27 May 2019 — News

The new trend in town? Corporate tax transparency

with Lis Cunha

The new trend in town? Corporate tax transparency

Our policy Manager Johan Barros interviewed ActionAids Lis Cunha,  EU Policy Officer on Tax Justice and Corporate Accountability, on tax transparency and the good work being done voluntarily by companies and what needs to happen at EU level.

Johan Barros (JB): At Accountancy Europe, we work towards making tax more transparent, including through the sharing of best practice. What do you see happening in responsible corporate tax practices?

Lis Cunha (LC): More and more voluntary initiatives keep popping up: from the B-Team to the Global Reporting Initiative (GRI), to CSR Europe and PwC, in the past six months or so different groups of businesses have announced new initiatives around responsible corporate tax practices. Not to mention earlier initiatives such as Accountancy Europe’s tax transparency template, published in July 2016. One thing that all these initiatives have in common is that they all put tax transparency at their core.

JB: How do you at ActionAid see these developments?

LC: These are welcome developments and clear signs that there is a need for better tax transparency by companies. After all the tax scandals that came to light in the last years, it’s not only citizens, journalists and NGOs who are asking for more transparency, but also investors. In fact, in a recent consultation about the GRI’s draft voluntary reporting standards on tax, almost half of the respondents were institutional investors, like pension funds and asset managers.

JB: We hosted the launch of the CSR Europe/PwC Blueprint on responsible tax behaviour, highlighting the voluntary initiatives that businesses are doing to be more responsible. What were your takeaways?

LC: At the event, a wise business leader stated that if businesses don’t explain their tax, others will explain it for them. And the framing of this story will, more likely than not, be negative. It’s important for businesses to be proactive – they must be transparent about their tax planning strategies and tell the story and context behind their tax payments.

These voluntary initiatives show that the business world is moving and responding to society’s call for more transparency. Citizens’ trust in large companies and the overall tax system is faltering, in a context of increasing inequality. Some businesses are clearly taking the lead to rectify this situation by being transparent about their tax arrangements.

JB: Some businesses are leading the way – what do you think is needed to get all businesses on board?

LC: The gamechanger would be mandatory transparency requirements, as many companies are currently benefitting from a lack of transparency to engage in aggressive tax planning and avoid paying their fair share. These businesses are undermining positive behaviour by other, more ethical companies who are joining voluntary schemes and have nothing to hide. Only mandatory regulation can level this distorted playing field.

For more than three years, an EU proposal for mandatory corporate tax transparency has been on the table. The new rules would require large companies to publish key information about their profits made and taxes paid in countries where they operate.

JB: We see the European Commission trying to regulate this area, do you see any stumbling blocks around the EU’s proposal? 

LC: There is still a debate about which countries should be covered – the Commission’s proposal suggests disclosing only detailed data for EU Member States and a very narrow group of tax havens, while the European Parliament – and ActionAid – would like to see them for all countries. This is particularly important for developing countries, which otherwise often lack access to this essential information. CONCORD, the European NGO confederation for relief and development, sees the adoption of this EU proposal as one of the key priorities for policy coherence for sustainable development.

JB: How do you see the EU’s proposal developing?

LC: Due to lack of political will and possibly a lack of awareness about positive developments in the business community, some member states in the Council have successfully blocked progress on this proposal for almost three years now.

It would be shameful if the proposed rules were dropped altogether due to inaction in the Council. Perhaps the boom of voluntary initiatives will ease our governments’ fear that mandatory tax transparency would be negative for business, or that they would receive too much criticism from corporations if they voted in favour of the law.

JB: What needs to happen now?

LC: EU governments must decide: will they listen and regulate in favour of citizens, consumers, investors, and developing countries, or will they continue to allow the small part of the business community who is engaging in bad behaviour to keep that behaviour from coming out into public light?

JB: Any final thoughts?

LC: The next tax scandal will surely come at any time now. Governments and businesses should prepare to respond quickly and with concrete measures – the call for tax transparency is not an issue that will disappear from citizens’ heads anytime soon.