2014 tax risk and controversy survey highlights

Reputation risk

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Groups devoted to scrutinizing the tax affairs of large corporations have existed for decades. But many have gained a higher profile in recent years. This is due to a proliferation of social media tools that allow them to reach supporters increasingly concerned over growing income inequality worldwide and cuts to government-provided services during austere times.

Their growing support at the grassroots level has in turn made the news media and policymakers pay more attention to their views. Where they once primarily published research papers and relied on press releases to level criticism, some activists have literally found themselves sitting alongside corporate CEOs and technical experts at the witness table to give official testimony to legislative bodies.

The news media has been an even bigger driver of tax-related reputation risk. Newspapers, online publications and television and radio programs have provided exhaustive coverage of allegations of impropriety.

Others have launched their own investigations implying wrongdoing by individuals, specific companies or groups of companies, even as their reporting typically acknowledges not only the legality, but the very commercialism of the actions on which they are reporting. Often these stories — like the reports of activist groups — go viral online, eliciting outrage before their targets can muster an effective response.

Tax-related reputation risk creates many tangible challenges for companies, even when the allegations may be of dubious accuracy. A changing of the tax administrator-taxpayer relationship may be one consequence.

But more than that, consumer products and internet companies as well as commercial banks have faced organized boycotts of their products or services. Government contractors have faced difficult conversations with their clients. And sometimes, key shareholders have to be reassured.

Reputation risks are on the rise EY - Reputation risks are on the rise

Our survey results illustrate just how rapidly reputation risk has become a key concern. Overall, there was a 72% increase in the number of companies saying they are somewhat or significantly concerned about media coverage of taxes.

Eighty-nine percent of the largest companies say they are somewhat or significantly concerned. The concern is most prevalent in the Americas and EMEIA (83% and 76% of all companies, respectively) but still prominent in Asia-Pacific and the BRIC countries, where nearly 70% of the companies say they are concerned.

EY - The enterprise public profile is becoming more important The enterprise public profile is becoming more important

More than half of all companies are taking proactive steps to manage reputation risks. Fifty-seven percent of large and 65% of the largest companies say they have developed a more structured approach to managing their public tax profile. Forty-two percent of the largest companies say they have changed the way they communicate tax-related information to external stakeholders such as the investment community.

Engaging with the press: a
no-win situation?
EY - Engaging with the press: a no-win situation?

Companies in our survey said they have little appetite for engaging the media directly. Among the largest companies, 65% say engaging with the press is a no-win proposition, while just 13% disagree. Some companies have turned this notion on its head and voluntarily published additional information on their economic and social contribution.

It is clear that companies need to act deliberately and assertively to manage this complex and sensitive issue rather than risk being put in a situation where they must react to reputational challenges from a defensive posture.

This means every company should ensure that tax, C-suite executives, board members and the audit committee agree on a stance regarding whether to voluntarily disclose additional tax and social contribution information on an ongoing basis. These stakeholders must also recognize that not all markets are the same; a policy that is appropriate for one jurisdiction may not be suitable for another.