Why public country-by-country reporting is important for Africa  

Multinational corporations (MNCs) are undoubtedly powerful actors in global trade and the global economy. A 2013 UNCTAD study found that MNCs control 80% of global value chains. A further 2019 study illustrated that about one-third of global output is contributed to by  MNCs.

The common narrative is that MNCs have positive benefits such as increasing employment, technology transfer among other socio-economic benefits.

The equally undeniable truth is that the presence of MNCs has had significant negative effects including irreparable environmental damage, labour abuses, weakening of domestic competitors and in some cases, even the increase in political instabilities.

On top of this, they take part in harmful tax practices that severely erode the tax bases of these countries. Yet there is very little empirical evidence on them. This is simply because a lot of this data on the operations of this MNC is not collected, especially on a geographical basis.

The local corporate governance laws of countries where MNCs are present will often require companies to file their annual returns.

This means that the affiliates present in Kenya will provide single-entity accounts. While the single-entity accounts of an MNC may be reported in Kenya, this may not help Kenyan tax officials to understand the full operations of the MNC in Mauritius, South Africa, Rwanda, and so forth.

To be able to access such information, one might assume that consolidated financial statements of the MNC could be helpful. However, this information is still not enough for tax purposes. Financial/ commercial accounting and tax accounting, which are developed for different purposes i.e. for shareholders or potential investors and for compliance with local tax laws can lead to different results.

The former incentivises maximising profits to show financial health while the latter incentivises minisimg profits to reduce taxes paid.