11 months ago



ADVOCACY EY Building engagement upon transparency Any public tax disclosure risks the exposure of commercial information, and should be considered with extreme caution Aconsistent theme of recent years, and one of the key findings in the EY outlook for global tax policy in 2017 report, is the continuing shift toward the disclosure of tax information – “tax transparency”. This takes two key forms: disclosure to the tax authorities and disclosure to the public. As with any trend, it is sensible to periodically take stock, and consider whether original objectives have been met. With this in mind, it would be timely for the G20 to consider the impact of transparency and whether it has achieved its objectives prior to introducing additional transparency measures. At a minimum, engagement between tax authorities and taxpayers would help clarify that new information is being used effectively and should be undertaken, before seeking disclosure of additional data. Tax transparency Once the G20/Organisation for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project recommendations are fully implemented, the world of tax transparency will be significantly transformed. Gone is the world of information asymmetry, where taxpayers had all the information and tax authorities had to use their powers to gather data that was not voluntarily or automatically provided. With far greater disclosure requirements in place – such as through Countryby-Country reports – and the automatic exchange of that and other information between tax authorities, the asymmetry, to the extent it existed at all, has been eliminated. We wholly support transparency between taxpayer and tax authority: taxpayers need to provide all information necessary for the tax authority to do its job of administering the tax system, ensuring that duly owed taxes are paid. However, this should not give rise to an evolving and inconsistent obligation for the taxpayer to provide information beyond what’s necessary to determine the appropriateness of the taxes due, as every moment spent providing unnecessary information impairs businesses’ efficiency and productivity. Disclosure should be made for a tangible reason, not as a costly default. With so much change on the horizon, and with tax authorities having much greater data analysis capabilities, now is the time to defer additional disclosures and instead monitor the impact of this information rather than taking further proactive steps in reporting mechanisms. Much active discussion also exists on whether there should be more disclosure of tax information to the public. The G20 and OECD concluded that the new disclosures, like other tax information, should only be provided to tax authorities, and should remain confidential. That is sensible because tax filings may include commercially sensitive information, and this information is provided to support analysis rather than actually assessing the calculation of tax. Yet the calls for wider disclosure remain, relying on the following premises: • That public disclosure will ensure a greater level of scrutiny, and is therefore in the public interest. This is a worrying claim, as it inherently surmises that tax authorities are not adequately scrutinising taxpayers and that the public – with incomplete information, experience and insight into the facts – would be better at enforcing compliance with tax law. If there is distrust in the quality of tax administration, this should be addressed through the government oversight process, to which all tax authorities are subject. The authorities have clear performance metrics in place and, if concerns are identified, attention should be focused there. Public disclosure of data would not address this concern.

ADVOCACY • That public disclosure will constrain corporate behavior. The UK requirement to publish a tax strategy, say, may focus more attention of the Board on the tax profile, and so increase focus on the company’s tax position. However, public disclosure shouldn’t be needed to ensure this. And the objective of disclosure should be to ensure that published information is clearly understandable and focused on the tax risks of the company. In contrast, the publication of the BEPS Action 13 Country-by-Country reporting template – something clearly intended to be used only by the tax authority alongside other information – would appear to fail this test. • That some companies already voluntarily publish similar information. The decision about whether to publish, and what information to include, is made by each business. It is typically covered as part of a larger discussion that may be targeted at various stakeholders, including customers, shareholders and regulators. The data that are shared are relevant to the company, its business and its stakeholders. However, the fact that some businesses publish data does not mean there is a benefit in mandating that all should provide disclosure. Also, in a world where financial statements are already long and complex, extra information may actually lead to less transparency, with too much data undermining clarity. Any public disclosure again risks the exposure of commercial information, and should therefore be considered with extreme caution. CHRIS SANGER Global Tax Policy Leader EY gl/en/services/tax Building positive engagement The transparency of tax information to tax authorities is ultimately a means to an end: that taxes are duly paid. The G20 should use the time taken to evaluate the success of its new transparency requirements to reinforce the cooperative compliance concept championed by the OECD. The detailed understanding of business activity obtained by a tax authority under cooperative compliance can help easily explain apparent anomalies and avoid needless conflict. Likewise, a robust understanding by the taxpayer of the concerns of tax authorities can help ensure that responses address the issues at hand, securing efficient resolution and engendering more trust. The sharing of tax information can potentially improve trust between taxpayers and tax authorities. As part of the G20’s work on tax and growth, a recommitment to building trust would be well received. Ultimately, communication remains a human process and open dialogue will resolve queries far more efficiently than any other route. As the G20 considers the current tax environment, it should reflect on the changes that BEPS has, and is set to, deliver to the world of tax transparency. Such changes will take time to work and need to be given that time. The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.

G20-2015 Turkey