Basel III Mash-Up?


Earlier this week, the European Parliament reportedly began pressing to include in Basel III rules provisions for transparency on corporate tax payments. Close watchers of regulation are saying this is redundant at best, and ineffectual at worst.

Including tax transparency provisions in Basel III is a mismatch for a set of rules designed "to improve financial stability with regulations that target adequate risk management and the establishment of adequate capital requirements, so financial institutions and the financial system can better withstand more sudden or severe shocks or stresses," says Jefferson Braswell, a member of the Private Sector Preparatory Group (PSPG), started as an industry advisory group for the Financial Stability Board (FSB).

"Asking that Basel issue such an edict is a misuse of the Basel process for setting risk management and financial stability practices," continues Braswell, who is a founding partner of Tahoe Blue, a data standards and risk management consultancy. "In fact, it has nothing to do with the mission of Basel III or any other version of Basel."

Basel II regulation, the prior version of the capital adequacy rules, already includes "Pillar 3" disclosure provisions that cover transparency of tax payments, making the inclusion of the issue in Basel III unnecessary, according to Mayra Rodríguez Valladares, managing principal of consultancy MRV Associates, who follows the course of Basel III regulation provisions and implementation.

"If no-one implements [the Pillar 3 provisions] or supervises them uniformly, then it's pointless," she says.

Certainly there is pressure to keep major corporations from dodging taxes, which makes the push for transparency of tax payment data understandable. Pillar 3, more broadly, is meant to ensure disclosure of risk exposures, so maybe specificity about tax payments couldn't hurt.

Does that belong in Basel III, however? And will that priority be well-served as one piece of a new regulatory regime that will gestate until 2019 before it takes full effect? This is hitching tax collection enforcement to the wrong vehicle.

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