Some companies will have to accept greater transparency if they are to close the trust gap between taxpayers and the tax authorities.
Tax planning transparency is increasingly important to organizations wishing to avoid damage to their well-earned corporate reputations. As public attention is increasingly focused on corporations and the amount of tax they pay, governments, media, investors, shareholders, customers, and the general public are collectively placing pressure on large companies to be more transparent about their tax affairs.
For example, there are concerns in the commercial dealings of large multinationals to prevent avoidance through tax loopholes and profit shifting.
As a result, corporations that have a low effective tax rate have become media targets. Transparency over tax affairs is therefore becoming a progressively important dimension of corporate social responsibility.
With all of the attention corporate tax governance and tax risk management is receiving, now is a good time for boards and directors to reflect on their tax governance framework and tax controls and consider whether their current framework is sufficient given an atmosphere of increased scrutiny.
To decide what to disclose, consider these two elements of tax transparency:
- Historical data and related explanations above and beyond what is required by accounting standards in the financial statements; and,
- Tax governance information which informs readers about the organization’s appetite for (and control of) risk, as well as its approach to tax in the context of company values.
The aim of tax transparency measures is to improve transparency regarding the tax affairs of
large corporate tax entities.
However, a corporation should also review whether its existing tax framework continues to be in line with broader business strategies. Businesses may be missing opportunities or creating risks by inadvertently excluding tax considerations from their business strategy and decision making processes.
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