Thanks to social media, communications and technology advances and the public's insatiable appetite for information, sensationalizing corporate tax-planning activities has become a favorite pastime of the news media, activist groups and politicians.
Never mind that these legal tax-planning activities are performed for the purpose of increasing shareholder value (and employee value). Campaigns of “tax shaming” are carried out by a growing throng of paparazzi that post “exposés” online and in print. Tax transparency demands are no longer just in the realm of regulators and taxing authorities.
Tax transparency is not new – initiatives such as the Organisation for Economic Co-operation and Development (OECD) transfer pricing guidelines and public assertions by non-governmental organizations that corporations aren't paying enough tax have been emerging for some time – but the scrutiny is intensifying. Tax professionals must be prepared to respond. This is where corporate tax transparency, or public disclosure of a corporation’s finances, comes into play.
While tax functions have little control over the claims of the activist paparazzi, they can control their response to new legal and regulatory tax-transparency initiatives. The most effective response begins with preparation. And the best way to prepare for new transparency reporting requirements is by getting ready to collate tax data as efficiently as possible.
Start by looking at the data contained in enterprise resource planning (ERP) systems and general ledgers (GLs) to identify additional data to support new requirements. This could include country-by-country reporting (CBCR) and transaction-level transfer pricing details to support the Master and Local documentation file information. Multinational companies (MNCs) will also need to assess how to fill in any further gaps.
There are several additional preparation steps to consider, including:
Identifying potential data sources beyond the ERP GL (e.g. sub-ledgers and human resource management systems);
- Investing in a global tax data management tool that gathers worldwide data and consolidates it into one easily accessible warehouse for any reporting or audit need;
- Developing sound global record-retention policies to strengthen data-gathering efforts, as well as retention needs that accompany audits and other inquiries; and
- Facilitating deeper access to data.
Although many tax departments remain safe from the prying eyes of the paparazzi, that doesn’t mean that regulators and auditors won’t be vying to peer inside their domains for a much closer look. Be ready.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.