Disclosure of tax information via tax transparency reports and total tax contribution reports

Companies are being called upon to improve their tax transparency

Tax revenue is the financial foundation of social infrastructure, and corporate activities are the main source of tax revenue for governments. Therefore, to build and maintain a sustainable society, it is essential that companies conduct appropriate tax operations. In recent years, corporations around the world are increasingly called upon to be more transparent regarding tax matters, and face mounting pressure to appropriately disclose tax information, including their tax payment status, tax governance structure and cross-jurisdictional tax status. In response, in recent years, more and more companies have chosen to disclose detailed tax information as part of their non-financial information disclosures. Many Japanese companies are also considering increasing the scope of their voluntary disclosure of tax information, including the amount of taxes they pay.

Increased tax transparency builds trust

Disclosure of tax information provides a company with a good opportunity to publicise its value and the results of its business efforts to its stakeholders. The value created by companies through business activities includes contributions to the local society in which the company operates through tax payment and employment. Fulfilling societal obligations through appropriate tax payment and conveying this to stakeholders can lead to increased societal trust in the company. However, tax information is complex, and collecting the appropriate information is not an easy task. Companies face challenges in how to effectively disclose such information to ensure that stakeholders, customers and the public are able to accurately understand it.

Challenges related to the disclosure of tax information may include the following:

Tax transparency reports and total tax contribution reports as a means of disclosing tax information

The best methods, including the most appropriate media, for disclosing tax information vary from company to company, as does the scope of information to be disclosed. Outside Japan, there is a recent trend for companies to prepare specialised tax reports laying out the structure of their tax departments and tax governance, the tax burden on company profit, and the amount of taxes paid in the jurisdictions where they operate. These reports are called tax transparency reports or total tax contribution reports. Large companies in Europe are particularly proactive in their efforts to prepare such reports, but these reports are also becoming more common among companies around the world. Going forward, country-by-country reports (CbCR) covering business activity in the EU will be required to include an overview of business activity and tax payment status. In this way, companies will be increasingly called upon to disclose of tax information in this manner.

How PwC can help

The PwC Japan Group’s ESG Tax team can help you with tax issues related to sustainability, including carbon pricing and carbon tax, and with general and comprehensive disclosure of tax information.

We support our clients in their efforts to ensure tax transparency by remaining abreast of world trends, and helping our clients develop tax governance policies and tax operational processes. We are also able to advise on the collection and analysis of internal tax-related information, preparation of disclosure documents, and how best to communicate this information to stakeholders, and can use our know-how and proprietary framework to advise on the appropriate scope of disclosure.

Our Team

Kimihito Takano

Partner, PwC Tax Japan