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Are FTSE 100 firms showing enough transparency on tax affairs?

Posted by: Rachel Vardon 4 Aug 15 - 9:29AM
When it comes to discussing tax planning and relationships with tax authorities, FTSE 100 companies have not always been particularly open.

This approach is becoming increasingly problematic, though. Tax is a key factor in building trust within the markets in which a business operates, given its significance as a measure of economic contribution. The public - and governments - are demanding a clearer picture of the way organisations approach taxation, particularly in the case of large multinationals.

It appears this message is starting to hit home. New research from PwC analysed corporate websites, annual reports and other social responsibility statements, and discovered a steady upward trend in tax transparency. The report found that in 2012, just one in three FTSE 100 firms provided details on a range of tax-related issues. A year later, this rose to half, while in 2014 a total of 56 FTSE companies opted to reveal this key information.

So what's behind this significant shift away from opaqueness surrounding tax affairs? Andrew Packman, tax partner at PwC, says major firms recognise that people want to know where they stand on tax.

"Already this year two tax questionnaires have been sent to the FTSE 100, one from an investor, the other from an NGO. The interest in tax is undeniable and it's helpful to be able to point interested parties to existing public disclosures," he noted.

Although PwC discovered there is no consistent approach to the tax-related issues that are disclosed and how this is achieved, it identified an increased focus on risks - including whether or not board members review tax strategy.

Half of all FTSE 100 companies now choose to outline their tax risk and governance procedures, up from less than two-fifths a year earlier, while it is also becoming more commonplace for firms to quantify all the taxes they bear and generate. Some 40 FTSE 100 members publish details of their overall tax contribution, compared to just 16 back in 2013.

"It's hard to have a generic approach to disclosure, as what's relevant will vary for stakeholders in different companies," Mr Packman noted.

While this increased focus on tax transparency is welcomed by many, it is important to point out that there is still a long way to go. Indeed, with a raft of new reporting requirements set to come into force in the near future, companies still have much to do to ensure they are compliant. With that in mind, it makes a lot of sense for organisations to be as clear as possible on their approach to taxation by pulling together all related and meaningful information.

However, there are still some factors holding companies back from publishing more detailed reports on tax policy and strategy. Many are concerned that being more transparent will create more problems than it solves; specifically, they worry that it will to a greater administrative burden and potentially force them to release commercially sensitive information.

Simply put, companies need to find a way to deal with these challenges in a way that satisfies the public's desire for ever more access to tax information. Failure to do this could have a major impact on their reputation.

http://pwc.blogs.com/press_room/2015/06/ftse-firms-becoming-more-transparent-about-their-tax-affairs.html
http://www.ey.com/UK/en/Services/Tax/Tax-Transparency-Report

Photo Credit: iStock/nzphotonz 
 
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