Transparency in the tax area in focus

The global discussion about transparency and tax reporting has expanded in the last couple of years, and a number of regulations have been introduced in the area. An efficient tool for increasing both stakeholder confidence and the confidence of the general public, is a clear and well-founded policy on tax matters which, among other things, shows that companies make a contribution to society in the regions where they are active.

In a previous article, we wrote about the concern among companies that a transparent reporting of taxes and other financial information can lead to competitive disadvantages and possibly damage the company brand. A central question has been how companies should relate to these transparency requirements with, at the same time, being exposed to risks.

Since 2017, sustainability reporting is mandatory for certain companies. Approximately 1,600 Swedish companies are covered by this regulatory requirement. In their sustainability reporting, most companies use, as a starting-point, the guidelines developed by Global Reporting Initiative (GRI), an independent international organisation that publishes a well-used standard for sustainability reporting.

GRI has an on-going project with the specific goal of promoting a greater transparency in the methods of companies and organisations regarding tax reporting. Components included in the project are tax strategy, governance and information on actual tax being paid globally.

The project recently resulted in new guidelines for sustainability reporting regarding tax. The new guidelines were recently approved by the Global Sustainability Standards Board (GSSB) and will – after the general public has been offered the possibility comment on them –most probably be established in mid-March 2019. The new guidelines imply that companies that currently do their sustainability reporting in accordance with the GRI Standards – and who want to continue to do so in the future – will need to be transparent in their tax strategy and tax policy as part of their sustainability reporting.

In addition to transparency in matters of strategy, and corporate governance as regards tax, companies will need to report, on a country-by country basis, financial, economic and tax related information for each jurisdiction where the company has operations. The purpose of such reporting is to clarify the geographical distribution of the tax payments of a company. A company can utilise the reporting to communicate how large the company’s contribution is to each country by paying tax and other contributions.

When complying with the new guidelines, companies will most likely be faced with new challenges regarding documentation and compilation of the company’s tax strategy and tax reporting. However, viewed from a broader perspective, the new guidelines will make it possible for companies to be, in a clear and trustworthy way, transparent in their reporting of the way the company’s profits and tax payments are distributed globally, a topic which is becoming more and more relevant as the public interest in tax as a sustainability matter increases.