Trends in Tax Transparency

Who in your organisation has an interest in tax transparency and has spent some time over the last year thinking about your public tax disclosures? The answer to this question lies increasingly outside the tax department, a response to greater scrutiny on tax from external stakeholders.  Boards, Audit Committees, Sustainability and Investor Relations teams, as well as the Head of Tax, are all interested in how the company’s contribution in tax is communicated.

The debate on tax transparency continues to evolve, and as each new reporting year passes, we see new and innovative tax disclosures. We’ve just reviewed FTSE100 2014 year ends - we believe it’s important to review and report on the latest trends in tax transparency, to provide data to inform this rapidly changing landscape. 

What’s new this year? Our review found an increase in companies providing detail on their governance over tax, identifying who has responsibility for oversight of tax affairs (an increase from 37 FTSE100 companies in 2013 to 50 in 2014). It’s important for stakeholders to understand the governance and controls in place over tax, to provide confidence that the stated strategy is applied throughout the business.

The other area with a significant increase in disclosure was around Total Tax Contribution (TTC), with evidence of companies highlighting their contribution beyond corporation tax. Our latest study of the TTC of the 100 Group revealed that corporation tax is less than one quarter of taxes borne by these large companies. Forty FTSE100 companies disclosed their TTC in 2014 compared to 24 in 2013.

The last month has seen further developments in BEPS country-by-country reporting (CbCR) with the release of guidance from the OECD on information exchange. While the BEPS initiative is for disclosure to tax authorities, some stakeholders are of the view that, at some point in the future, the data should be publicly available. The EU Commission has just released a public consultation which aims to collect the views of relevant stakeholders on the case for further corporate tax transparency and there is a proposal for increased tax transparency under the package of measures with the Shareholder Rights Directive draft which is currently being debated 

But these CbCR initiatives are focused on corporation tax, which is often only a small part of a company’s total contribution in taxes. There is no information about the company’s approach to tax, or the wider contribution in taxes. Companies need to consider whether to make voluntary tax disclosures - in our review, there was one FTSE100 sector where 100% of companies disclosed their TTC - the banks, where public country-by-country reporting under CRDIV is now in force.  But if you are inspired by what others are doing, and you have a business case for increased transparency, don't underestimate the challenges involved in sourcing the appropriate information. Our message is get on the front foot and start thinking about your disclosures.

We have no doubt that the tax transparency agenda will continue to develop using the combined knowledge, experience and vision of the leaders in tax reporting.  For our part, we’ll continue to highlight the trends in reporting, to contribute to the on-going debate.

Janet Kerr is a Senior Manager in the PwC Tax Transparency team