A new era
in tax transparency
April 2022
Stakeholders are demanding greater levels of tax transparency from companies. Within this ever-evolving landscape, we publish our first tax transparency report, ‘A new era in tax transparency’, to help inform companies’ tax disclosure considerations.
Tax transparency
The tax footprint of an organisation—how much taxes are paid, and to whom—is something investors and the public are increasingly asking companies to report on, most notably in the context of the broader environmental, social and governance (ESG) agenda. Tax transparency is being factored into stakeholder considerations when assessing the sustainability of a business.
However, there is no standard, uniform track for companies to follow when deciding their approach to tax transparency. There are risks involved, particularly around the disclosure of commercially sensitive data, which could impact a company’s competitiveness. There is much to navigate in terms of peer reporting, stakeholder interests and regulatory requirements when it comes to tax disclosures.
In undertaking this tax transparency analysis, we reviewed the tax disclosures of all 24 companies listed on the main market of the Irish Stock Exchange (Euronext Dublin)1. While companies can use a variety of publicly available documents to make tax disclosures, our review found that substantial tax disclosures were made in a published tax strategy. Therefore, the findings we present in our report relate to companies with a published tax strategy.
We limited our analysis to companies that have chosen to make public disclosures on tax. In our experience, large companies typically do have a tax strategy and a robust governance framework in respect of tax. A company may decide not to publish details of its tax strategy or its governance arrangements for a variety of reasons. Therefore, it cannot be assumed that the absence of a published tax strategy, or specific disclosures therein, means that these components aren’t in place. Rather, they are not being made publicly available.
1. In undertaking this tax transparency analysis, we reviewed the tax disclosures of all 24 companies listed on the main market of the Irish Stock Exchange (Euronext Dublin), which were listed on Euronext in 2020 and remain listed as at 22 February 2022. Our review was strictly limited to publicly available information in respect of financial years ending in 2020, as published on 31 December 2021. To the extent that they were published on their website, we reviewed companies’ tax strategies, annual reports and ESG or sustainability reports.
The transparency journey
Taxes are an important source of revenue for governments, integral in developing fiscal policy and attaining macroeconomic stability around the world. However, the sheer scale and complexity of an organisation's footprint, across multiple jurisdictions with differing regulations, makes tax a difficult area to navigate, let alone communicate simply to interested parties. Tax is complicated and, at times, easily misunderstood.
While public interest in companies’ tax affairs is far from new, it is currently being scrutinised by bigger audiences than ever before. The unprecedented investment by governments due to COVID-19 has also added to this wider conversation about how businesses contribute to society. The recent agreement on the OECD’s Pillar One and Pillar Two proposals has also brought tax into focus.
As a result, the debate around tax transparency continues to gain significant momentum. In short, tax is becoming a powerful indicator of a company’s societal impact. And in order to ascertain that impact, stakeholders are demanding a greater level of transparency.
Policy makers, most notably the OECD and the European Commission, have long called for greater tax transparency. This has resulted in the introduction of a number of key initiatives at both global and local levels. One of the most significant developments in this space was the introduction of country-by-country reporting (CbCR) in 2015 on foot of recommendations in the OECD’s base erosion and profit shifting (BEPS) package. CbCR requires large multinationals to report certain financial information (including corporate tax paid, revenue, profit and employees) at a country level rather than globally. Although CbCR only requires the submission of this information to tax authorities, it has been the catalyst for more significant changes.
We have also seen the introduction of other regulations mandating greater public reporting of certain tax data. For example, in 2016 the UK introduced a legal requirement for large companies to publish a tax strategy relating to their UK tax affairs. More recently, EU member states reached agreement on a public CbCR Directive, which will require large multinational groups operating in the EU to publicly disclose details of corporate tax paid by 2025.
While there is no formal requirement in Ireland for companies to make tax disclosures, there have been growing requests for companies to disclose more meaningful information on tax. Investors, regulators, the media and civil society are increasingly asking for more transparency.
❛❛While there is no formal requirement in Ireland for companies to make tax disclosures, there have been growing requests for companies to disclose more meaningful information on tax.❜❜
Building trust through tax transparency
Tax transparency is not just about providing additional detail on tax payments. It requires a broader view of tax strategy, tax risk management and the wider impact of companies’ tax contributions.
It is important to put tax information in the right context 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 employment taxes—that companies can demonstrate their true impact on society and the markets in which they operate.
It is essential to recognise that every company’s approach to tax transparency is different. There is no one-size-fits-all model. 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. Tax disclosures also present risks, which companies need to consider. For example, the disclosure of certain tax and financial data at a country-by-country level may be commercially sensitive and could impact a company’s competitiveness.
By building stakeholder trust through tax reporting, there is great potential to establish trust in other areas of a company’s operations.
Tax and sustainability
As the broader area of ESG continues to come to the fore—spurred by investors, policymakers, employees, suppliers and customers—organisations are now considering their purpose beyond just financial growth. This means finding a balance between financial returns, social interests, the environment and transparency. This balance, if struck right, can lead to better results for both businesses and society.
Tax is now an important metric in that ESG conversation. In this regard, a company’s approach to tax is no longer a question of compliance alone. It is a gauge of how a business views its role in society and its commitment to its purpose. It is a critical element of a business’s social contribution, and part of the ‘S’ in ESG.
ESG reporting presents an opportunity for a company to control its narrative as part of a larger movement to better align with the societies in which it operates. Tax is fast becoming part of that narrative.
Tax reporting frameworks
Stakeholders now look at tax when assessing a company’s sustainability performance. For example, a number of institutional investors have released codes of conduct setting out principles to promote responsible tax practices in respect of their investments. The Dow Jones Sustainability Index also incorporates tax criteria into its sustainability assessment of companies.
Compared to other sustainability issues like net zero, methods of tax reporting have historically been less developed. However, this has changed in recent years. Companies can now choose to follow a range of tax transparency frameworks when considering their approach to tax disclosures. These frameworks have been developed by different stakeholders including business organisations, not-for-profits, tax authorities and investors. Some common themes that emerge from these frameworks include:
- having a published tax strategy
- the importance of board oversight of a company’s tax affairs
- having good tax governance and risk management procedures embedded in the organisation
- incorporating tax into a company’s reporting on ESG matters
While numerous frameworks are available, our report provides an overview of two of the most commonly-adopted tax reporting frameworks, The B Team Responsible Tax Principles and GRI 207.
PwC Ireland’s tax transparency framework
In conducting our review, we used PwC Ireland’s tax transparency framework, which leverages our home-grown experience and expertise, as well as that of our extensive PwC global network, on tax disclosures. Our framework, which we developed specifically for the Irish market, includes more than 30 tax transparency indicators, which we believe to be good practice in voluntary tax reporting. Our indicators broadly align to the key tax transparency metrics identified by standard-setting bodies and provide even greater depth of analysis. These indicators can be grouped into four categories:
Published tax strategy
This helps stakeholders understand a company’s key tax principles and its approach to tax.
Tax governance
This provides an understanding of who has responsibility, oversight and accountability for tax—not only on a day-to-day basis, but where the ultimate responsibility for tax rests.
Tax controls and risk management
This helps stakeholders understand the policies, procedures and controls in place to monitor and mitigate tax risk.
Total tax contribution
This provides stakeholders with an understanding of the total taxes paid by a company, often distinguishing between taxes borne and taxes collected on behalf of the exchequer.
Our framework, and our report, are intended to help companies consider the benefits of greater transparency based on their own specific profile and stakeholder interests. It should help inform companies’ external communications strategies regarding their tax affairs.
Transparency trends
We have summarised below some of the key trends identified in our report. We would refer readers to our report to explore our findings further.
Strong practices of tax strategy publication
A published tax strategy, sometimes referred to as a company’s approach to tax or tax policy, is currently the primary means by which companies make tax disclosures. The strategy should clearly communicate a company’s vision on tax and make reference to key principles such as tax compliance, governance and risk management. While there is no requirement in Ireland for companies to publish a tax strategy, thirteen of the companies reviewed voluntarily published a tax strategy, or equivalent document.
Close alignment of tax and business strategies
77% of the companies state that their tax strategy seeks to support the company’s broader business strategy. Consistency between the management of a company’s tax affairs and their wider business strategy is important, demonstrating that tax is aligned to broader commercial objectives.
Companies seek co-operative relationships with tax authorities
Tax authorities are a key stakeholder when it comes to companies' tax affairs. In this respect, it is unsurprising that all companies state that they seek to have a co-operative and/or transparent relationship with tax authorities.
All of the companies included general statements on the company’s approach to compliance with tax regulations.
Good governance of tax and strong board oversight
Tax governance refers to a company’s approach to tax risk management and the responsibility for oversight of tax affairs. Stakeholders want to understand whether the tax strategy and tax risks are discussed outside the tax team—with the board or audit committee, for example. It provides comfort that tax is overseen at an appropriate level and compliance obligations are monitored effectively.
Of those companies with a published tax strategy, all provided some form of disclosure on tax governance procedures. All of the companies also stated that the board has oversight of the company’s tax affairs, while some explicitly stated that the board approved their published tax strategy.
To learn more about the key trends we identified, click here to read our report.
Key actions businesses can take now
- Consider your tax disclosure strategy
Disclosures can explain and inform the company narrative around how they are taxed and their larger societal impact. However, it is wise to continually assess the value increased disclosure can deliver against possible risks to the business. There is no optimal level or one-size-fits-all approach to tax transparency. Each company’s perspective is different and will be driven by a number of factors, including its own brand values and stakeholder interests. In some instances, no disclosures may be required. In others, disclosure on certain areas may create further value, trust, and provide greater context to stakeholders. - Consider your stakeholders
Understand what each stakeholder wants to know about tax, and why they want to know it. - Consider what your peers are reporting
What tax disclosures are your peers making? Consider how your disclosures compare. - Be conscious of your stakeholders’ awareness levels
Once you decide what disclosures to make, will the target audience be able to understand each disclosure? Additional information may help explain the disclosure and provide context. - Establish the optimal reporting framework for your company
Is your company using a reporting framework, such as GRI, for the purpose of its wider sustainability disclosures? Consider how your current tax reporting aligns to the tax disclosures within that framework. - Create alignment across your company
Ensure that you are fully engaged with your sustainability team and other internal stakeholders.
We are here to help you
As ESG continues to come to the fore, tax is becoming a powerful indicator of a company’s societal impact. To ascertain that impact, stakeholders now demand a greater level of tax transparency from companies. We are ready to help you as you face the future and decide on the optimal tax transparency strategy for your company. Contact us today.
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