Closer cooperation
As businesses have less time to respond to tax authorities, they will need to work more closely with operations worldwide to build a more up-to-the-minute picture of the company’s global tax position. And globalization is forcing the tax function to shift to a broader and more collaborative posture within the group overall.
In the past, companies tended to feature significant tax resources on-site in nearly every country of operation. But as local tax models and practices have become more automated and standardized, and as more global businesses move support functions into a shared services model, so too goes the tax department.
Add digitalization of local processes and the workload begins to shift from country-focused to a situation where most of the work takes place in a global function.
“It’s a future of technology, standardization and a shift from a local to a functional view,” Trapp says.
As it centralizes, the tax function will need to forge closer ties to groups such as corporate communications and public affairs, as businesses seek to be proactive about their tax-related messaging and their relationship with tax authorities.
“By presenting a more complete picture to the external world, we help people understand how tax fits into the broader economy,” Fortum’s Salo says. “The role of education and persuasion becomes more critical.”
By presenting a more complete picture to the external world, we help people understand how tax fits into the broader economy.
Transparency push
Technology is also accelerating data sharing and analysis, leading to greater transparency.
For decades, senior executives were reluctant to publicly discuss a company’s tax position. But initiatives such as the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) project are likely to make more information accessible to tax authorities, as well as politicians and activists who could build cases that companies should be paying more taxes.
“The practice has tended to be to share nothing beyond what is required by statute and to speak of tax if and only if there was no other choice, and then only in defense of the company’s reputation and cash flow,” says Gary Paice, EY Tax Performance Advisory, Global and Americas Leader.
“In the future, companies will share more information proactively as a means of educating the public as to the full extent of taxes paid and to get in front of any potential controversy.”
A company often hears the same questions over and over again, such as queries about variances in the taxes being paid, according to Fortum’s Salo. But amid so many complexities, short, simple answers to inquisitive groups usually lead to still more questions.
For these and related reasons, Fortum decided to become more proactive and transparent in explaining its tax payments and practices, by publishing its annual tax footprint report.
Along with the company’s total tax revenue and a breakdown by tax, the report also presents an overview of the inner workings of the group’s tax department. For example, it highlights the ways the department helps its organization to achieve compliance while at the same time aiding business units in planning their operations more effectively.
“By being open, we are informing people about just how much we are contributing to the communities we serve,” Salo says. “It improves relationships and understanding.”
A version of this article was originally published under the title Tax teams enter era of broader transparency on Tax Insights
Summary
As companies share more tax information, the tax function will need to forge closer ties to groups such as corporate communications.