TAX TRANSPARENCY: A SHIFT IN FOCUS - TAX AS A SUSTAINABILITY ISSUE - TRENDS IN VOLUNTARY TAX REPORTING SEVENTH EDITION - PWC
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Tax transparency: A shift in focus – tax as a sustainability issue Trends in voluntary tax reporting Seventh edition May 2020: A review of the FTSE100 for 2019 year ends
Highlights of the seventh edition of
‘Trends in voluntary tax reporting’
Welcome to the seventh edition of trends in tax The recent sustainability standard on tax (GRI-207: Have you considered?
transparency, released as the COVID-19 pandemic Tax 2019) released in December 2019 includes a
creates an economic crisis of unforeseen proportions. requirement for public CbCR. Sustainability teams that • Total Tax Contribution
The implications for tax and tax transparency are wide are keen to follow GRI standards can place pressure disclosures in a time
ranging. The government support for businesses, on a on tax teams for greater transparency and careful
scale not seen for over a century, is likely to result in a discussions are needed in this sensitive area. Inclusion
when profit taxes may be low
revaluation of the relationship between the private sector of the GRI tax standard in the International Business • How your voluntary tax
and the state. One outcome already evident is greater Council paper ‘Toward Common Metrics and
scrutiny over the tax affairs of businesses receiving Consistent Reporting of Sustainable Value Creation’ disclosures compare
state support, for example: resulted in further attention on public CbCR. to your peers?
• Denmark, Poland and France have announced that • How your CbCR data would
How are companies responding to these
COVID-19 government assistance would not be
developments? be interpreted when
available for companies registered in tax havens;
Our review of 2019 year ends revealed an increase in compared to other publicly
• In both the US and the EU, proposals requiring firms
voluntary tax disclosures. Twenty two companies
receiving government assistance to publish country-
published a stand alone tax report (up from 18 in 2018 available CbCR data?
by-country reporting data (CbCR) data were made if
and 7 in 2017). We found large increases in disclosures
not pursued. • What ESG analysts are
relating to the tax risk control framework (up by 10
FTSE100 companies) and Total Tax Contribution (up by looking for in relation to tax?
COVID-19 aside, we have seen increased interest over
8 companies). A tax risk control framework provides
the last year from Environmental, Social and
comfort that a company’s tax strategy has been
• Are you linked in with your
Governance (ESG) investors. There is a view that a
followed, so is an important disclosure. The increase in sustainability team on
company’s tax affairs could generate risks to long term
value creation and a number of ESG analysts (e.g. DJSI,
Total Tax Contribution disclosures, highlighting taxes tax disclosures?
paid in addition to corporation tax, is perhaps a
FTSE Russell) are incorporating tax transparency into
reflection of the attention on public CbCR since it
their assessments. For some companies, this can lead
provides a broader context of the contribution made
to tension between tax teams and sustainability teams.
through taxes. We found seven countries in the
Sixteen companies in the FTSE100 have linked tax to
FTSE100 with a voluntary public CbCR disclosure.
the UN’s Sustainable Development Goals.
One output of our review is an individual tax
transparency feedback report. Please let one of
the team know if you would like to receive a
bespoke report and if you have any comments on
the content of this paper.Approach to tax and governance over tax
Tax havens Tax incentives Transfer pricing Board approval Risk framework
30 61 40 51 73
+6 +9 +6 +7 +12
2018
2019 36 70 46 58 85
Tax havens were discussed by 36 Tax Incentives were mentioned by Transfer pricing was discussed by Board approval of the company’s 85 companies have a risk framework
companies in this year’s review, 70 companies, an increase of 15% 46 companies in this year’s review, tax strategy has increased in this in place specific to tax in this year’s
which represents an increase of on the 2018 year-ends. an increase of 15% on the 2018 year’s review by 14% on the 2018 review, up 16% on the 2018
20% on the 2018 year-ends, where year-ends. year-ends. year-ends.
30 companies mentioned them. A tax incentive is a government
measure designed to promote The price at which companies HMRC guidance on large business Risk frameworks are increasing
Tax havens have been an area of specific corporate behaviours carry out intra-group transactions, tax strategies was updated in June important – as demonstrated by
intense scrutiny over the years, and – such as investment in transfer pricing is an area where 2018, and indicates that there the high number of companies
continue to attract strong interest technologies, R&D, and numerous companies are now should be board approval of the referring to them – as stakeholders
from NGOs, ESG analysts and the employment-generating schemes. providing either a brief statement strategy. Many companies have look for assurance that the
wider public. In response to this Incentives have become an to acknowledge their conformity responded since this guidance was company tax strategy, alongside
increased attention, more increasing area of focus for many with OECD principles, or introduced by making explicit public statements on tax, are
companies are voluntarily offering stakeholders, and in response, a expanding on these narratives to reference to board approval of the followed in practice. Tax risk
additional data to support their number of companies are provide additional voluntary tax strategy, or approval of an frameworks set out the activities,
explanations for why they use tax voluntarily disclosing information information about their business individual board member tools, techniques, and
havens – including details around which emphasises how they are model and why transfer pricing is specifically – often the CFO via organisational arrangements to
the number of subsidiaries they utilising incentives – including data an important element of their delegation through the audit ensure tax risks are identified,
have operating in low tax concerning how much the operations. committee. Either way the assessed, understood, and that
jurisdictions and why. incentives are worth, and how this increasing trend highlights appropriate responses are in place
is shaping their overall tax policy. responsibility for, and involvement to mitigate the impact of all risks.
with, the tax strategy at the highest
levels of the business.
The numbers above shows the number of FTSE100 companies reporting in each area.
PwC | Tax transparency | 1Tax numbers and performance, total tax contribution,
and the wider impact of tax
Cash tax reconciliation Tax reconciliation narrative Total tax contribution
19 41 34 Have you considered:
+1 +5 +6
• Whether additional voluntary disclosures
2018
2019 20 46 40 •
would create value for your business?
The benefits of disclosing your Total Tax
Contribution?
• How your published tax strategy
In this year’s review, the number of We found 46 companies providing 40 companies provided some kind of
compares to your peers?
companies providing a cash tax additional narrative around their information or data concerning their total
reconciliation increased by 5% on the statutory/effective rate reconciliation, an tax contribution, an 18% increase on the
2018 year-ends. increase of 12% on the 2018 year-ends. 2018 year-ends.
Cash tax reconciliation is a voluntary This continuing increase is likely to be Often broken down geographically, by
disclosure which sets out the difference attributable to the thematic paper type or tax, and distinguishing between
between the tax charge disclosed in the published by the Financial Reporting taxes borne and collected, it is clear that
financial statements and the corporation Council in 2016, which encouraged more companies are interested in
tax paid by the company. This disclosure companies to provide more narrative in emphasising and showcasing the wider
is less common, but it is provided by this area for stakeholders. contributions they make to society –
companies seeking to explain and clarify beyond simply focussing on the
to stakeholder groups, how the tax corporation tax they pay on profits. This
charge in the accounts relates to actual voluntary disclosure of a company’s total
cash tax paid to the authorities. tax contribution is more prevalent in the
financial services and extractive
industries, where public disclosure of
information on a country-by-country
basis is already required.
The numbers above shows the number of FTSE100 companies reporting in each area.
2 | Tax transparency | PwCPublic Country-by Country Reporting (CbCR)
What is CbCR? GRI standard on Tax (GRI 207)¹ Differences between GRI CbCR and OECD
CbCR is a term that is used broadly, but in The content of the GRI public CbCR disclosures GRI 207-4 OECD
simple terms it means reporting on certain is shown below. Seven companies in the
financial information (e.g. revenue, profit, FTSE100 have voluntarily disclosed public
Domestic party Only cross-border related party Aggregates all related party
employees, assets, tax paid) on a country basis CbCR. All have included additional narrative to
transactions transactions are to be transactions, including those
rather than a global basis. Under OECD BEPS aid understanding of the data and avoid
misinterpretation. consolidated at a country level. within the same territory.
Action 13, over 80 countries have passed
legislation requiring companies to disclose this Disclosures required: Revenue Taken directly from the audited Revenue includes other income
information privately to tax authorities, for use in financial statements. received and interest receivable.
The reporting organisation shall report the
risk assessment.
following information:
a. All tax jurisdictions where the entities Withholding tax Separate disclosure of To be included in income tax
included in the organisation’s audited withholding tax paid or to be paid figures.
consolidated financial statements, or in included in the corporate tax paid.
the financial information filed on public
Latest developments record, are resident for tax purposes. Corporate Excludes provisions for UTP’s Includes provisions for
b. For each tax jurisdiction reported in income tax that have been booked in the year. UTP’s that have been booked
GRI (Global Reporting Initiative) are widely in the year.
disclosure 207-4-a:
adopted standards for sustainability reporting. Reconciliation between the
The standard, GRI 207 : Tax 2019, which was 1. Names of the resident entities; effective tax rate and the statutory
released in December 2019, includes a 2. Primary activities of the organisation; tax rate.
requirement for public CbCR. The standard is 3. Number of employees, and the basis of
effective for publications after 1 January 2021. calculation of this number;
4. Revenues from third-party sales;
The International Business Council (IBC) of the
5. Revenues from intra-group transactions
World Economic Forum (WEF) issued a with other tax jurisdictions;
consultation document ‘Toward Common
6. Profit/loss before tax;
Metrics and Consistent Reporting of
Sustainable Value Creation’ at the 2020 annual 7. Tangible assets other than cash and
meeting in Davos. GRI 207: Tax 2019 is included cash equivalents;
in the IBC document as a core (required) metric. 8. Corporate income tax paid on a
cash basis; What else could you consider?
9. Corporate income tax accrued on profit/
loss, and • The risks and benefits of disclosing CbC data and the format of any disclosure
10. Reasons for the difference between • The potential questions raised if CbC data were published
corporate income tax accrued on profit/ • The narrative around the CbC disclosure to better interpret the data
loss and the tax due if she statutory tax
rate is applied to profit/loss before tax. • Whether Total Tax Contribution data would provide useful context alongside or
instead of CbC data
¹ https://www.globalreporting.org/standards/gri- c. The time period covered by the
standards-download-center/gri-207-tax-2019/ information reported in Disclosure 207-4.
PwC | Tax transparency | 3What does tax transparency mean for me?
Our research shows a small number of Transparency to whom and for This is the central question of the framework and takes into account the full range of internal
companies leading in the area of tax what purpose? and external stakeholders.
transparency but the majority with more
limited voluntary disclosures.
In the aftermath of COVID-19, with tax as
part of the sustainability story and the What are the views around the Internal consensus on approach is key. Prepare a briefing paper for the board, public relations,
increasing interest from ESG investors, business? investor relations, sustainability, corporate reporting teams setting out latest developments in
more companies are now considering tax transparency and how your current tax disclosures compare to your peers.
their approach to tax transparency.
It may be that voluntary disclosures
would not add value to the business. What do stakeholders want to For your external stakeholders, identify what they want to know, why they want to know it and
Whatever your approach, it is important know and why? therefore what information might be useful to them. Whether or not you choose to disclose that
to have briefed internal stakeholders on information is a separate question. You might consider disclosures around tax havens, transfer
this sensitive area. pricing and tax incentives.
The PwC Tax Transparency Framework
helps to guide companies through the What are the risks and The risks of additional transparency is an important consideration for internal stakeholders.
thought process needed to develop an benefits of providing Once disclosures have been made, it is difficult to withdraw them in subsequent years. What are
approach that maximises the benefit of additional information? the risks and benefits of providing or withholding information?
tax transparency for the company. It
consists of a series of questions to help
manage the risks and benefits of
What disclosures would For a company operating ‘business-to-business’ with limited presence in developing countries,
voluntary tax disclosures.
create value? no voluntary public disclosure may be most appropriate. For others, a relatively straightforward
statement could add considerable value. Total Tax Contribution disclosures can help highlight
We suggest focusing on four areas: the contribution made to the public finances beyond corporation tax.
Approach to tax Governance Are the disclosures Once decisions on disclosures have been made, consider whether they are understandable by
over tax understandable? the target audience. Is there a business case for providing additional narrative to ‘explain tax’?
Additional narrative for the tax reconciliation and an explanation of the difference
1 2 between the tax charge and tax paid are areas to consider.
Tax numbers Total Tax
Do you have systems to The final element of the framework is to consider whether there are controls and processes in
and performance Contribution
support your disclosures? place to support any disclosures. Details of board approval of the tax strategy and the tax
and the wider
control framework can help provide comfort that statements made are followed in practice.
3 impact of tax 4
4 | Tax transparency | PwCOur methodology Building Public Trust Awards for Tax Reporting
We reviewed the annual reports for financial Winners of our fourteenth Building Public Trust Awards for Tax Reporting – recognising companies making leading voluntary tax disclosures – will be
years ending between January and announced in November 2020.
December 2019, for all companies listed in
the FTSE 100 at 31 December 2019. Figures Explore how the tax transparency debate is evolving through our short briefings on our website. Each addresses a different topic and contains extracts from
for 2018 are for all companies listed in the leading companies. There will also be a repository of extracts published here throughout the year. Scan the QR code below, search for ‘Building
FTSE 100 at December 2018, therefore the Public Trust Through Tax Reporting’ or visit https://www.pwc.co.uk/services/tax/insights/building-public-trust-through-tax-reporting.html
trends shown represent the FTSE 100 group
at the time of review, and are not on a
like-for-like basis year on year.
1 2 3 4
We reviewed the most recent publicly available Tax Transparency Tax strategy: Country by country Explaining tax:
corporate reports, social responsibility reports, frameworks: Is anyone reading reporting: Which disclosures
and additional tax reporting documents publicly Which framework published tax What are the latest could add value to
available at 30 April 2020. We explored each should I follow? strategies? developments? your business?
company’s website, searching for any other
information that relates to tax reporting. 1. Tax transparency
frameworks
2. Tax strategy 3. Country-by-Country
Reporting
4. Explaining tax
Is anyone reading published tax strategies? Which disclosures could add value to
Which framework should I follow? What are the latest developments? your business?
Building Public Trust Through Tax Reporting 2019
Building Public Trust Through Tax Reporting 2019
Our review uses the PwC Tax Transparency
Building Public Trust Through Tax Reporting 2019
A series of five briefing papers exploring how companies are responding to the tax Building Public Trust Through Tax Reporting 2019
A series of five briefing papers exploring how companies are responding to the tax A series of five briefing papers exploring how companies are responding to the tax
transparency debate A series of five briefing papers exploring how companies are responding to the tax
transparency debate transparency debate
transparency debate
Framework, a set of more than 40 broadly
defined tax transparency indicators, to assess
the disclosures made. Eight of these indicators
are discussed in detail in this publication.
How can we help?
As this report shows, tax disclosures are changing. We can assist you in understanding how your current and proposed disclosures compare to your peers using a benchmarking report.
Please contact one of the following for more details:
Andrew Packman Janet Kerr Tiffany Outred Chris Huggins
Total tax contribution and Tax reporting and strategy Tax reporting and strategy Tax reporting and strategy
tax transparency leader
M: +44 (0)7712 666441 M: +44 (0)7841 781417 M: +44 (0)7428 027439 M: +44 (0)7706 284539
E: andrew.packman@pwc.com E: janet.kerr@pwc.com E: tiffany.x.outred@pwc.com E: christopher.huggins@pwc.com
PwC | Tax transparency | 5This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. © 2020 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. 2020-05-22_RITM3052446
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