Tax Transparency: Seizing the initiative
The trust an organisation builds with its stakeholders is critical. As a measure of an organisation’s contribution to the economies it operates in, tax is a key dimension in building that trust.
The public is calling for a clearer picture of organisations’ tax policies, and the amount of tax they pay. The recent debate around ‘fair tax’ has raised expectations of the level of tax information multinationals provide. And the public is waiting for a response.
However, many organisations we have spoken to are concerned that increased transparency will not deliver greater understanding but will instead create a potentially significant administrative burden and result in divulgence of commercially sensitive information. They are concerned that greater tax transparency may not be the panacea wanted by sections of the fair tax lobby.
It is clear to us that organisations cannot ignore the call for greater tax transparency. If they have not already done so, they need to consider greater transparency about the taxes they pay as part of stakeholder management.
We see the current position as a tipping point. We believe that, if there is not a step change in the level of voluntary tax transparency reporting, there is a possibility 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 individual views on any additional voluntary disclosure, but we expect more to choose to disclose more information in order to give stakeholders better insight into their tax profile.
This paper frames the questions Boards should ask in order to prepare for the possibility of substantive tax transparency reporting for the first time, or improve their existing reports by enhancing data collection processes and financial statement and other disclosures.