Stakeholders are demanding a greater level of transparency from companies on their tax affairs. This is because tax is no longer seen as a basic cost of doing business. Increasingly, tax is being viewed as a powerful indicator of a company’s societal impact and a reflection of its broader values and purpose.
Policymakers, most notably the OECD and the European Commission, have long called for greater tax transparency, resulting in the introduction of various tax disclosure regulations. For example, EU member states have recently reached agreement on a directive that will require large companies within the EU to publicly disclose details of corporate tax paid at a country-by-country level.
More broadly, there have been growing requests for companies to disclose more meaningful information on tax, most notably in the context of the wider environmental, social and governance (ESG) agenda. Investors, customers and the public want to understand companies’ approach to tax, how tax matters are governed and how much taxes are paid.
Tax transparency is increasingly being factored into stakeholder considerations when assessing the sustainability of a business.
Transparency is not just about providing additional detail on corporation tax payments. It requires a broader view of tax strategy, risk management and the wider impact of companies’ tax contributions. The latter is particularly important because companies don’t only contribute by way of corporation tax. It is by communicating a company’s total tax footprint, including duties, levies and taxes collected on behalf of governments such as income taxes, that companies can demonstrate how they contribute to society.
PwC’s report – “A New Era in Tax Transparency” – which analyses the public tax disclosures of all 24 companies listed on the main market of the Irish stock market (Euronext Dublin) finds that Irish companies are embracing tax transparency.
Voluntary publication
Although tax disclosures are not mandatory in Ireland, the report found that many companies are choosing to voluntarily disclose information on their tax affairs because they see it is important to their stakeholders. This is being done carefully, while at the same time navigating the potential commercial risks.
While there is no requirement in Ireland for companies to publish a tax strategy, 13 of the companies voluntarily published such a document. We found that these strategies contain disclosures on many of the areas that would be of interest to stakeholders.
All of the companies made statements on their tax governance procedures and signal strong board oversight. Some 77 per cent of the companies state that their tax strategy seeks to support the company’s broader business strategy.
Tax authorities are a key stakeholder as regards companies’ tax affairs. In this respect, it is unsurprising that all companies state that they seek to have a co-operative or transparent relationship with tax authorities. All of the companies confirmed that tax risk was being managed and specifically referred to controls being in place to manage this risk.
The report found that Irish companies are primarily using their published tax strategies to communicate with stakeholders on tax, while some also choose to include tax disclosures in their broader ESG reports. Incorporating tax disclosures into ESG reports presents an opportunity for companies to demonstrate how they are adopting sustainable practices.
Organisational footprint
While the findings in the report relate to companies with a published tax strategy only, it should not be assumed that the absence of a published strategy, or specific disclosures therein, means that these components aren’t in place. Rather, they are not being made publicly available. In our experience, large companies typically have a tax strategy and a robust governance framework in respect of tax.
Building trust with stakeholders is a key benefit of greater tax disclosures . The sheer scale and complexity of an organisation’s footprint, across multiple jurisdictions with differing regulations, makes tax a difficult matter to navigate, let alone communicate simply to interested parties. Tax is complicated and, at times, easily misunderstood. Disclosures can inform the narrative around how a company is taxed and can help demonstrate its broader societal impact.
For many companies, tax transparency is an opportunity to build trust with stakeholders. And by building trust through tax disclosures, companies can help establish trust in other areas of their businesses.
There is no one-size-fits-all approach to tax transparency. How much information a company decides to voluntarily disclose on tax varies and is influenced by several factors, which could include regulatory or reputational drivers. It is also important for companies to assess the value increased disclosure can deliver against the possible risks to the business, particularly around the disclosure of commercially sensitive data.
Finding a balance is critical. This balance, if struck right, can lead to better outcomes for both businesses and society.
Aidan Lucey, tax risk and revenue interventions leader, PwC Ireland
