Assess record for 'Country-by-Country Reporting by Multinational Companies'

Transcription

1 Page 1 of 5 Assess record for 'Country-by-Country Reporting by Multinational Companies' Meta Informations Creation date Last update date User name null Case Number Invitation Ref. Status N Background Information For the purpose of analysis of this consultation you want to be identified as If you are preparer, are you -single choice reply- (compulsory) Are you listed on regulated market? - single choice reply- (compulsory) preparer Company (including financial institutions) In which country(ies) you are listed: -open reply- (compulsory) UK, Hong Kong, USA, Bermuda Do you report according to IFRS? -single choice reply- (compulsory) Do you have investments in third countries? Name(s) (of respondent and of your organisation / company) -open reply- (compulsory) HSBC Holdings plc Country where your organisation / company is located -single choice reply- (compulsory) UK - United Kingdom Please provide the name and location of parent company Your address 8 Canada Square, Canary Wharf, London, E14 5HQ, United Kingdom Your address: -open reply- (compulsory) conraddixon@hsbc.com Short description of the general activity of your organisation / company: Is your organisation registered in the Interest Representative Register? No If your organisation is not registered, you have the opportunity to register here before you submit your contribution. Responses from organisations not registered will be published separately from the registered organisations. Can the Commission contact you if further details on the information you submitted is required? -single choice reply-

2 Page 2 of 5 (compulsory) Publication: Do you object to publication of the personal data on the grounds that such publication would harm your legitimate interests? -multiple choices reply- (optional) Questionnaire 1. Would it be useful to have common EU rules on the disclosure of financial information[10] on a country-by-country basis? No [10] The Accounting Directives already require issuers to identify subsidiaries, jointly controlled entities and associates in other countries. There is, however, no consensus on what further financial data, if any, should be disclosed on a country-by-country basis. This could include information such as: the financial performance in each country including information on intra-group transactions, pre-tax profit, tax information on a country-by-country basis, etc. Please explain In replying to this question, please consider: (i) whether the existing disclosure requirements (e.g. publication of accounts by subsidiaries of multinationals in third countries concerned) provide sufficient transparency; (ii) whether there is scope for disclosing information only to public authorities (which could consolidate such information on a "country-by-country" basis before making it public); (iii) this transparency requirement in the context of corporate social responsibility; (iv) any possible negative consequences for the EU economy (e.g. impact on security of energy supply in the EU; competitive disadvantages for EU companies which may be disclosing commercially sensitive information, increased reporting costs); and (v) any possible positive/negative repercussions for corporate governance as a consequence of applying higher transparency standards. We would not be supportive of common EU rules on the disclosure of financial information on a country-bycountry basis. The potential benefits of additional geographical disclosures are discussed in response to the specific questions asked by the Commission, and the cost and complexity of country-by-country disclosures, are discussed in more detail below. However, if additional geographical disclosures are required, we would urge the Commission to work with the IASB to enhance existing IFRS rather than to create additional European only rules. European only rules would not increase comparability between all multinational companies and might result in additional reporting burdens for European companies over and above those of multinational companies based outside of the EU. IFRS 8 requires disclosure of financial information by operating segment. An operating segment is defined as a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity s chief operating decision maker, and for which discrete financial information is available. As different countries may be subject to different rates of growth, have different economic activities and be at different stages of development, businesses may often be managed on a geographical basis. However, this is likely to be by geographical region rather than individual country In addition to operating segment disclosures, IFRS 8 recognises the importance of geographical information and requires a split of external net operating income and non-current assets by country, where material, even where this does not reflect how a business is managed. It would make sense if any additional rules on regional disclosures were incorporated into IFRS 8, which already has a framework for such segmental disclosures. Amending current IFRS requirements in this way would appear a more efficient method of introducing new requirements than the creation of additional EU specific disclosure rules. 2. Would the disclosure of financial No basis by multinational companies be meaningful to investors of the company concerned? Please explain

3 Page 3 of 5 In replying to this question, please consider: (i) whether there are risks inherent to multinational companies' activities that could be identified through the disclosure of financial basis, and (ii) any possible positive/negative repercussions for corporate governance as a consequence of applying higher transparency standards. If yes, please specify the type of financial information that would be useful (e.g. intra-group transactions, turnover, pre-tax profit, tax expenses on a country-by-country basis, etc.), for which purpose, and how such disclosure could help in achieving the objective of being meaningful to investors. Please consider whether additional specific information would be needed for companies operating in certain sectors (e.g. financial services, extractive industry, other) Disclosure of financial information on a geographical basis can be useful to investors, in particular, where it reflects the way a business is managed, as it helps them understand the performance and risks of a business. However, as set out above, IFRS 8 already requires disclosure of geographical information where this reflects how a business is managed. Therefore further disaggregation across all countries is unlikely to be useful for users, if management does not manage the business at that level. However HSBC believes that the disclosure of certain country-by-country information can be useful to investors in certain circumstances. HSBC operates in 87 countries (and in 24 countries in Europe alone) and, as a result, the chief operating decision maker primarily reviews financial information at a regional level rather than country-by-country. As a result, our operating segments are Europe, Hong Kong, the rest of Asia-Pacific, the Middle East, North America and Latin America. We believe that investors benefit more from disclosures at the aggregated level of operating segments, rather than reviewing the data of all of the individual countries. For example, individual country data may show a particular country to be loss making, however, a presence in that country may be essential for the performance of the business in the region as a whole. However, HSBC voluntarily provides certain additional country-by-country disclosures of profits before tax, net loans and advances to customers, and customer accounts, for the major countries within geographical regions, where this provides investors with meaningful insight into the countries representing the main sources of financial performance and key balance sheet amounts. Disclosure of the most significant components is considered more useful to investors than a breakdown of all countries in the segment (for example, for Europe, we provide disclosures on six of the most significant of the 24 European countries). For HSBC, the introduction of mandatory comprehensive country-by-country reporting would be a very significant exercise and would result in lengthy and very detailed disclosures. The resulting disclosure would contain large amounts of information that is not likely to be significant to users of the financial statements, and the large amount of detail may even reduce the transparency of financial information Furthermore, detailed and granular country-by-country reporting would be of limited value for investors in multinational companies where there are a large amount of intra-group transactions, without considerable disclosure of what is eliminated on consolidation. Finally, we do not believe that there is any investor demand for common EU rules on country-bycountry disclosures. We believe there is pressure to improve the quality of information disclosed, rather than the granularity or volume of information. 3. Would the disclosure of financial No basis by multinational companies be useful for the purposes of improving tax governance at a global level? Please explain the type of financial information that would be useful (e.g. intra-group transactions, turnover, pre-tax profit, tax expenses on a country-by-country basis, etc.), and how such disclosure could help in achieving the objective. National governments are already likely to know the profits and tax charges of entities tax resident in their territories from information submitted with local tax returns. As governments increasingly share this information, country-by-country reporting would not greatly improve global tax governance. If reporting of financial basis were to be required, consideration would be necessary about how to report overseas tax borne by the reporting entity. For example, if a UK company has suffered irrecoverable French withholding tax, it would have to be determined whether the withholding tax should be shown as a cost of doing business in France or the UK. We understand that one of the objectives of country-bycountry reporting is to identify where transfer pricing is used for tax avoidance motives. Although there may be cases where this is true, we expect that many companies are likely to be more concerned about complying with transfer pricing rules or ensuring that they do not suffer double taxation on the same profits. If the objective is to identify the cases where tax avoidance is the primary motive, we question whether the country-by-country reporting for all EU companies is likely to be an effective and proportionate solution. 4. Would the disclosure of financial No opinion basis by multinational companies

4 Page 4 of 5 active in the extractive sector (e.g. minerals, oil, natural gas, etc.)[11] be useful in order to improve domestic accountability and governance in natural resource-rich third countries? [11] As defined in the IASB Discussion Paper DP/2010/1 on Extractive Activities (April 2010): "Exploring for and finding minerals, oil and natural gas deposits, developing those deposits and extracting the minerals, oil and natural gas. These are referred to as extractive activities or, alternatively, as upstream activities. Minerals, oil and natural gas are non-regenerative natural resources. In other words, they cannot be replaced in their original state after extraction. Minerals are naturally occurring materials in or on the earth s crust that include metallic ores (such as copper, gold, silver, iron, nickel, lead and zinc), other industrial minerals (non-metallic minerals and aggregates), gemstones, uranium and fossilised organic material (coal). Oil and natural gas, often referred to collectively as petroleum, can be defined as a naturally occurring mixture consisting of hydrocarbons in the gaseous, liquid or solid phase (such as tar sands or oil shale)." Please explain the type of financial information that would be useful (e.g. intra-group transactions, turnover, payments to governments, pre-tax profit, tax expenses on a country-by-country basis, etc.), other narrative information on activities rather than figures, and how such disclosure could help in achieving the objective. As a financial institution, we are not best placed to comment on the merits of disclosure for other industries. However from a tax perspective, many jurisdictions have transfer pricing rules and procedures for initiating transfer pricing investigations, and therefore we believe that additional country-by-country disclosure would not greatly assist domestic accountability and governance. 5. Would it be useful if financial basis by multinational companies would be presented according to predefined standards or formats? - single choice reply- (compulsory) Please explain. In replying to this question, please consider, in the absence of existing international accounting standards on this issue: (i) how could this objective be achieved (e.g. disclosure in the annual management report ); (ii) at what level should the data be comparable (e.g. at the level of the multinational "company", for the benefit of investors; at the level of the "country", for the benefit of other stakeholders; other?); (iii) who could prepare any common reporting format of this kind (e.g. the IASB, ESMA, the OECD) and what would be the advantages of the latter bodies compared to the IASB. If country-by-country information were to be required, appropriate definition and guidance on how the disclosure should be prepared would be necessary to make the disclosure understandable. However, given the diverse nature of businesses and potential differences in the way that financial information is prepared, predefined formats may provide a false sense of comparability. Furthermore, if the disclosure is meant to provide useful information to users, then disclosure of data on the same basis as that which is used by management is likely to be more meaningful than prescribed templates. As such, formats that are too prescriptive would be likely to reduce the value of the disclosures. In addition, to assist users of the information and avoid unduly lengthy disclosures, any format suggested should provide an entity the flexibility to provide information in a way which best represents the geographical exposure of the entity, whether this be by country, continent or other appropriate region. 6. If country-by-country reporting All issuers of shares in EU regulated markets were to be considered useful, what kind of multinational companies would usefully be targeted? -single

5 Page 5 of 5 choice reply- (compulsory) If country-by-country reporting were to be considered useful, what kind of multinational companies would usefully be targeted? Please explain. In replying to this question, please consider some of the following issues: (i) the benefits that disclosure by all companies may bring; (ii) the compliance cost; (iii) the extent of a company's activities in third countries (if limited extent, disclosing financial information may be prejudicial to the business position of the company); and (iv) the possible consequences for the competitiveness of EU capital markets. In general we are not supportive of country-by-country reporting however if it were required, it should be applied to all entities. Many multinational companies operate in multiple industries and hence defining a particular type of multinational company might create artificial bright-lines between industries. 7. Please provide information on the cost that you estimate that the introduction of country-bycountry disclosure requirements could entail. 8. Please provide any additional comments you may have that have not been addressed above. - open reply- (optional) 9. If you have relevant documents you want to share with us, please attach them here. (optional) -multiple choices reply- (optional) PRINT EXPORT RECORD