While it has become increasingly common for tax authorities and corporate management to demand more tax transparency and tax risk management, the same can now be said of investors, clients and the public at large who have all become very vocal in calling for this. The demand for greater transparency from stakeholders is inextricably linked to the issue of trust and maintaining and building the reputation of multinationals.
Various stakeholder groups (e.g. investors, governments, employees, NGOs and corporate rating agencies) consider tax an important part of ESG. Having a sustainable approach to tax and being transparent about the company’s tax position are considered key for determining whether a company’s tax position is in line with ESG standards.
Today’s challenges
Now more than ever, companies need to be able to demonstrate that they are continuously ‘in control’ of tax risks. A sustainable and honest approach to tax, tax transparency and a company’s openness with respect to how much tax it pays in countries where it operates have become essential components of sustainable corporate strategies.
- Investors and the public at large are calling for more transparency,
- lawmakers and regulators are increasingly requiring it,
- leading companies are setting the bar high,
- standard-setting international bodies are designing reporting frameworks that everyone can follow and understand.
Tomorrow’s solutions
No ‘one size fits all’
Tax transparency can be seen as a journey. There is no ‘one size fits all’ and we are now seeing a general trend toward the publication of corporate quantitative data (on a country-by country or regional basis), in addition to qualitative data (such as tax policy, tax strategy and governance). At KPMG, we firmly believe that transparency is a legitimate expectation and is key to responsible tax behavior and building trust. Our goal is to help our clients with this and act as their trusted adviser on this journey, from start to finish.
Tax Governance Code helps build trust
In February 2021, the Confederation of Netherlands Industry and Employers (VNO-NCW) announced in its agenda for 2030 Ondernemen voor brede welvaart (‘How running a business can contribute to widespread prosperity’) that the business community would develop a Tax Governance Code. This Tax Governance Code should lead to more transparency on the tax position of Dutch listed companies and could be incorporated into the Corporate Governance Code in the future.
The Tax Governance Code is concise and based on the ‘comply or explain’ principle. The Code seeks to obtain a broad commitment from companies to endorse the ambitions expressed in the Code and to comply with it in its entirety. Although initially written for Dutch listed companies, non‑listed companies are also encouraged to endorse the Code. Under the Code, if a principle or provision has not yet been complied with, the company must explain how it will meet that principle or provision within a reasonable timeframe.
As VNO-NCW states in the preamble to the Code, it firmly believes that the Tax Governance Code will help to build trust and will serve as a meaningful answer to the public outcry for companies to be more transparent about and accountable for their tax position. VNO-NCW also believes that the Code will enable stakeholders to gain a better insight into and an understanding of corporate compliance with national and international tax rules. However, meeting the Code’s ambitions will require serious efforts from companies.
Download the Tax Governance Code by VNO-NCW.
