Corporate tax governance
03/03/20
A firm grip on tax strategy and transparency reporting
Increasing transparency, the influence of sustainability, and the associated risk of reputation damage mean that executive boards and supervisory boards want to get a firmer grip on their company’s tax strategy. In an international publication – Corporate tax governance, creating a sustainable tax approach in times of fundamental change – PwC examines international trends and the steps that both boards can take to ensure a sustainable approach to taxation. PwC’s Marc Diepstraten and Edwin Visser explain.
Tax governance on the management agenda
In recent years there has been increased attention among politicians and the public for taxation in general and the tax behaviour of multinationals in particular. Companies have since needed to take account of countless international trends and initiatives, both tax and non-tax. The strategic role that taxation can play has changed significantly, and attention needs to be paid to the risk of reputation damage. “Tax policy has become part of the licence to operate”, says Marc Diepstraten, chair of the Tax & Legal practice at PwC Netherlands. “It’s therefore no longer the exclusive domain of the tax department and it's now prominent on the boardroom agenda.”
Sustainability strategy
Diepstraten mentions another trend that increasingly calls for greater attention to taxation on the part of executive and supervisory boards: “Taxation is gradually being placed more and more in the context of companies’ corporate strategy and sustainability objectives. Under pressure from multiple stakeholders, it's being seen less as a pure cost item and also as a contribution to society and to achieving the United Nations’ Sustainable Development Goals (SDGs). As a result, directors and supervisors are also taking a fresh look at their own tax strategy.”
Transparency
“Modernisation of the international tax system is also proceeding apace”, says Edwin Visser, Tax Policy Leader for PwC Europe and EMEA. “Multilateral guidelines serve, among other things, to prevent tax avoidance and are leading to increased tax transparency.” Visser says that when providing transparency, companies choose from different gradations. “Some companies limit themselves to the transparency required by law, such as sharing a Country-by-Country Report with the Tax and Customs Administration. Others go significantly further, for example making an analysis of the Total Tax Contribution publicly available.”
Stakeholder engagement
According to Marc Diepstraten, companies are more likely to opt for greater transparency than required by law if they know that stakeholders value it: “We see more and more clients engaging with a broader group of stakeholders, including supervisory directors, investors, employees, and clients. That also fits in with broader trends in corporate governance.”
Professionalisation necessary
Stakeholder engagement is one of the core elements of the further professionalisation of tax policy, as described in PwC’s international Corporate tax governance publication. Edwin Visser explains: “Tax governance brings the tax department’s technical expertise and experience into a manageable system.” The PwC publication describes the formulation of a long-term tax strategy, as well as the roles and responsibilities, and risk management. Finally, transparent accountability reports are produced for which an independent party can provide assurance in order to increase value for stakeholders.
Take enough time for tax strategy
Without going into detail here about the approach to tax governance, Diepstraten points out that in his experience companies would do well to take their time with the first step, i.e. determining their tax strategy: “What will be the guiding principles? How does the tax strategy fit in with corporate strategy and the sustainability objectives? What does this mean as regards transparency? By answering all those kinds of questions, working with stakeholders, the tax strategy becomes a solid foundation for tax behaviour and for decisions that need to be taken.”
Data management and technology
In conclusion, Marc Diepstraten stresses the importance of data management: “Being able to manage and report effectively depends on the availability of data. Using technology to optimise data management is important for tax departments – especially in view of the increasing obligation to produce tax reports, for which large datasets need be processed quickly and correctly. When you’re setting up finance or IT transformation projects, it’s important to include the taxation aspect at an early stage.”
“Taxation is gradually being placed more and more in the context of companies’ corporate strategy and sustainability objectives. Under pressure from multiple stakeholders, it's being seen less as a pure cost item and also as a contribution to society and to achieving the United Nations’ Sustainable Development Goals (SDGs). As a result, directors and supervisors are also taking a fresh look at their own tax strategy.”
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