Transparency & the brave new world of information exchange
At Taxand’s 2017 Global Conference in Frankfurt, a panel discussed the dramatic increase in governmental requirements for disclosure of tax information in recent years. The panel involved Mukesh Butani (Taxand India), Romain Tiffon (Taxand Luxembourg), Richard Syratt (Taxand UK) and guests.
The term ‘transparency’ touches almost every aspect of international tax development that we talk about in the current environment. Taxpayers are under regular and increasing scrutiny to provide greater financial information to tax authorities. Alongside this, countries across the globe are embracing various new methods of enhancing transparency and facilitating the exchange of information which brings significant challenges for multinationals to ensure they remain compliant.
The need for greater transparency has been triggered by governmental pressures resulting from things such as high profile leaks of perceived aggressive tax planning (through the so-called Lux leaks, Panama Papers and others) and the issue of significant tax revenue losses for governments.
As a result, in recent years, multinationals have faced a huge shift as tax authorities ramp up their information requirements and requests and as tax structures increasingly come under the spotlight, with governments seeking to plug ever-growing budget deficits.
For multinationals, there is a degree of reticence about the increased demands for exchange of information and it is not just a political issue, but a reputational one too, that businesses cannot shy away from. Cases such as Amazon, and Starbucks, where a largely passive approach was taken in response to the public scrutiny, demonstrated the reputational risk that corporates face if they fail to respond robustly to questions over their tax affairs. In contrast, Google and Apple chose to deliver a more forceful response to the challenges laid out and consequently did not face the same level of consumer backlash.
In the age of tax transparency, multinationals cannot afford to sit around and do nothing. Firms must ensure that, when deciding their tax policy, they are willing to stand behind any decision and, if it is made public, that they are able, and willing, to back it up with a robust response.
The challenge now is for tax authorities to understand how they will use the data they receive to justify the increased administrative burden that businesses now face. There is little value in countries collecting and sharing the information required from policies such as FATCA without having a clear data strategy. For multinationals, it is still unclear as to the true value and purpose of increased information exchange. For Country by Country Reporting, for example, no cost benefit analysis has been done.
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Tax authorities need to provide greater clarity on what data they want, why they need that data and what they want to compare. While increased transparency is needed, what counts is how cleverly and usefully the provided information will be used. In a new world of tax transparency, we will have to wait and see how useful an increasing flow of information ultimately proves to be.