Corporate responsibility (CR) reporting is becoming more of a norm for MNE’s, illustrated by KPMG’s report as referenced herein.
Apart from policies, such as Human Rights, that should be a basic component of every MNE’s policy and referenced to the UN standard, tax policies are becoming more of a public norm than ever before.
A UK tax risk strategy is required to be published by every significant UK taxpayer by 12/31/2017 on a public website describing the tax risks of the UK group and how they are managed on a macro and micro based level.
Global tax policies are also proactively published by major MNE’s as part of their Best Practices and Enterprise Risk Management efforts.
A basic global tax policy, published or not, should be a primary tool integral to Board and company governance. Tax risk management, including documentation thereof, will become more of a shout than a whimper by NGO’s, parliamentarians, tax advisors and internal governance standards of every MNE.
Tax policies are also becoming more integrated with business policies in corporate governance.
To the extent policies are lacking in an organization, now is the time to address this important aspect of risk management and Best Practice governance.
EY has put forth a compelling article addressing the necessity of a company tax policy, stating it is not an option to delay action and hope the debate over transparency and what represents a fair share of tax will stop. The article is referenced by the following link:
So how can companies adapt to this new landscape and best address the different concerns of these very engaged stakeholders? It starts with formally and carefully defining a company’s tax policy, which gives effective guidance from the board to the group tax function on what the company’s responsibilities and required behaviors are worldwide.
This policy needs to take account of the often conflicting interests of various constituencies, such as tax authorities, investors, employees, the media and the general public. In the future, a business model must adjust to recognize that, while commercial decisions must continue to take account of tax analysis, such analysis itself needs to include wider business risks.
A company’s tax policy will also help in determining how transparent a company wishes to be with stakeholders about its tax affairs. Companies are concerned that stakeholders could misinterpret the complex nature of their tax affairs.
Any effective tax policy needs to strike a balance between clearly communicating the risk appetite and approach of the company, while also managing all costs, including opportunity costs caused by its tax approach and its consequences regarding reputation and the risk of controversy.
Best Practice: One of the foundations, and a good starting point for the Tax Risk Framework, is a tax policy. The policy should be drafted with the knowledge that it is a valuable tool which the tax authorities may request to better understand, and assess, the company’s global tax risk.
This informative publication reviews tax policies in 60 countries, against a backdrop of today’s tax environment with continuing controversy and disputes as countries pursue general anti-avoidance rules (GAAR) and suggest public disclosure initiatives for tax payments by multinational corporations.
As OECD and UN tax initiatives are increasing in scope, coupled with developing countries continually evolving their tax proficiencies, this publication provides valuable context for the present and expectations in the near future.