Public interest in tax has never been higher. Rockstars, celebrities and businesses have seen their tax affairs splashed on the front pages and vocal protesters have descended on high street premises.
Businesses are increasingly aware that they have to ensure that their tax policies and tax position reflects their overall ethos and takes into account the views of their various stakeholders. This means they need to spend time considering what their approach to tax looks like. Is it fit for purpose in terms of how they conduct themselves in today’s world? Are they managing to communicate those tax policies and help people understand how much tax they are paying, where they are paying it and why their tax profile looks as it does?
Articulating a cohesive tax policy and effectively communicating this stance together with the actual tax position can be enormously challenging. But it’s not impossible. A shift towards greater transparency, driven in part by public pressure but also by regulatory change such as mandatory country by country reporting (which is already in effect for some industries), is the direction of travel that international reforms on tax are taking. And this trend should be welcomed.
But like many things in tax, it’s not easy. It can be complicated, messy and nuanced. Country by country reporting and a blizzard of data may not achieve the objective of greater transparency if that objective is to enable stakeholders to understand the business’ overall position rather than just data for data’s sake. Without a detailed understanding of each country’s tax rules and the business activities of the entities subject to tax, how would a third party know just from the numbers whether an entity has made the correct level of tax payments in a country?
So how best to achieve transparency? Most large businesses I talk to are broadly happy with disclosing more information but are less clear on what form the disclosures should take and who would benefit from them. Tax authorities, shareholders, non-governmental organisations (NGOs) and customers all have differing requirements from this information, and it is not clear that simply providing more data will solve the problem of perceived tax avoidance by multinationals.
The focus for the future should be on obtaining an understanding of the concerns of stakeholders and improving the quality of narrative. Business can also support the sharing of information between national tax authorities and help the building of capacity in tax authorities in developing countries.
That’s the challenge. We’re working with a number of businesses on how to achieve it but the future is clear — indeed, it’s transparent!
Jane McCormick is head of the tax and pensions practice at KPMG in the UK and specialises in international taxation, particularly in the banking and energy sectors.