Commitment to tax transparency grows, but challenges remain

Key findings from the tax transparency benchmark 2024:

• Since its inception in 2015, companies have made significant progress in tax transparency: in ten years, the number of companies publishing a tax strategy has increased from 45 to 93 percent.
• The Public Country-by-Country Reporting Directive and the Corporate Sustainability Reporting Directive (CSRD) in Europe emphasise the importance of publicly reporting on tax matters.
• There is a growing commitment to transparency among companies, but challenges remain, particularly in stakeholder engagement.
• Companies need to improve their practices to align tax transparency with their sustainability goals. This requires a proactive approach and integration of tax policy into their value chains.

Growing commitment to tax transparency

The Tax Transparency Benchmark, an initiative of the Dutch Association of Investors for Sustainable Development (VBDO) and conducted in collaboration with PwC, compares the reports of 116 mainly listed companies in the Netherlands and several European Union countries on tax transparency. The results of this tenth (anniversary) edition of the benchmark show a growing commitment to tax transparency among companies and indicate a further awareness of the importance of transparency among stakeholders.

Tax transparency of listed companies

The Tax Transparency Benchmark 2024 uses the same scope as the previous edition. As in the 2023 benchmark, this edition also examined the tax transparency of 51 Dutch (listed) companies and 65 (listed) companies from Belgium, Denmark, Germany, France, Italy, Spain, and Sweden. All these 116 companies are active in the following sectors: financial, energy, pharmaceutical, technology, and consumer goods.

The benchmark examines and assesses companies based on six principles of 'good tax governance', considering a company's tax strategy, alignment with the economic strategy, tax compliance, tax risks, tax risk management, and assurance. Within these six principles, companies are awarded points based on various questions. Ultimately, an independent and expert jury determines which company shows the greatest transparency and who the winner of the benchmark is.

Best performing companies: depth and quality of tax reports

NN Group, Philips, and Enel have been named joint winners of the Tax Transparency Benchmark 2024 by the jury. The jury commends these three companies for the depth and quality of their tax reports, particularly in linking taxes to sustainability (ESG) and the comprehensive country-by-country reports of the companies. All three winners use multiple accepted tax reporting standards in their reports (e.g., GRI 207, B-Team principles, VNO-NCW Tax Governance Code) and provide 'limited assurance' on the tax report. The jury encourages other companies to follow the example of the three winners and improve their tax transparency on these points as well.

A notable detail is that this year's three winners are all active in different sectors, respectively the financial sector (NN Group), the technology sector (Philips), and the energy sector (Enel). This indicates a general increase in the importance of tax transparency regardless of sectors, which is also reflected in the rise in the average score awarded in (almost) every sector. Remarkably, the pharmaceutical sector has lagged behind the other sectors for the third consecutive year.

Challenges in stakeholder engagement

Although the Tax Transparency Benchmark 2024 shows a general increase in tax transparency, challenges remain, particularly in stakeholder engagement. The benchmark shows a stagnation in reporting on stakeholder involvement in tax policy, while investors increasingly expect transparency and no longer act solely on economic interests. It would be beneficial for companies to actively involve stakeholders in their tax policy to meet the growing expectations of stakeholders regarding transparency.

Another important point is the administrative burden associated with tax reporting and other sustainability reports. Policymakers should pay more attention to this. Companies should focus on technological solutions and the use of AI to more easily meet administrative obligations.

Take your tax transparency reporting to the next level

With changing expectations from various stakeholders and the introduction of new regulations such as the CSRD and the Public CbCR, it is important to stay informed about all relevant developments in tax transparency. When working on tax transparency reporting, consider the following steps:

• Formulate or review your tax policy and make it public.
• Provide insight into how your company approaches tax and tax reporting by giving concrete examples of the implementation of the tax strategy.
• Consider aligning your tax reporting with voluntary tax standards.
• Address the impact of your tax approach on your sustainability strategy.
• Be aware of the link between the CSRD and tax and determine whether tax is a material topic.
• Align your tax reporting with your transfer pricing documentation.
• Analyse the data requirements of Public CbCR, Pillar 2 CbCR safe harbours, and GRI 207-4 CbCR.
• Delve deeper into tax risks, tax risk management, and the 'tax control framework'.
• Engage in dialogue with internal and external stakeholders to improve your tax approach.
• Consider obtaining 'limited assurance' for your tax report.

These steps offer your organisation the opportunity to build trust with its stakeholders and demonstrate its commitment to society by being transparent about its tax strategy.