Building engagement upon transparency

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Chris Sanger
EY Global Tax Policy Leader Ernst & Young LLP
+44 20 7951 0150

EY’s annual Tax Policy Outlook tracks trends in tax policy across the globe, ranging from tax rates to tax burdens, incentives to anti-avoidance and stimulus to austerity. But beyond these, a consistent theme of recent years is the continuing shift towards the disclosure of tax information – “tax transparency”. This takes two key forms: disclosure to the tax authorities, and disclosure to the public.

As with any trend, it is sensible to periodically take stock of results, and consider whether objectives have been met. Given this, we would suggest that, as the G20 considers the next stages in tax transparency, it should pause to reflect on the success of its policies to date – many of which are only just starting to operate. Boosting engagement with taxpayers, so that this new information can be used effectively, rather than seeking disclosure of further data, should be the next trend.

Tax authority disclosure

Once the G20/OECD Base Erosion and Profit Shifting (BEPS) project recommendations are implemented, the world of tax transparency will be transformed. Gone is the world of information asymmetry, where taxpayers had all the information and tax authorities had to use their powers to gather data that was not voluntarily or automatically provided. With far greater disclosure requirements in place – such as through country-by-country reports – and the automatic exchange of that and other information between tax authorities, the asymmetry, to the extent it existed at all, has reversed.

First and foremost, EY wholly supports transparency between taxpayer and tax authority: taxpayers need to provide all information necessary for the tax authority to do its job of administering the tax system, ensuring that taxes due are duly paid. However, this should not give rise to an obligation for the taxpayer to provide information beyond that necessary, as every moment doing so impairs businesses’ ability to function, resulting in reduced productivity. Disclosure should be for a purpose, not be a costly default.

With so much change due to come on stream, and much greater ability to analyse such data, now is a time for monitoring rather than moving further. The information provided should be useful and any requests for more should be based on identified shortcomings that are not addressed elsewhere in the tax system.

Public disclosure

Much active discussion also exists on whether there should be more public disclosure of tax information. The G20 and OECD concluded that the new disclosures, like other tax information, should only be provided to tax authorities, and should remain confidential. That is sensible since tax filings may include commercially sensitive information.

Yet the calls for wider disclosure remain, relying on the following premises:

  • That public disclosure will ensure a greater level of scrutiny, and is therefore in the public interest. This is a worrying claim, as it inherently surmises that tax authorities are not adequately scrutinising taxpayers and that the public, with incomplete information, experience, and insight into the facts, would be better at enforcing compliance with tax law. This distrust in the quality of tax administration is troubling, and should be addressed. Tax authorities have clear performance metrics in place and if concerns exist, attention should be focused there.
  • That public disclosure will constrain immoral corporate behaviour, on the basis that tax authorities apply the law rather than make a moral judgement call. The UK requirement to publish a tax strategy, for example, may focus more attention of the board to the tax profile, and hence avoid the risk that tax is given insufficient scrutiny. However, if this approach is adopted, care must be taken to ensure that what is published is clearly understandable and focused on the risks concerned. In contrast, the publication of the BEPS 13 country by country reporting template, something clearly intended to be used by the tax authority alongside other information, would appear to fail this test.
  • That some companies already voluntarily publish similar information. The selection of what to publish is made by each business, and may be targeted at various stakeholders, including customers, shareholders and regulators. But the fact that some businesses publish data does not mean there is benefit to all doing so. In a world where financial statements are already long and complex, extra information may actually lead to less transparency, with too much data undermining a clear picture.

Any public disclosure again risks the exposure of commercial information leakage, and should therefore be considered with extreme care.

Building positive engagement

But securing information is just a means to an end: that taxes are duly paid. The G20 could use the time taken to evaluate the success of its new transparency requirements to reinforce the cooperative compliance concept championed by the OECD. The detailed understanding of business activity obtained by a tax authority under cooperative compliance can help put apparent anomalies in context and avoid needless conflict. Likewise, a robust understanding by the taxpayer of the concerns of tax authorities can ensure that responses address the issues at hand, securing efficient resolution and a growth of trust.

Indeed, as new information potentially gives rise to confusion and disputes, a further decline in that trust is a risk. That is in no-one’s interest. As part of the G20’s work on tax and growth, a recommitment to building trust would be well received. Ultimately, communication remains a human process and open dialogue will resolve queries far more efficiently than any other route.


As the G20 considers where next for “tax transparency”, we urge it to take the time to see how BEPS changes play out. All stakeholders should use the period following the recrafting of international tax rules to hold a substantive discussion of what information is needed and what is not. The fact that more information can be provided does not necessarily mean that it should. And the holding of information brings responsibilities, and hence should be carefully considered.

Governments should support their tax authorities, enabling them to rebuild the trust that some who demand public disclosure imply has been lost.

Some appear to be arguing that there is no such thing as “too much transparency,” but this should be considered carefully. With the WTO and the OECD working hard to ensure that trade secrets remain secret in order to foster and encourage entrepreneurism and innovation, it’s clear that there is a limit. We should all approach that limit carefully, rather than overshooting and regretting it later.