligned with those of a global kleptocracy serviced by a state where the supposed rule of law can be used to oppress opposition.

First, they came with the libel writ. Then they bought the politician’s silence. Next, they controlled the media. Then they bought the political narrative, and won a referendum. Then they came for us with the demand that we protest no more. This is the creeping takeover of power.

In between all that, they showed their indifference. From austerity, to the bedroom tax, to not caring about Covid deaths, every now and again they showed the reality of their contempt for the rest of us.

This they reinforced by bringing their friends into government, or by transferring their politicians into the media. The web of control was, they thought, theirs to spin.

We now know all this. It is plain to see. The question now is whether this is enough to finally induce the required action from all other political parties to act together to rid us of this corruption for good?

The fighting, so far, is in Ukraine, and our hearts and thoughts are with those who suffer. But this is a war on many fronts. And one is here in the UK, where right-wing, mainstream politicians are at war on us.

They can be beaten, but only by political alliance to rid us of corruption and to create a democracy to withstand any further assaults by being truly representative. Will all our democratic politicians, including the few remaining decent Tories, now cooperate to deliver this?

This is our war that we have to win, or Russia wins, whatever happens in Ukraine.

Then let’s look at the economy, because there will be so much to do there too and many issues to resolve.

There will be calls for more spending on defence very soon. Maybe they will be appropriate. Maybe when this is over we could alternatively ask what the remaining threat might be? It will require soul searching to answer that.

What we can say for certain is that defence will be far from the only priority when this war is over. Do not listen to anyone who claims that this will be the issue for a new era: it is not. The causes of war are.

In that case the energy revolution I have already referred to will require as much funding as any defence measures. Energy is the cause of conflict now. That is why it must have priority.

But the economic reforms required go much further. This is an economic war. There’s no real surprise to that. They almost invariably are. The desire is to command resources. In this case it is land. But what drives it is the economic structure of Russia.

Russia is a kleptocracy. It can be claimed that this is an accident. When the Soviet economy collapsed it was claimed that it could transition to capitalism. An ultra-free market logic was introduced into a situation of chaos.

Without the checks and balances that markets require if they are to operate with any degree of fairness that failed attempt to create capitalism delivered kleptocracy, and Putin.

London has been reorientated to serve that kleptocracy. From the libel lawyer, to the corporate lawyer working in cahoots with accountants and bankers to hide the ownership of assets, London has worked to destroy fair markets.

When this war is over we need to call this out. We need to say that markets in the UK are rigged, as is the UK legal system. They are stacked against fair competition, justice and the equality of opportunity that capitalism requires if it is to work.

Only the politicians and think tanks in hock to Russia, but who have never engaged in real business, now suggest that markets work when it is glaringly obvious that as they stand they do not.

This does not mean I am opposed to markets. Far from it. I see no other way that the entrepreneurial spirit of many can be turned to the common good. But the unaccountable market has become our enemy, as much as corrupt politicians are.

So transparency is the requirement. Company law must be heavily regulated. Those who cannot prove their right to limited liability must be denied it. Corruption - including on tax - must become a personal responsibility for all who permit it.

We can deliver markets free from corruption. It just requires political will to do so. That political commitment to transparency has to be our reaction to this war. Our contribution to ‘never again’, if you like.

And we have to ask what is everything for? The kleptocrats are the personification of a school of economic thinking that says the accumulation of wealth is what the political economy should be about. Note, I said ‘should’, not ‘is’.

The refugees from Ukraine and those dying in shelled apartments are the clearest evidence that this is not true. Most of us are not wealthy. Most of us survive because of networks of families, friends and communities that support us.

The political economy should not be about supporting wealth for its own sake. The political economy should be about supporting our networks of community, wherever and however we find it.

Don’t get me wrong. I am not saying economic well-being does not matter. It does. But wealth accumulation at cost to others -which is the political economy we have had - is about oppression of most, and can lead to the indifference towards people we are now seeing in Ukraine.

To summarise, this war does change everything. Or at least, it should, or it will continue. And given how key the UK is to the delivery of Russian policy if life here does not change after it then something will be very seriously wrong.

We need to change our defence and energy policies. We need to transform our politics and political systems. Transparency must become normal. Corruption must be treated as the offence it is. And people may be the priority now.

Is that too much to ask for? I hope not, because I cannot see us surviving with anything less.

If the Economic Crimes Bill is to be meaningful it has to make UK professionals responsible for what they are doing

Published by Anonymous (not verified) on Thu, 03/03/2022 - 7:52pm in

The Economic Crime (Transparency and Enforcement) Bill 2022 will be debated by the Commons on Monday, with the aim that it passes in a day.

The Bill has the intention of creating a register of foreign entities owning property in the UK. The Bill does, in my opinion, fail for three reasons.

First, the penalties are too small to worry an oligarch.

Second, the Bill does not require that the overseas controlled entities that it refers to have to file their accounts on public record in the UK, which seems to make no sense at all. The registration is simply that the entity owns property, but accounts tell us a lot more than that, so my suggestion is that all such entities be required to file accounts as if they are large companies incorporated in the UK, requiring that meaningful data might be supplied. The obsession with beneficial ownership seems meaningless to me if we do not understand what is done with the entities in question - and accounts are the only way we have of knowing that.

And third, there is no mechanism to require the UK agents of these overseas entities to be held accountable for their actions when what we know is that the reason that money laundering takes place in the UK is that there are professional enablers who let it happen.

As a result I suggest this amendment to the Bill:

  1. Requirement to register professional advisers

a.Any person who acts as an adviser to an overseas entity shall be required to record that fact as part of the entry within the register for that overseas entity;

b. For the purposes of this act advisers to an oversees entity shall include those who supply services to it as:

    1. Accountants;
    2. Bankers;
    3. Estate agents;
    4. Financial advisers;
    5. Lawyers

These terms are as defined by section 39 of this Act;

c. The information to be supplied by an adviser to an overseas entity shall be obliged to advise:

    1. Its registered name;
    2. Its registered number;
    3. Its registered address;
    4. Its trading address;
    5. The name of the individual within the advisory organisation with primary responsibility for the supply of services to the overseas entity;
    6. A narrative description of the type of services provided;
    7. An annual update on the value of services supplied to the overseas entity;

d. Penalties shall be applied in accordance with the provisions of section 38 of this Act in the event of non-compliance with these requirements by any adviser to an overseas entity;

e. An adviser to an overseas entity who is aware that another such adviser has not registered their relationship with that overseas entity then they shall commit an offence subject to the penalties described in Section 38 of this Act if they do not register that omission with regard to that entity.

f. The Secretary of State may, at their discretion, waive the requirement to file this information in the case of overseas entities controlled by persons from states that they shall identify by way of regulation.

I am not suggesting that the drafting cannot be improved. It's the sentiment that matters. The aim is to make UK professionals responsible for what they are doing. If the London laundromat is to be beaten this has to happen.

I am hoping such an amendment such as this might be proposed to this Bill on Monday, and be adopted by the government.

The minimum level of business disclosure that we need in the UK if we are to beat dirty money

Published by Anonymous (not verified) on Tue, 01/03/2022 - 7:26pm in

Yesterday afternoon I made the mistake of watching Kwan’s Kwarteng, the Business Secretary, announce in the House of Commons what he claimed to be the biggest reform of the UK’s Companies House in the last two centuries. It was a deeply disappointing experience.

Kwarteng claimed he was introducing emergency legislation today (Tuesday). But it turned out he was not. That was simply not true. We do not know when the legislation will be debated.

What we do know is that this so-called emergency legislation was in fact announced by David Cameron in 2016, and was available in draft by 2018. It is appalling that it is not on the statute book as yet.

Worse, what Kwarteng said was that he intended his moves should have no impact on existing UK users of Companies House, whilst across the House there was no appreciation that Companies House is not a regulator at all: it is merely a registrar of whatever nonsense is sent to it.

In that context, I thought it worth sharing the following which is adapted (i.e. with light editing) from Making Tax Work, which is the report I have written on tax transparency with Prof Andrew Baker for the Global Initiative for Financial Transparency. It summarises the most basic levels of disclosure that we need for businesses and companies in the UK. I have highlighted in bold these things that we do not have, to make clear just how lacking we are:

It is important that a government establishes and publishes the information noted below with regard to any business, however large or small, operating in a state so that those who engage with it can appreciate with whom they are trading, and so have and means of recourse against it.

First, a register of all businesses is required, including details of:

  • The business name;
  • The person or entity that owns the business;
  • The place at which they may be contacted;
  • Other contact details e.g. phone, email and website;
  • The nature of the trade;

In addition, in the case of limited liability entities trading within a jurisdiction the following additional information is required:

  • The name of the entity;
  • Its registered number;
  • The country of incorporation if not within the jurisdiction itself;
  • Its registered office;
  • Its place of business, if different;
  • The identify of its directors or other senior management;
  • The identities of all persons owning more than 5 percent of the entity;
  • The identity of the person (whether human or legal) controlling the identity if such a person exists;
  • The issued capital of the entity;
  • The constitution of the entity;
  • The accounts of the entity that give a true and fair view of its trading and financial position including:
    • A narrative explanation of the trading activity undertaken during a period;
    • An income statement or profit and loss account;
    • A statement of affairs or balance sheet;
    • A statement of cash flow or source and application of funds;
    • Notes as necessary to provide sufficient information to understand these reports including tax due and paid;
    • An explanation of the accounting framework used to prepare the accounts in question;
    • Such additional information (not required for public record) as tax authorities require.

A threshold for registration, probably based in turnover, might be appropriate in the case of the self-employed.

It would seem that no such exemption should apply in the case of limited liability entities though. The creation of such entities is deliberate, and such is their significance in the economy of any jurisdiction that it is essential that their registration be required.

It is also essential that the other data noted to be required from limited liability entities be registered on public record. Limited liability creates the risk of moral hazard from the transfer of trading losses onto the creditors of companies and society at large. This risk has to be mitigated by the provision of data on the activities of companies.

That risk also needs to be mitigated by the imposition of an audit requirement on limited liability entities. Whether that be required for all entities or only for those above a chosen size is a matter for each jurisdiction to decide upon but the risk of fraud increases if any exemption is offered.

We have not had a register of all businesses in the UK since the 1980s. That is an omission that has to be corrected.

And we do not have sufficient accounting and ownership data for almost all limited companies right now.

This is the moment when we have to appreciate that unless we aim for the highest standards we provide loopholes for the crooks to get through.

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