Context:

Increased tax transparency is coming for many, but businesses simply increasing the amount of data available does not automatically translate into stakeholders having deeper insights about their activities nor does it help build trust between business, civil society, decision makers and opinion formers.

Over the past 12 months, KPMG International and Jericho co-hosted a series of high-level discussions with policymakers, corporate leaders on tax and ESG, investors, rating agencies and civil society campaigners to dig into the complex issue of tax transparency reporting. A network of 103 professionals were involved.

The resulting report, Public Tax Reporting: Understanding complexity; making disclosure meaningful, outlined our findings and KPMG International hosted a roundtable discussion in October 2024 to discuss the suggestions laid out and where this important issue needs to go next.

Does transparency alone lead to greater mutual understanding? Does transparency inherently build trust, or is the quality and context of disclosures – along with addressing confidentiality issues – as important? And what developments are needed in transparency practices, to further improve understanding and trust?

This conversation, focused on perspectives from Europe with an additional conversation looking at perspectives from Africa held on the same day. The conversation was conducted under the Chatham House Rule (which means participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed.) and was attended by seven expert participants (see below for a list of attendees). The write-up below summarizes the personal views of participants and does not necessarily reflect the view of any particular organization, including KPMG.

Executive Summary:

  • Transparency alone is insufficient for creating widespread understanding, especially among civil society and non-expert stakeholders.
  • Education and clear narrative accompanying data are essential for interpreting complex tax information to avoid data being misinterpreted or misrepresented.
  • While transparency is necessary for trust, participants agreed that it must be paired with clear, principle-based standards and engagement to be effective.
  • Confidentiality concerns need to be balanced against the need for more transparency, particularly with country-specific reporting, raising concerns about how much information should be disclosed to the public versus tax authorities.
  • Internal discussions within companies have improved due to transparency efforts, encouraging greater alignment and behavioural changes regarding tax strategies.
  • New digital technologies and access to more and better information may lead to tax administration playing a broader role in society, going beyond their traditional role as collectors of taxes.
  • The growing influence of technology, especially AI, will shape future transparency efforts, requiring careful consideration of its impact on trust, taxpayer rights, and confidentiality.

Does transparency lead to greater understanding?

The role of education and the need for effective narrative

Participants highlighted the role of transparency in fostering greater understanding among stakeholders but emphasized that its effectiveness relies on more than just sharing data. The data shared, especially on taxes paid, needs to be accompanied by a narrative on how the data were collected and some guidance of how it may be interpreted. Tax systems are inherently complex and without an explanation of how the tax paid are calculated this can easily lead to misinterpretation of the results.

Different groups ¬– tax administrators, investors, media, and advocacy organizations – approach tax data with varying levels of depth and detail. Tax administrators may have the technical knowledge needed to interpret the data, but non-professional audiences may require more explanation. Participants discussed the importance of developing impartial, non-partisan and independent education initiatives. Current efforts made by multinationals could be perceived as partial and influenced by their own vested interests.

Supporting civil society, citizens and wider stakeholders with their ongoing education and understanding around complex tax data was discussed as a crucial component in this context. The importance of providing a narrative alongside data was widely emphasized. Participants pointed to examples of companies like Shell and Vodafone, who not only publish their tax contributions but also include explanatory notes that help make the data accessible. They suggested that this balance between raw data and a clear narrative is essential in turning transparency into genuine understanding for a broader audience.

Does greater transparency build trust?

Is it the fact of disclosure or the content of the disclosure that builds trust? Issues of confidentiality and the importance of a principles-based approach

Participants discussed whether transparency, in itself, is enough to build trust, with many suggesting that while transparency is necessary, it is not sufficient on its own. Participants suggested that disclosure alone can help to position an organization positively, but several participants emphasized that releasing data without adequate explanation risks confusing stakeholders.

A principle-based approach to transparency was highlighted as essential. Participants noted that companies adhering to standards like The B Team’s Responsible Tax Principles 1 not only show their commitment and intention towards responsible tax externally but also start to build more trusted relationships with other stakeholders. It was suggested that trust is built through engagement, and providing a thoughtful narrative alongside data encourages meaningful dialogue, enhancing understanding between companies and their stakeholders.

The need for greater confidentiality has to be balanced against the legitimate desire on the part of a large segment of society for greater transparency. Participants highlighted issues such as the restrictions on Country-by-Country Reporting (CbCr), where certain country-specific estimates cannot be disclosed due to legal constraints. Participants suggested that balancing the different transparency needs of tax administrators, who require detailed technical data, with those of the public, who need clear and comprehensible information, remains an important issue to resolve.

What issues need to be addressed and what needs to be developed further?

Improving internal discussions around tax, a new role for tax administrations and policy makers and the impact of technology and AI

Participants highlighted the positive impact transparency has had on internal company discussions, noting that it has prompted more meaningful conversations about tax strategies. Publishing tax data has not only improved dialogue with external stakeholders but has also encouraged more active engagement within companies themselves. Board members and other internal stakeholders are increasingly involved in tax strategy discussions, leading to greater alignment and positive behavioral changes.

One area that participants suggested needs further development is the role of tax administrations. As transparency continues to evolve, tax administrations could take on a broader role beyond tax collection, addressing societal challenges such as delivering social benefits or responding to crises. Some participants suggested that this expanded role could enhance public trust in the tax system and increase the societal impact of tax authorities.

The influence of technology, particularly AI, was also discussed as a critical factor in the future of transparency in taxation. Participants noted that while AI could improve the efficiency and accuracy of tax reporting, there are concerns about its potential to undermine trust. It was suggested that the ability of technology to explain tax results clearly and understandably will be key to maintaining public confidence. As AI becomes more integrated into tax processes, participants proposed that more work needs to be done in the area of taxpayer rights and confidentiality in the digital age.

Policymakers were identified as playing a critical role in advancing transparency. Participants discussed the role of politicians and tax authorities in creating a more transparent and fair tax system. They suggested that transparency is a two-way process. As governments and tax administrations ask for more transparency from taxpayers, they also should become more transparent in the formulation and implementation of tax policy, which would promote greater accountability on the part of government to citizens. Participants highlighted the need for policies that promote transparency not only for compliance purposes but to genuinely improve trust and understanding between corporations, tax authorities, and society at large.

Contributors to the discussion included:

  1. Alessandro Bucchieri, GM Taxation, Enel
  2. Neal Lawson, Partner, Jericho
  3. Chris Morgan, Head of Global Responsible Tax Programme at KPMG International
  4. Prof. Dr. Jeffrey Owens, WU Global Tax Policy Center, Vienna University of Economics and Business
  5. Joseph Stead, Senior Policy Analyst - Tax and Development, OECD
  6. Tatyana Stepanova, Head of Tax Policy, Shell
  7. Grant Wardell-Johnson, Global Tax Policy Leader and Chair of the Global Tax Policy Leadership Group, KPMG International