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Tax Transparency, Total Tax Contribution and Effective Tax Rates

Tax has become a reputational issue. External stakeholders such as the media, civil society organisations, government and the public at large are showing an interest in a company’s tax affairs including its strategy, and the amount of tax that it pays. Employees are also interested in knowing more about their employer’s position on tax. External relations departments need to liaise with their tax departments to understand the key themes and messages around tax and to build these into their communication plans. Tax and its impact on corporate reputation is a key business issue.

What follows is an outline of four of the areas where we work with clients to help improve their transparency around tax in a national context, and globally. This is with a view to encouraging a better understanding of the Total Tax Contribution that they make, and to ensure that this is communicated in an appropriate way.

Tax transparency: country-by-country reporting

Several mandatory tax transparency regimes which require public disclosures now exist, or are being implemented across the world. These are currently focussed on the European financial services sector, the extractives industries, and logging. In addition proposals are underway from the OECD to introduce additional private disclosures to tax authorities for all multi- national companies which have a turnover above a threshold.

The tax transparency landscape continues to develop. Calls are being made for a wider group of industry sectors and companies to be included in the mandatory reporting regimes of the EU, with the potential for a mandatory disclosure of taxes and profits on a country-by-country basis.

So companies headquartered in an EU Member State, and international groups with a presence in a European Member State, may be required to make country-by-country disclosures of some description. Is your company required to make such disclosures or will it be required to do so in the coming years?  Are your IT systems ready and able to help you do this? Will you have  sufficient confidence in the numbers? Do you have a communications strategy in place?

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Building trust, enhancing reputation

Building public trust is a priority for companies aiming to increase their resilience in a turbulent world. Clear communication around tax is one way to help this. They need to be accurate, clear and relevant. They should explain a company’s approach to tax, the risks it faces and the controls in place to manage them. They should use plain language that non-experts can understand, with an ability to explain the reasons why a current tax charge is not simply the accounting profit at the statutory rate. They should look to show the bigger picture beyond traditional disclosures and perhaps go wider than tax.

Over recent years there’s been a steady increase in the number of companies that see reputational value in discussing their tax affairs in a more engaging way. In consultation with businesses and stakeholders, we developed a framework - the Tax Transparency Framework. The Framework can help you to develop your thinking around tax transparency and  how to communicate your company's tax position with clear and meaningful information which addresses your external stakeholders’ needs. The Tax Transparency Framework looks at potential disclosures in three areas: tax strategy and risk management, tax numbers and performance, and the total tax contribution and the wider impact of taxes.

Tax transparency is not about providing additional technical detail on numbers and performance. Rather it requires a broader look at tax strategy, risk management and the wider impact of tax as well as greater focus on clarity. We can help you to provide that clarity to your stakeholders.

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Total Tax Contribution

Corporate income tax is just one element of the contribution made to the public finances by business. But these are the taxes that land in the spotlight most often. Companies pay many other types of taxes in addition to corporate income tax, but there’s often little visibility of these other business taxes in a company’s statutory accounts. And businesses collect and administer many more taxes on behalf of others.

As well as being a powerful management tool, having a clear understanding of your Total Tax Contribution can help your business make better informed decisions, with an ability to manage tax risk more effectively. Together with social, economic and environmental factors, the Total Tax Contribution made to public finances is an essential part of your total impact on the society in which you operate.

Our Total Tax Contribution (TTC) framework provides a methodology to help your company identify the full extent of its tax contribution. For over a decade, our specialists have worked with businesses to collect, measure, and communicate their TTC. And we can do this both for an individual country and globally. We have experience of preparing national, international, and industry based studies and can benchmark your contribution against relevant peer groups of companies.

Total Tax Contribution is one of the elements which can be used to  enhance tax transparency; developing meaningful communications to build trust with a range of stakeholders.

The Total Tax Contribution Framework

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Effective tax rate benchmarking

In times of economic uncertainty and fiscal deficits around the world, the focus on tax has never been greater. Governments need to raise revenues while creating an environment to encourage growth.

Statutory rates of corporate income tax are being cut around the world but the statutory rate is not always a good indicator of the tax charge suffered by a company. Benchmarking effective tax rates (ETR) helps companies to better understand how their ETR compares with other companies in the same sector and assess the reasons for the differences that arise.

In the current environment where tax is increasingly a reputational issue, it’s more important than ever to know how your effective tax rate (ETR) compares to the ETR of those companies in  your peer group.

We use publicly available data to provide insight into how your key tax ratios compare to your peer group.  Choice of peer group is essential in any benchmarking exercise as well as benchmarking periods and statistical cuts.

ETR provides an in depth insight into what drives your ETR for communication with the Board or Audit Committee, informing your tax strategy or for external communication.

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The annual Paying Taxes study

  • Paying Taxes is a unique report from PwC and the World Bank Group which uses a medium-sized domestic case study company to measure and assess the ease of paying taxes across nearly 200 economies.
  • An interactive tool allow you to explore tax data from all years of the study.
  • An interactive table shows the ease of paying taxes ranking and the four sub-indicators results for all the economies.
  • PwC tax partners share their insights into some of most important tax developments in their specific country and region
  • View the collection of videos in which we discuss highlights.
  • Download the full report.

Learn more

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Contact us

Stef van Weeghel

Leader, Global Tax Policy & Administration Network, PwC Netherlands

Tel: +31 (0) 88 792 6763

Tom Dane

Senior Manager, Tax Transparency and Total Tax Contribution, PwC United Kingdom

Tel: +44 7715 211316

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