Tax transparency Seizing the initiative

The trust an organisation builds with its stakeholders is critical. Tax, as a measure of the contribution an organisation makes to the economies in which it operates, is a key dimension in building that trust. The public is calling for a clearer picture of the tax policies of organisations, as well as the amount of tax they pay. The recent debate around ‘fair tax’ has raised the bar in terms of the expectations of the level of tax information provided by multinational companies. And the public is waiting for a response.

However, many of the organisations we have spoken to are concerned that increased transparency will not deliver greater understanding to stakeholders but will instead create a potentially significant administrative burden and could result in divulgence of commercially sensitive information. Ultimately they are concerned that greater tax transparency may not be the panacea wanted by sections of the fair tax lobby.

What is clear to us is that organisations cannot ignore the call for greater tax transparency and need to consider the role and extent of greater transparency about the taxes they pay as part of stakeholder management if they have not already done so. The direction of travel appears clear and we see the current position as a tipping point.

Our view is that, if there is not a step change in the level of voluntary tax transparency reporting, there is a material possibility that mandatory changes will follow. By seizing the initiative now, organisations can help shape a more effective and workable outcome.

Groups will, of course, need to form their individual views on any additional voluntary disclosures, but we expect to see more groups choosing to disclose more information with a view to giving stakeholders better quality insights into their tax profile.

In considering additional tax transparency reporting, our recommendation is that groups:
► Recognise that now is the time to review the position with respect to additional reporting
► Review how they measure against the peer group and consider where they want to be
► Decide where is the most appropriate place to communicate (as it may not necessarily be,and in fact probably is not, wholly in the Annual Report and Accounts)
► Design the processes to collate suitable information and supporting data

By seizing the initiative with respect to disclosure, organisations can positively inform and influence the debate. The degree of momentum is now such that failing to at least consider the impact of additional reporting would raise concerns.

This paper frames the questions that Boards should ask in order to prepare for the possibility of substantive tax transparency reporting for the first time or to improve their existing reports by enhancing data collection processes and financial statement and other disclosures.

Tax transparency Seizing the initiative