Survey says Coys face more reputation-related tax risks

Companies are facing more reputation-related tax risks than ever, according to E&Y report, a new mountain to climb.

Currently, public opinion is driving political action and requiring a higher threshold than complying with the letter of the law.

Across the world, public interest in the tax affairs of international corporations has never been greater than it is today, according to tax experts. This unprecedented scrutiny is mirrored by an ongoing – and often heated – debate among the media, politicians and non- governmental organisations (NGOs).

Constant scrutiny from stakeholders, especially news and social media, has businesses concerned about protecting their brand. If a company doesn’t proactively manage the increased reputational risk posed by the ongoing “fair share of tax” debate, its image can be quickly tarnished.

The ‘fair share of tax’ debate has led to growing calls for more business taxpayer transparency. At its heart, this ‘transparency’ refers to the information governments feel should be shared in relation to taxes paid around the world, as well as the agreements that other governments have come to with companies.

In the survey of 962 tax and finance executives in 27 countries, E&Y found that     89% of those who worked for the largest global companies said they were somewhat or significantly concerned about news media coverage, how much companies pay in tax or their seemingly low effective tax rates.

In 2011, fewer than half of companies said they were similarly concerned. Also, 94% of the largest companies having an opinion on the matter think that global disclosure and transparency requirements will continue to grow in the next two years; 83% said they regularly brief the CEO or Chief Finance Officer on tax risks or tax controversy; 43% said they regularly brief the audit committee; while 65% of survey respondents said they have developed a more structured approach to managing their public tax profile in the previous two years.

“As stakeholders become more concerned about where tax revenue is coming from, more tax transparency obligations are being put in place. At the same time, governments have opened their lines of communication and are now exchanging more information related to individual and corporate taxation.

“From forthcoming country-by-country reporting rules proposed by the OECD under Action 13 of its Base Erosion and Profit Shifting project to a new package of tax transparency proposals from the European Commission, what a business tells one government about its taxes, it will soon be telling all. Preparation, communication and flexibility are instrumental for businesses facing this new transparency environment,” according to E&Y report.

Iheanyi Nwachukwu