Tax transparency falls within both the S and G of the ESG agenda. From a social perspective, how much tax is being paid and where, and what tax strategies are being followed by companies globally? From a governance perspective, what are the policies in place, how are they being enforced, and who is ultimately responsible?
While the pressure in different geographical regions varies, market forces are demanding that companies reflect on and explain their corporate purpose and contribution to society, with expectations coming from the public, investors, customers, employees, governments and the international tax community.
As a result, there are a significant number of tax transparency initiatives. Some of these are voluntary, such as the Global Reporting Initiative (GRI) standard 207 or the World Economic Forum’s metric reflected in the Stakeholder Capitalism White Paper – both released in 2020. Others are mandatory in certain sectors or geographies, such as the Extractive Industries Transparency Initiative, the EU regime for financial institutions in the Capital Requirement Directive IV or the proposals to include country by country reporting (CBCR) in the EU Accounting Directive.
Some companies have fully embraced CBCR but many others still only report what they are legally required to do. Becoming more tax transparent requires a journey but raises many questions about the cost and systems involved, the usefulness of information to users, and potential confidentiality concerns.
Nevertheless, in order to stay competitive in market, businesses must respond to the increased focus on tax strategies, policies, reporting and risk management in connection with responsible investments. In today’s environment, investors are seeking to act more responsibly, and with tax being at the heart of governance and accountability within a business, it’s clear that tax transparency will remain at the top of leadership agendas globally for quite some time.
Tax transparency is a theme being increasingly explored through our Global Responsible Tax Program and will continue to be as the world becomes more interconnected and the discussion about who pays tax intensifies.
