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CEOs understand need to be seen to play fair on tax

Tuesday, 11 February 2014   (0 Comments)
Posted by: Author: Feargal O'Rourke
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Author: Feargal O'Rourke

Any company planning tax arrangements on the basis that a tax administration authority "mightn’t be aware of them” is living in the dark ages. It’s a message that is clearly understood at CEO level, according to the latest annual survey of the views of business leaders on key issued. PwC’s 17th Annual Global CEO survey, which covers the views of almost 1,400 CEOs in 68 countries, including Ireland, found that 75 per cent of respondents agreed or strongly agreed that "being seen as paying our fair share” of tax is important.

That question is a new one in this year’s survey and I expect the number to rise in future surveys.

The defining feature of a company’s or a country’s tax strategy over the rest of this decade will be "transparency”. While it may not have been high on the agenda a few years ago, it is now easy to envisage a time in the near future where a company will have to be able to articulate its approach to tax in some detail to its shareholders and wider stakeholders as part of the reporting process.

Right now "transparency” is effectively limited to discussions between a company and its local tax administration authority.

OECD proposals

However, the concept of transparency for tax purposes will be significantly increased when new OECD proposals are implemented. These will see businesses that operate across national borders have to report extensively to local tax administrations on their income, taxes and business activities. Each local tax administration will have full visibility of a group’s global activities on a per country basis.

While such measures are still at proposal stage, I expect implementation over a relatively short period, given the current political and public discourse on tax being paid by cross-border companies.

Is it a big jump from this to some sort of wider engagement by companies with their stakeholders about their tax strategy? I don’t think it is and ultimately companies may wish to embrace this to address what is sometimes a one-way debate about how companies run their business and pay their taxes.

The growing transparency debate may well evolve to see companies actually having to put information into the public domain on a country by country basis. Companies cannot just passively let data out and lose control of the debate – they must engage. 

Let’s take a company selling digital products or services right across Europe from a single location, without a sales force in any of those countries. A customer simply logs onto the company’s website based at the company’s location and downloads the product. It is only going to pay tax in the host country in the same way that a mail order business was taxed 30 years ago.

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