Revista nº 210. Eart¡ly precedents of the Country-by-Contry repotrting: implications for the analysis of corporate
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precedents
of
the
Country-‐by-‐Country
reporting:
implications
for
the
analysis
of
corporate
power
Matti Ylönen, Doctoral student
University of Helsinki (World Politics) and Aalto University School of Business
matti.v.ylonen@gmail.com
tel. +358 40 723 11 18
Aalto University School of Business, Department of Economics
P.O. Box 21240
FI-00076 AALTO
DRAFT VERSION,
29 September 2014
Please ask permission for citation
Abstract.
In recent years, many scholars and policy makers have started to pay attention on calls for
widening the country-level publicity of corporate tax and financial information. By mapping the
history of the initiatives for country-by-country reporting, this article shows that these initiatives
have longer and more nuanced background than is commonly thought. While the current
initiatives for mandatory country-by-country reporting are of recent origin, academic authors and
the United Nations Center for Transnational Corporations proposed similar initiatives already in
the 1970s. The article offers several possible explanations on why the initiative did not gain
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momentum in the earlier wave of political interest, and why policy makers have been paying
more interest this time. Moreover, I argue that the experiences of the 1970s can provide useful
insights to contemporary discussions on increasing the transparency of financial accounts. The
findings suggest that conflicts over disclosure of corporate financial information should not be
interpreted only in the context of post-financial crisis calls for greater transparency and tax
justice, but that they represent fundamental conflicts between the corporate planning system on
the one hand and states and the market economy on the other.
Keywords. Country-by-country reporting, transnational corporations, multinational companies,
intra-firm trade, economic planning
1. Introduction
“[T]here should be foreign financial reports furnished on a country-by-country basis.”
– Ralph Nader et al 1977
The advantages of transparency of financial information have contributed to much research
within the global political economy studies. Many of these contributions have focused on
banking secrecy and other forms of financial secrecy offered by tax havens to wealthy investors
and transnational corporations (e.g. Palan 2003; Sharman 2006; Palan et al 2013). Moreover,
many researchers have been interested in the concept of corporate accountability. Consequently,
one policy initiative that has gained policy level attention and academic interest in these studies
has been the idea of the “country-by-country reporting”. The term refers to a legislative proposal
under which, in its broadest version, corporations would have to report the following items by
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country: the names of subsidiaries and affiliates though which the corporation operates; sales,
purchases and financial costs, broken down between third parties and intra-group transactions;
labour costs and employee numbers; pre-tax profit; several details about assets; and several
details about taxes and other payments to the government (Murphy 2009).1 Increased
transparency would allegedly enhance transnational corporations” (TNCs) compliance with tax
laws and other regulations and thus result in more just distribution of tax burdens, in addition to
other benefits (Murphy 2009).
The current policy discussions on broad country-by-country reporting began in 2003, as the
British chartered accountant Richard Murphy published a paper that outlined the idea for the new
reporting standards (see e.g. Lesage and Kaçar 2013). This proposal gained interest first amongst
civil society organizations that campaigned for economic justice and Financing for Development
issues. These calls gained increased credibility and interest amongst policy makers partly
because of the policy developments that have increased the extractive industry transparency in
the US and the EU. Consequently, several inter-governmental organizations have begun
discussing the initiative, the most notable examples being the EU and the OECD (e.g. OECD
2014, European Commission 2010). Moreover, the 2007-2009 financial crisis shaped the
political attitudes and extended the political space for demanding greater transparency of
corporate financial information. This rising societal and policy level interest has been followed
by academic attention. Country-by-country reporting has been discussed and promoted as a
viable initiative for increasing the transparency and tax compliance of TNCs on several
1 This version of country-by-country reporting will be called hereafter the “broad” version, in contrast to other
initiatives that aim to widen the current financial reporting requirements.
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occasions (Lesage and Kaçar 2013; Palan et al 2013, 64; Gallhofer and Haslam 2007, 657; Urry
2014, 181).
1.1. Extractive industry campaigns created the foundation
The campaigns and initiatives demanding greater transparency for the tax and other payments of
the extractive industry companies have created grounds for country-by-country reporting
(Christians 2012, 3). For example, Wójcik notes the importance of the “initiatives calling for
improved transparency in the extractive industries, particularly with regard to payments between
corporations and host governments” behind the calls for country-by-country reporting (Wójcik
2012, 6). One early milestone in this development was achieved in year 1999, when an NGO,
Global Witness, published a report called “A Crude Awakening” that exposed the complicity of
the oil and banking industries in the plundering of state assets during Angola”s 40-year civil war.
The report claimed that the “refusal to release financial information by major multinational oil
companies aided and abetted the mismanagement and embezzlement of oil revenues by the elite
in the country”. The report then concluded that companies operating in Angola should “publish
what they pay” to the government. This led to the establishment of an NGO coalition, Publish
What You Pay (PWYP), which called companies to “publish what you pay” and governments to
“publish what you earn” as “a necessary first step towards a more accountable system for the
management of natural resource revenues”. Today, the coalition includes more than 800 NGOs
around the world (Publish What You Pay 2014).
This kind of public attention has generated political pressure on intergovernmental organizations.
The Extractive Industries Transparency Initiative (EITI) was created by the initiative of the UK
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government in 2002-2003 in order to foster voluntary reporting on tax payments by the
extractive industry companies. Haufler has argued that the then UK Prime Minister Tony Blair
“shifted the focus of the EITI away from company reporting, which is the target of PWYP
activism, to reporting and membership by governments” (Haufler 2010, 65). An EITI secretariat
was set up in Oslo as an organisation that portraits itself as “a multi-stakeholder coalition of
governments, companies, investors, civil society organisations, and partner organisations” (EITI
website). The EITI requires participating governments to produce “comprehensive EITI Reports
that include full government disclosure of extractive industry revenues, and disclosure of all
material payments to government by oil, gas and mining companies”. (EITI 2013) EITI
encourages companies to support the initiative and “to promote the Standard internationally and
in countries where it operates” (ibid.). Furthermore, EITI encourages corporations to publish
more information but only on a voluntary basis. Despite its limited scope, Publish What You Pay
and many other NGOs have been partially supportive towards EITI, while continuing to criticize
its perceived flaws (Gallhofer and Haslan 2007, 649 and Haufler 2010, 66). At the same time, the
PWYP continues to campaign for disclosing information not covered by EITI, e.g. for mandatory
disclosure of the project-level payments.
Country-by-country reporting as proposed by Richard Murphy goes much further than the EITI.
The Murphy”s proposal requests a full country-level disclosure of not only taxes paid, but also of
other key financial information such as profits, names of subsidiaries and turnovers. Prevention
of corruption in a small number of industries is the major driver behind both the PWYP”s
original model and the EITI. In contrast to this, the model proposed by Murphy puts more
emphasis on enhancing tax compliance and reducing risks associated with non-transparent
corporate structures in all industries. In summary, the broad version of country-by-country
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reporting would allow informed outside spectators to assess a company”s tax aggressiveness and
different kinds of risks, amongst other things, whereas the information provided in the EITI
reports do not allow this kind of analysis. Today, PWYP endorses the broad country-by-country
reporting while continuing to campaign also for its original demands.
1.2. Dodd-Frank Act and the growing international momentum
The calls for broader corporate transparency gathered more political weight in 2010, when the
US government approved the post-financial crisis Dodd-Frank legislation (Dodd-Frank Wall
Street Reform and Consumer Protection Act). Its section 1504 required extractive industry
corporations to disclose the country and project level payments for developing countries. Hong
Kong soon followed the US example. The main focus of these initiatives was on prevention of
corruption, in line with the PWYP and the EITI. However, it seems that the US legislation
created political space for requiring corporations to move parts of their financial disclosure from
the sphere of corporate secrecy to public domain, although this causality is of speculative nature.
The European Commission (EC) started consultations on country-by-country reporting in 2010
as part of the revision process of the EU”s transparency and accounting directives. The EU
concluded the reforms in 2013, and the ambition level of the amended directive was by and large
in line with the Dodd-Frank Act, with some exceptions.2 Broad country-by-country reporting
was also present in the official negotiations in the revision of the EU”s non-financial reporting
rules in 2013. Moreover, the capital requirements directive required systemically important
banks to provide increased country-level disclosure in the EU. The OECD, the IMF and the G8
2 The EU”s reporting requirements were extended to cover also some forestry companies, in
addition to the oil, gas and mining sectors included in the Dodd-Frank Act.
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group have also issued statements and initiating discussions on extended country-by-country
reporting requirements (Lesage and Kaçar 2013, 262; Spencer 2014, 55-56).
So, in summary, corporate secrecy has become a contested issue in what can be considered its
most important realm, namely the financial information of the corporation. Compared to the
environmental or social performance of the corporation — two themes regularly covered in CSR
reporting — financial information is often much more closely related to the economic bottom
line of the corporation. This development has taken place in the late-1990s and especially in the
2000s, as the advocates of transparency have gradually managed to extended politically feasible
demands from the rather modest requirements of the EITI to the “hard core” of international
business. The proponents of the increased disclosure have stressed benefits related to tax
compliance; transparency of risks and other factors, but opposition has also been fierce.
Corporations and their spokespersons have maintained that increasing transparency would entail
significant extra costs (e.g. Confédération Fiscale Européenne 2013), even though some other
corporate representatives have challenged this claim (Global Witness 2013). In general, the
corporate lobbies have argued that detailed country-level reporting would reveal essential trade
secrets that are necessary for business and that wider reporting would distort competition since it
could not be applied globally (e.g. Confédeération Fiscale Européenne 2013).
In the next chapter I will argue that the recent research on this theme has not paid sufficient
attention to the historical backgrounds of these demands. I will show how increased countrylevel
disclosure was a relevant demand already in the 1970s. I will present an overview of these
ideas followed with discussion on why the initiatives were forgotten. This will enable me to
analyse what factors may have aided the initiative to gather more support today.
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1.3. Research material and methodology
This article reviews and analyses the key academic publications and the UN policy documents
from the late 1960s to early 1980s that advocated different forms of country-by-country
reporting requirements for corporations. The academic discussion was documented by
identifying the most important reports, articles and books that started and carried forward the
discussions on the power of corporation in mainstream political economic discussions. I searched
this material from web databases and by other means. I screened the policy related material by
going through all material issued by the UN Center for Transnational Corporations (UNCTC)
and from reports and documents that preceded its creation. I also screened the key academic texts
that dealt with the political or planning power of the corporation, especially from the 1960s
forwards. I carried this exercise forward until same references started to reappear regularly. In
addition, this article utilized the US Senate subcommittee hearing documents as a background
material, as well as academic articles that described these policy processes (Auerbach 1962;
Sagafi-Nejad et al 2008; Rahman 1998). The documents were analyzed by close reading
(Trediga and Milne 2006).
2. Precedents of the country-by-country reporting initiative
2.1. Country-by-country reporting in academic publications
Even though the non-market aspects of large corporations have been discussed in institutional
economics for over a century (e.g. Veblen 1904, Berle and Means 1932), as well as in Marxist
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studies (e.g. Baran and Sweezy 1966) the problems associated with the intra-firm profit shifting
first became a widely debated issue in the 1960s and in the 1970s. Authors such as Bhagwati
(1964) and Lall (1973) conducted empirical research on how large companies distort the prices
they use in their intra-firm trade. Galbraith (1967, 1973, 1977, 1993), Barnet and Müller (1974),
and Nader et al (1977) approached the phenomenon from more theoretical perspectives.
Galbraith proposed that the modern corporation should be analyzed as a system of planning and
administration instead of building on the idealized picture of a market system whose actors set
prices according to the market mechanism regardless of the types and sizes of corporations that
dominate the market (Galbraith 1967; Barnet & Müller 1974, see also Ylönen and Teivainen
forthcoming on these discussions).
Galbraith”s books (especially The New Industrial State, 1967) were of particular importance in
starting the debate on the power of large corporations in the US in the 1960s and 1970s.3 Several
U.S. Senate subcommittee hearings discussed “administered prices” used by monopolistic
companies in the US in years 1957-1963 and on the “role of the giant corporation” in the US
economy in years 1969-1975. Barnet and Müller”s book Global Reach (1974) gathered a
plethora of attention in the 1970s and partly expanded many of the themes originally introduced
by Galbraith, even though some critics saw deficiencies in the methodology of Barnet and
Müller that Müller then denied (see Vernon et al 1973; Keohane and Ooms 1975, 170; but see
also Müller 1974). Whereas Galbraith focused largely on how large corporations were able to
3 Galbraith”s contributions on the monopolistic nature of the US economy can be found in embryonic form also in
his earlier book American Capitalism (Galbraith 1993 [1952]). Moreover, he revisited some of the arguments he had
put forward in the New Industrial State, in The Economics and the Public Purpose (1973) and in the Age of
Uncertainty (1977).
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plan and fix their prices in the economic system of the US in the 1960s and 1970s, Barnet and
Müller adopted more international approach as they analyzed the various ways how corporations
can “fiddle their accounts” and avoid taxes by intra-company transfers. Barnet and Müller saw a
situation where the
[g]lobal economic process is producing a new concentration of political power in what
are, in legal and political terms, private hands. … The principal source of their power is
their control of knowledge of three specific kinds: the technology of production and
organization—i.e., how to make, package, and transport; the technology of obtaining and
managing finance capital—i.e., how to create their own private global economy insulated
from the vicissitudes of national economies by means of shifting profits and avoiding
taxes; the technology of marketing—i.e., how to create and satisfy a demand for their
goods by diffusing a consumption ideology[.]” (Barnet and Müller 1974, 214)
Barnet and Müller also discussed how the “relative bargaining power” of corporations is
associated with the level of knowledge in the countries where they operate, and how this
discrepancy of power is particularly troubling in the “poor” countries (ibid, 193). Richer
countries were not, however, immune to the problems caused by increasing complexity of the
modern corporation and its operations. “The ease with which global corporations can conceal or
distort information vital for the management of the economy is creating the same sort of
administrative nightmare for the advanced industrial state that underdeveloped countries have
lived with for years”, Barnet and Müller predicted (1974, 256). In hindsight, this was a bold
statement, but these words did contain a significant seed of truth, as demonstrated today by the
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difficulties that both the OECD and developing countries have encountered in their attempts to
ensure large corporations” tax compliance and sufficient transparency.4
One area where Barnet and Müller did not go very far, however, was policy alternatives. Even
though Barnet and Müller noted that “corporate statesmen and business reformers talk little in
public about the need for more disclosure” and recognized the need for “international regulation”
(Barnet and Müller 1974, 371), their greatest contribution in the field of alternatives was a rather
modest suggestion for an international “code of conduct” that would cover “the rights and duties
of states and global corporations”. (Barnet and Müller 1974, 372) Moreover, they argued that
Global Corporations “should become quite literally citizens of the world”, contrary to the
prevailing situation where corporations are establishing minimal and largely unenforceable limits
on their power to penetrate all national borders in the process of private global planning. (Barnet
and Müller 1974, 372)5 The policy implications of what it would mean to treat corporations as
“citizens of the world” did not, however, get much attention from Barnet and Müller.
Nader et al (1977), on the other hand, developed the analysis further by suggesting new ways to
better regulate the large corporations. They maintained that “[s]ecrecy often seems the first rule
of corporate bureaucracies, whether they are dealing with citizens, Congress, or the regulatory
4 Barnet and Müller quoted Leonard Spacek, the former chairman of Arthur Andersen & Company, who though
“that the magic words “generally accepted accounting principles” on corporate financial statements are a “fiction””
(Barnet and Müller 1974, 264) in a world where “[s]killed obfuscation is now an essential accounting tool” (ibid.,
263).
5 A conduct is often understood as a voluntary measure, but Barnet and Müller referred to a binding treaty that
would regulate the global activities of de facto global corporations.
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agencies.” (ibid., 132) This poses a problem “[b]ecause knowledge is essential to democracy,
more corporate disclosure can educate, and even mobilize, communities about the hidden tolls
local companies impose—such as pollution, discrimination or underpayment of taxes” (ibid.,
136). In addition, “[m]ore corporate disclosure will also help to loosen the tight embrace between
government and business, which flourishes, like most embraces, in darkness.” (ibid.) Moreover,
the book covered common corporate critiques against transparency. The corporations often
“invoke the exigencies of the free enterprise system, which would supposedly be impaired if
additional disclosure is compelled” (ibid., 137), “joined with impassioned pleas for privacy for
the corporate “person” from the prying eyes of the public and competitors” (ibid., 138).
Consequently, trade secrecy had become “an all-purpose excuse for declining an information
request”, even though “the actual trade secrecy privilege is quite narrow” (ibid., 138).
The solutions put forward by Nader et al bore a great resemblance to the current broad countryby-
country initiative. Nader et al demanded that “consumers, taxpayers, labor, antitrust enforcers,
security holders, and state and federal authorities” should be adequately informed about the
activities of the US corporations. To achieve this, “each federally chartered corporation should
reveal its investment interest in all other companies, both foreign and domestic. All joint
ventures should be included, with identification of coparticipants, changes of ownership, and
nature and extent of the business activity. Each firm should also disclose significant long-term
contracts or debt relationships with all other companies, foreign or domestic. Existing SEC rules
require corporations to report information only for those holdings that constitute 10 per cent or
more of their aggregate assets”. (ibid., 173) Even more significantly,
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The SEC”s primary effort here should be to standardize financial reporting among all large
corporations—taking into account differing economic realities in differing industries only where
absolutely necessary. “Consolidated” financial statements should represent the full operations of
the firm instead of, as at present, often only partial segments, with subsidiary or affiliated
corporations reporting as separate corporations. In multinational firms, statements should be
broken down on a “U.S.” and “all foreign” basis, in addition, there should be foreign financial
reports furnished on a country-by-country basis. The flow of foreign investment, both to and
from U.S. corporations, should be regularly disclosed, including identification of the nature of
specific new U.S. corporate investments abroad and deposits in foreign banks as well as periodic
identification of foreign loans or investment in U.S. corporations and international joint ventures.
(ibid., 176, emphasis added)
It is difficult to overstate the importance of the quotation above. While the level of detail on what
should be reported was not exactly the same as how the broad country-by-country reporting is
understood today, several of the key aspects were included.6 Most importantly, Nader et al
captured the ultimate purpose of broad country-by-country reporting, namely that the financial
reports should disclose all relevant information on corporate activities on country-by-country
basis. Moreover, he saw the initiative crucial for altering the relationships between democracy
and capitalism. However, this idea did not generate further discussion. Some authors mentioned
the book in the following decades (e.g. Strange 1997; Carruthers and Lamoreaux 2009), but
apparently nobody developed this particular aspect of the book further. To the best of knowledge
6 In addition, they also proposed other demands that dealt with corporate ownership and control, corporate relations
to the government, security holder disclosure, management income and corporate management-accountant relations
(Nader et al 1977, p. 173-176).
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of this author, the commentaries on Nader”s book focused on other aspects of its contents than
the country-by-country reporting initiative. The Barnet and Müller”s book encountered similar
fate. Other scholars either criticized the book for too negative take on the corporation (Vernon
1974), or used it mostly for statistical references.
2.2. Precedents of country-by-country and segmented reporting in the UN
In addition to academic interest, states discussed initiatives for extending the financial reporting
of transnational corporations under the UN auspices in the 1970s and the 1980s. State
representatives quoted the various reports and studies documenting corporate misbehaviour (see
previous chapter), demanding concerted action against tax evasion, tax avoidance and other
questionable corporate practices. Another strand of pressure arose from the publication of a US
Senate subcommittee report in 1971 that confirmed the alleged involvement of one of the largest
multinational in destabilizing the democratic government of Salvador Allende in Chile (Rahman
1998, 595). In the July 1972 meeting of the ECOSOC, Chilean representative demanded that the
UN should commission a high-ranking expert commission to study the role of multinational
corporations (ibid. and Sagafi-Nejad et al 2008, 43-47). The ECOSOC resolution stated that
“[t]he international community has yet to formulate a positive policy and establish effective
machinery for dealing with the issues raised by the activities of these corporations” (ECOSOC
1972, 3).
The ECOSOC decided to “appoint from public and private sectors and on a broad geographical
basis a study group of eminent persons intimately acquainted with international economic, trade
and social problems and related international relations, to study the role of multinational
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corporations and their impact on the process of development[.]” (ECOSOC 1972, 4). This event
marked the beginning of the UN efforts to regulate transnational corporations in the 1970s. The
ECOSOC took the initiative forward by forming the 20-member Group of Eminent Persons
(GEP) in year 1972. The group included nine members from the public sector, six from
academia, and five from public and private enterprises (Sagafi-Nejad et al 2008, 57).
The GEP finished their report in 1974 and recalled, amongst other things, that a Commission for
Transnational Corporations and an Information and Research Centre on TNCs should be
established under the ECOSOC (Rahman 1998, 599).7 A year later, in 1975, the Centre for
Transnational Corporations (UNCTC) was formed under UNCTAD, and it operated until the
year 1993 (Sagafi-Nejad et al 2008, 6). The UN member states decided also to form several subgroups
under the UNCTC. One of the groups that the UN members created was the UN group of
accounting experts (“GEISAR”) that convened in the year 1976 (Rahman 1998, 598). This
particular group is the most interesting one for the purposes of this paper.
Before discussing the GEISAR reports further, it is worth mentioning that there were some
interesting ideas in the GEP report as well. The GEP report noted that “[a]dvances in
communications technology allow many multinational corporations to pursue global strategies
which, rather than maximizing the profits or growth of individual affiliates, seek to advance the
interest of the enterprise as a whole. Lack of harmonization of policies among countries, in
7 UN Department of Economic and Social Affairs DESA prepared a background report Multinational Corporations
in World Development in the 1973 for the GEP. Many of the recommendations and analyses of the GEP group drew
heavily from this 1973 report (Sagafi-Nejad et al 2008, 59).
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monetary or tax fields for example, allows multinational corporations on occasion to utilize their
transnational mobility to circumvent national policies or render them ineffective.” This
circumvention is conducted usually “by corporate planning mechanisms situated in a few
industrial countries” (UN 1974, 30), resulting in a situation where “the “invisible hand” of the
market is far from the only force guiding economic decisions” (ibid., 41).
Furthermore, according to the GEP report, corporations can thus engage in “price discrimination,
and transfer pricing”, amongst other market-distorting acts.8 (ibid., 30) The report noted that “a
policy framework which may be adequate for dealing with national corporations needs to be
modified when dealing with multinational ones” (ibid., 31), since national attempts to raise taxes
“can be negated by vertically or horizontally integrated multinational corporations through
transfer pricing and the use of tax havens” (ibid., 35). At the time, this sort of analysis on transfer
pricing and tax havens was rather unusual in its tone and contents. While the GEP report
included some policy demands,9 its major policy contribution was to pave way for the further
UN work on transnational corporations. It was especially the 1977 GEISAR report that took the
substantial accounting related issues forward.
8 It should be noted that transfer pricing as such is a necessary feature of intra-company trade in any corporation.
Transfer pricing can facilitate tax avoidance when the prices used in the intra-firm price are being distorted.
9 The report demanded that the developing countries should have larger share of the benefits from the operations of
transnational corporations (p. 29) and that capacity building and regional cooperation should be used to strengthen
the negotiating capacity of developing countries (p. 36-42). Other issues, such as sanctions and procedures in the
cases of nationalizations, were also discussed.
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The aforementioned first GEISAR report noted that traditional annual reports are oriented to the
information needs of shareholders and creditors, and that there is a need for broader, improved
and more harmonized corporate reporting (UN 1977, 2). A great deal of the report described
national differences in accounting practices of different countries and on the efforts to harmonize
them. However, the report also made a detailed proposal for the items that should be furnished in
the future accounting standards. The proposal included a section on “Financial information on
members of a transnational corporation group” (ibid, 20) and another section on “Reporting on
segments of a transnational corporation” (ibid, 21). Following information was proposed for
reporting under the first category (ibid, annex p. 8):
1. List of significant subsidiaries and percentage ownership (by geographical area of operation),
justify exclusion of any such subsidiaries from consolidation. Carry excluded subsidiaries at
equity or disclose equity in the foot-notes.
2. List of associated companies and nature of relationship with parent company (by geographical
area of operation). Justify carrying such investments at other than equity and disclose equity in
the foo-notes.
3. Disclosure of identity of parent company in reports of subsidiaries.
4. Disclosure of information on the following (eliminated in consolidated statements)
(a) Intercompany sales
(b) Intercompany charges for interest, royalties, license fees, rental for use of tangible property
and other intangibles
(c) Intercompany charges for research and development, advertising, management services and
other allocated expenses
(d) Net increase (decrease) in intercompany investments
(e) Net increase (decrease) in intercompany loans
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In addition, the GEISAR report demanded segment reporting for assets or net assets, revenues,
earnings, exposure to exceptional risks, principal activities in each area, new capital investments,
identifiable assets by industries, other assets, revenue and sales by industries, and one or more of
the following: profit contribution, operating profit, profit before taxes, and net profit. The
proposal thus included many of the elements of the broad country-by-country reporting as, but
with some of the key data reported on segmented level instead of country-by-country basis.
The work of the GEISAR group then continued in several subsequent reports. In the 1980
interim report the group noted that “[t]ransnational corporations should make available to the
public in the countries in which they operate clear, full and comprehensible information designed
to improve understanding of the structure, activities, and policies of the transnational corporation
as a whole. The information should include financial as well as non-financial items and should
be made available on a regular annual basis[.]” (UN 1980, Annex III) In addition, the
“information provided for the transnational corporation as a whole should be broken down by
geographical area or country, as appropriate, with regard to activities of its entities, sales,
operating results and significant new investment; and by major line of business[.]” (ibid.) These
ended up being the most important demands of the UNCTC machinery for broader corporate
reporting, alongside the suggestions put forward in the 1977 report. While the details differed,
the goals were very close to the contemporary demands: to produce public, geographically
divided information on all relevant business activities of the corporation.
Then the atmosphere changed. In the year 1984, GEISAR had switched to more cautious tone in
its analysis and its mission had been significantly narrowed. Instead of pursuing to develop new
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accounting standards, the Group”s mandate had been changed “to review material from
international accountancy bodies and other interested groups” (UN 1984, 3). According to
Rahman, this reflected the increased prominence of the self-regulatory International Accounting
Standards Committee (IASC) as the main body for discussions on international accounting
regulation. In addition, the Group “considered it necessary to take account of the need of
transnational corporations to maintain business confidentiality in sensitive areas, in particular so
as not to jeopardize their competitive position” (ibid, 5). The goal was then set to “international
harmonization” as the long-term objective. (ibid, 5)
The new rhetoric resonated well with concerns that some delegations had already with the first
GEISAR report, calling it “overly ambitious”. (ibid., 5) The ambition level was significantly
reduced as a distinction was made between “general purpose” and “special purpose” reporting.
Public disclosure of “special purpose” reporting “might” be permitted only by “mutual agreement”
instead of mandatory requirement. (ibid., 5) Finally, in 1988, the UN released its conclusions on
the accounting and reporting by transnational corporations (UN 1988). Even though the
conclusions still included much of the ideas from the first GEISAR report, it had become clear
that the UN had been side-lined in the discussions on international accounting regulation.
UNCTC was dissolved in the year 1993, with some of its functions integrated to the UNCTAD.
Sagafi-Nejad et al (2008, 29) describes these events by noting that “as nation-states became more
friendly towards FDI, competing over who would give more generous incentives to attract
companies, the role of the UN shifted. The emphasis on a code of conduct, which had taken
center stage in the early years of the life of the UN Centre on Transnational Corporations, was
relegated to a secondary position and eventually oblivion[.]” After the UNCTC was dismantled,
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the UNCTAD occasionally touched upon accounting issues in some of its seminars, mostly from
the angle of capacity building for the developing countries (Sagafi-Nejad et al 2008, 137). While
the UNCTC”s work on accounting continued to receive some coverage (e.g. Cobham and
McNair 2012, 44), the early proposals for country-by-country and segmented reporting were
largely forgotten.
It should be noted that the short period of the UN”s leading role in discussing international
accounting regulation was characterized by rapid decolonization especially in the 1960s.
Moreover, the conclusion of bilateral tax treaties for the elimination of double taxation emerged
from the 1960s onwards “as a salient feature of inter-State relations” (UN 2003, 3). The OECD
published its first draft model treaty for bilateral treaties in 1963 and finally the OECD Model
Double Tax Convention on Income and on Capital in 1977 (UN 2003, 3). The rules for dividing
the corporate tax incomes between states were thus developed in the same period when the UN
was discussing the rules for financial disclosure of these activities. In a way, the decolonization
accentuated many of the potential problems related to the misuse of transfer pricing that the UN
then attempted to tackle. The problems associated with tax and capital flight were thought to be
particularly developing country concerns, reflected in a strong North-South divide in many of the
debates.
3. Discussion
Corporate secrecy has become a contested issue. Contrary to a common perception, however,
there seems to be little new in the demands for greater corporate transparency. This article has
shown that scholars and the UN proposed increased country and project level disclosure for
Ylönen 21
transnational corporations already in the 1970s. The level of detail of these proposals varied, but
the perceived problems and the ways to solve them were much in line with the contemporary
concerns over corporate secrecy and its consequences. I maintain that this itself is an important
contribution to the blossoming academic interest towards transparency of the corporate financial
accounts, because the country-by-country reporting initiative has been portrayed as of a
relatively recent origin (Lesage and Kaçar 2013; 266; Urry 2014, 181). The only exception to
this seems to be Wójcik (2012), who mentions the UNCTC”s work on segmented reporting in his
paper. While the currently discussed broad version of the country-by-country reporting was
introduced only in the year 2003, the earlier attempts to widen corporate disclosure bear close
enough resemblance to broad country-by-country reporting for meriting academic attention.
It is also interesting how widely the UN reports understood the problems and threats posed by
tax havens, already in the 1970s. As explained earlier, the UN stated that the national attempts to
raise taxes “can be negated by vertically or horizontally integrated multinational corporations
through transfer pricing and the use of tax havens” (UN 1974, 35). In contrast to this, virtually all
of the academic literature on anti tax haven measures has focused on initiatives developed in the
1990s or later. The aforementioned passage suggests that researchers may want to look further
back in history to map the origins of anti tax haven policy actions. This is not the purpose of this
paper, however. I thus proceed by revisiting the analysis by Lesage and Kaçar on the factors and
threats behind the current rise of calls for country-by-country reporting, in light of the findings of
this article.
3.1. Ideas and institutional factors behind country-by-country reporting
Ylönen 22
It is worthwhile to analyse the possible reasons why demands for broader corporate transparency
failed in the 1970s, why have they fared slightly better during this era, and what could we learn
from these differences. Lesage and Kaçar (Lesage and Kaçar 2013, 277-281) have analysed the
explanations for the relative success of the current country-by-country reporting initiative, and
their analysis will provide a good starting point. Adopting a neo-Gramscian approach, they
associate the growing interest and success of the country-by-country reporting to various ideas
and institutional factors. Regarding the ideas behind country-by-country reporting, Lesage and
Kaçar find four different strands behind the “movement” for the country-by-country reporting: 1)
the tax justice CSO movement, 2) increasing interest in the tax-development nexus by the
development community, 3) the concerns about the ethics and social contributions of the
extractive industry, and 4) the fight against illicit financial flows. Even though these strands
differ in many respects, the country-by-country reporting has emerged as the policy demand
common to all four of them. Lesage and Kaçar also note how all four strands have been spurred
by developments in the international political economy over the last decade, such as the growing
awareness of the questionable aspects of financial and economic globalization (e.g. illicit
financial flows, tax havens), the UN project for the Millennium Development Goals, the UN
process on “Financing for Development”, ehigh-profile tax scandals, and the 2007-2009 global
financial crisis.
Lesage and Kaçar further note that the current movement for country-by-country reporting has
been “helped by institutional elements”. They draw attention particularly to the emerging interest
towards tax and development in the UN, OECD, EU and the Leading Group for Innovative
Mechanisms for Development, which “in turn is largely a result of the UN Financing for
Development process” (Lesage and Kaçar 2013, 278). They also note that this case shows the
Ylönen 23
importance of UN processes, “even though they are often criticized because of a lack of
immediate and substantial results”. Furthermore, Lesage and Kaçar note the importance of
IASB”s reviews of the IFRS reporting standards by the as the other institutional factor. IASB is
the successor of the aforementioned IASC and currently the only major international (selfregulatory)
body in international accounting regulation (e.g. Botzem 2012). The IASB has been
opposing country-by-country reporting, but Lesage and Kaçar still maintain that these reviews
have generated public attention for the campaign.
Comparing the Lesage and Kaçar”s analysis on the current situation to that of the 1970s, we can
see many similarities but also some major differences. First, starting with the institutional
factors, there was clearly a strong interest in the tax-development nexus by the development
community in the 1970s, at least within the UN. Second, the ethics and social contributions of
the extractive industry were discussed widely. Third, while there was no “fight against illicit
financial flows” as there is today, there certainly was a “fight” against malpractices by
transnational corporations in the developing countries, as demonstrated by the founding of the
UNCTC and e.g. by the US Senate subcommittee hearings. Most of the factors identified for the
success of the initiative were thus present also in the earlier wave. The one single factor that was
missing in the 1970s, compared to the factors presented by Lesage and Kaçar, was the tax justice
CSO movement. Lesage and Kaçar also note the significance of the 2007-2009 financial crisis as
an impetus for more transparent reporting. This factor naturally did not exist in the 1970s.10
10 Lesage and Kaçar do not include consumer awareness as a factor behind the current interest towards the countryby-
country reporting, but it is likely that this factor has also played a role in the recent developments. The power of
consumer opinion has been demonstrated e.g. in Gallup survey where a third of Britons said they are currently
boycotting a company “because it does not pay its fair share of tax” while 45 per cent stated they are considering a
Ylönen 24
Moreover, competing interests between the OECD and the southern countries characterized
discussions in the UNCTC. Today, the states have a more widely shared sense of the problems
that tax avoidance, tax evasion and other malpractices cause in both North and South.
Probably the most marked institutional difference between the international political situation of
today and the 1970s is the current heterogeneity of the global governance of economic affairs,
i.e. the institutional factors. When the UNCTC was launched in early 1970s, there was clearly a
power vacuum in the sphere of international accounting regulation. The UNCTC was able to
occupy that political space for a short span of a couple of years. Things changed rapidly,
however, as the newly formed IASC gained political prominence and, with a backing of the
major superpowers, emerged as the arena for discussions on international accounting regulation.
There was no room left for a genuinely influential policy work for the UNCTC as the major
players in international politics backed up the IASC. The IASC”s successor IASB has been at
least as reluctant towards country-by-country reporting as the IASB”s predecessor. Contrary to
the 1970s and the 1980s, however, one self-regulatory organization can no longer dominate the
discussions on international accounting regulation, not even with a mandate that greatly exceeds
that of the IASC. This gives further strength to the earlier argument that the sometimes-criticized
UN processes can be of vital importance in shaping the international policy agenda.
boycott (ComRes 2013), as well as in a public outrage on companies like Starbucks (Bergin 2012) and Stora Enso
(Ylönen and Laine 2014) that have been claimed to avoid taxes. It is also telling that a Finnish employer
organisation of the Nokia corporation decided to change their healthcare service provider after the company they
have been contracting the services from gained negative publicity from an alleged thin capitalisation related tax
avoidance structure (Helsingin sanomat 2012). This mood was not present in the 1970s.
Ylönen 25
It is also significant that while the IFRS has become the prevailing standard in the EU and
altogether in about half of the world”s nations (The American Institute of Certified Public
Accountants 2014), the standards can be adopted on a selective basis. This, together with the
precedent created by the Dodd-Frank Act, has created room for extending the country-bycountry
reporting requirements regardless of the IASB”s opinion. This kind of selective adoption
is particularly notable in the EU. There has also been a certain “institutional creep” in the OECD
and even in the IMF, as they have expanded their policy discussions to the field of accounting
regulation. So, while the IASB still champions the development of the IFRS standards, the
application of these standards has become an area of political contestations. Country-by-country
reporting initiative is one significant example of these contestations. Moreover, the expertisebased
civil society organizations such as the Tax Justice Network, together with a more diverse
financial media than in the 1970s, also act as watchdogs that pressure the international
organizations and politicians for more ambitious targets in promoting transparency.
In summary, the project for extending country-by-country and segmented reporting in the 1970s
was institutionally conducted in a sort of winner-takes-it-all situation. The UN made a major
headway with the work conducted in the UNCTC and its GEISAR group, but their glory faded as
the balance of power shifted in favour of the IASC. This development was accentuated by the
lack of additional forces (civil society, media, other international organizations) that would have
been able to keep up the pressure. In comparison, today”s political situation is much more
diverse with regards to both ideas and institutions. This allows CSOs, international
organizations, politicians and even investors to gain small but repeated political victories in
progressing the country-by-country reporting in spite of the powerful resistance from the IASB
and elsewhere. Moreover, various EU bodies have expressed their support for the initiative.
Ylönen 26
Furthermore, Lesage and Kaçar note that there are many obstacles that can still stop the progress
of the country-by-country reporting. One obstacle is the power of the business lobbies that
oppose wider disclosure. Second obstacle is the tendency to restrict the reporting to the
extractive industries. The IASB has agreed to open up the discussion on the narrower demands of
the Publish What You Pay Coalition, but not on the full country-by-country reporting. As a result
of these obstacles, Lesage and Kaçar maintain that “there is a danger that, under pressure from
business interests, Western governments will limit themselves to a minimalist approach in which
the extractive industry is singled out as a scapegoat, while leaving the rest of big business off the
hook” (Lesage and Kaçar 2013. 279). This could result in disempowering the movement, Lesage
and Kaçar argue.
The example of the development of broader disclosure requirements in the UNCTC shows how
difficult it is to create a lasting political initiative if its success depends on the political will and
resources of one single international organization under constant threat of losing its legitimacy in
the eyes of the prevailing powers. The results from the loss of legitimacy and power of the
UNCTC, coupled with the loss of interest of the US Senate in researching the political power of
the corporation, and with the ideological turn of the end-1970s, were devastating in such an
extent that the substantial inputs proposed by the UNCTC and the scholars of the time seem to
have been forgotten by the academia, policy makers and the civil society. On the other hand,
compared to the 1970s, there is today a much wider consensus between northern and southern
countries on the issues and problems at stake. Therefore, playing down the proposed initiatives is
and will likely be more difficult for their opponents that in the earlier decades.
Ylönen 27
3.2. Contestations on corporate transparency in the larger framework of capitalism
This article has shown how different forms of country-by-country reporting were discussed
already in the 1970s. In other words, transparency of corporate financial information was a
contested issue much before the financial crisis, massive growth of tax haven related business,
and the immaterial economy that makes it so easy for corporations to exploit the commercialized
sovereignty of tax havens. Could it then be that the contestations over corporate financial
information represent something bigger that just a partly coincidentally born initiative that has
been favoured by a particular set of institutional and idea related factors? The examples from the
1970s seem to suggest that contestations over financial transparency should indeed be interpreted
also in the wider context of democracy and capitalism. I will next turn to discuss some concepts
developed by John Kenneth Galbraith in order to analyze these questions further. I will argue
that it is likely that the level of transparency of corporate financial information is a source of
fundamental and persisting conflicts in corporate-state relations, as well as between the planning
system utilized by large transnational corporations and the more competitive market system
typically associated with smaller companies (Galbraith 1967).
According to Galbraith, “the great corporation maximizes not pecuniary return but the whole
complex of organizational interests of which pecuniary return is only one part, and that it goes on
to ensure that the goals of the larger community and state will be sympathetic to its own” (1967,
617-618). Corporate planning is a consequence of the need to balance between these diverging
interests (Galbraith 1967, 646). And, “as viewed by the firm, elimination of a market converts an
external negotiation and hence a partially or wholly uncontrollable decision to a matter for purely
internal decision” (ibid. 652). Information is a key prerequisite for successful planning. “There
Ylönen 28
must be men whose knowledge allows them to foresee need and to ensure a supply of labor,
materials and other production requirements; those who have the knowledge to plan price
strategies and see that customers are suitably persuaded to buy at these prices; those who, at
higher levels of technology, are so informed that they can work effectively with the state to see
that it is suitably guided; and those who can organize the flow of information that the above tasks
and many others require” (ibid., 685). This planning economy runs parallel to the market
economy, where companies have to take prices as they exist in the market or, in case of
subcontractors, as defined by the large corporations who negotiate the contracts.
I maintain that the level of financial transparency is a major factor in determining where the
competitive markets end and the planning economy begins, even more so than in the
comparatively closed US economic context that Galbraith analyzed in the 1960s and the 1970s.
As Barnet and Müller noted already in the 1970s, the international dimension greatly expands the
possibilities for corporations to plan their prices. However, the globalization of business has led
to a situation where the control of information carries much more importance in determining how
well the corporation can or cannot plan where to show its profits and what prices to utilize. There
are three factors behind this increase in the importance of information as a factor of the planning
power of larger corporations.
First, the globalization of business has led to an increasing number of situations where tax
authorities do not automatically possess the information needed to validate the tax information
they have obtained from a company. Even if authorities can request the company to provide
whatever accounts they need to assess the tax payments, they need substantial resources to
conduct these requests. Moreover, by requesting information from the company, the authorities
Ylönen 29
in effect indicate to a company that they are monitoring it. Therefore, tax authorities have to rely
at least partially on publicly available data in their risk analyses and screenings of companies that
should to be audited. The more information that is publicly available to the authorities, the
greater opportunities they have for conducting and monitoring corporate tax issues. In a situation
where the level of national and aggregated level availability of financial accounts has stayed
more or less stable and business has globalized, the actual relative level of publicity has greatly
declined. This stems from the fact that the more complex and multinational a company becomes;
more effort is consequently needed to understand its internal workings. This has increased the
planning power of corporations over their internal prices and decreased the planning power of
states to design and implement their tax systems.
Second, the global, brand-driven corporations are in greater danger to suffer from negative
publicity than in the earlier decades. The greater the level of publicity of financial accounts, the
greater probability there is that aggressive tax planning arrangements will create negative
publicity for the corporation. Transparency of country-level financial information acts thus as a
catalyst that can urge corporations to restrict their tax planning, shifting the balance of planning
power more to states” favour and helping to maintain the sphere of competitive market economy.
And third, the extent of country-level financial transparency can affect the division line between
the planning economy and market economy. More financial information gives better tools for
competitors and subcontractors to evaluate the profitability of particular business units or
activities, thus levelling the playing field between different kinds of market actors. The less large
corporations can engage in distortive corporate planning, the more space there is for their smaller
competitors and subcontractors.
Ylönen 30
Taking these viewpoints into account, the country-level transparency of corporate financial
information should be seen as a much larger issue than a matter of securing tax revenues or
exposing financial risks that current reporting requirements do not reveal. In the contemporary
economy, the level of financial transparency can have significant impacts over where the
planning economy starts and market economy begins. Moreover, transparency requirements
affect also the capacity of states to plan their national economies, in contrast with corporations”
capacities to plan their internal transactions and profit sharing. It should therefore come as no
surprise that the demands for broader country-by-country or segmented level transparency were
so prominently present in the debates on the corporate planning powers of the 1970s, even
though the world economy was much less globalized than today. The initiative should also be
understood as a key one in attempts to make the structures and actors of global capitalism more
democratically accountable.
The large corporations and their spokesmen are most likely well aware of the threats that the
broad country-by-country reporting poses to their capacities to plan their prices, exert power over
smaller competitors, and to decide how much information they want to disclose on particular
branches of their businesses. In addition to the strong opposition the corporate front groups have
expressed toward extending the country-level transparency, this attitude is also manifest in
mushrooming voluntary “tax footprint” reports that have been published in recent years by many
companies, from the PWC”s Total Tax Contribution to the individual reports of companies such
as Vodafone and others. Typically, these reports list a rather arbitrary set of taxes and other
“contributions” that the corporation pays to some states where it operates, without any mentions
on the corporation”s tax planning, financial risks or other factors that the broad country-bycountry
reporting would reveal. In other words, the corporations take very seriously the
Ylönen 31
perceived threats of lowering the current level of corporate secrecy and thus indirectly their
planning powers.
4. Concluding remarks
In summary, this article has contributed to the body of political economy literature on corporate
transparency and power in three particular respects. First, the article has provided new
information and analysis on the early history of the country-by-country reporting initiative, thus
contributing to and in parts challenging some earlier accounts on this topic. Second, as a “byproduct”,
the text has hinted that we should look further back in history in order to understand the
history of the initiatives against tax havens. Third, the article has suggested that a framework of
“corporate planning” could be a fruitful framework in order to understand some of the tax and
transparency related conflicts between states and large corporations on the one hand, and large
corporations and the market economy on the other.
The second and third contributions are also the most interesting ones for further research. The
UN processes and early national political contestations over tax haven use would merit further
exploration. Moreover, the framework of “corporate planning” and its relationship to profit
shifting and tax haven use could also create interesting avenues for research on corporate power.
The role of corporate financial information is one area in the wider realm of corporate planning
that uses profit shifting as its tool. Some suggestions for widening this analysis are presented in
Ylönen and Teivainen forthcoming. And finally, on limitations of this study: there might be some
further strands of early studies that discuss country-by-country reporting that this author has not
Ylönen 32
managed to find. However, a great effort has been made to minimize this potential caveat in
collecting and identifying the research material.
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