Since 2014, when PwC began its annual assessment of tax transparency provided by the top 100 companies on the Johannesburg Stock Exchange (JSE), transparency in tax reporting has moved from being a conversation around tax evasion to a critical topic that sits at the heart of corporate sustainability.
The Building Public Trust through Tax Reporting publication examines emerging trends in tax transparency and material topics for stakeholders, providing year-on-year comparisons over rolling three-year periods of tax transparency in South Africa in areas such as tax strategy, risk management, tax numbers and performance, as well as total tax contribution and wider impact.
The 6th edition shows how every interaction, every experience and every relationship builds or erodes public trust in organisations. There has been a significant shift in the role of business in building trust and delivering sustained outcomes for the benefit of all stakeholders, which brings tax transparency into the core of environmental, social and governance (ESG) strategies.
Tax reporting and ‘the New Equation’
Carla Perry, PwC Tax Transparency Expert, says there are two interconnected needs all organisations will face in the future – building trust across a wide range of stakeholder touchpoints, and delivering sustained outcomes in an environment where the risk of disruption is more intense than ever before.
“Demonstrating accountability and providing reliable information are key to delivering certainty and building relationships based on trust,” says Perry. “In short, companies must be accountable for their impacts on society, and their taxpaying behaviour as a component of accountability. Modern society demands that companies commit to comprehensive tax reporting because it is no longer just a cost factor, but a tool for socio-economic development and cohesion – it must be seen and reported in the context of ESG commitments.”
Guidance on voluntary tax reporting continues to evolve, forcing many companies to reconsider their tax transparency strategy in line with the wider social impact of their tax contributions.
The ability to construct a positive narrative is driving tax transparency trends
“Even though growth in average overall tax transparency among the companies surveyed slowed down, the variety of initiatives companies have taken to demonstrate good corporate citizenship by telling their responsible tax payment story is encouraging. Companies that provide authentic, structured, accessible and easy-to-read information on their tax affairs are finding favour with stakeholders,” says Perry.
This year’s publication is centred on the concept of trust being earned, rather than bought – especially in the current context of heightened mistrust of large corporations. “During times of uncertainty, such as the world is experiencing now, people look to institutions they can trust. That trust is earned consistently and incrementally through every interaction, every experience, every relationship and every outcome delivered. The organisations that address interconnected needs successfully do so through a strategy guided by their societal purpose,” Perry says.
Transparent tax reporting demonstrates voluntary compliance and the total amount of tax companies pay is increasingly seen as currency in the trust debate, Perry says.
“Society’s expectations of business continue to evolve, with stakeholders of all kinds expecting companies to do more to help tackle the world’s big issues, like climate change, public debt and social inequalities. The payment of tax offers a way to demonstrate trust while balancing business drivers and stakeholder demands. Stakeholders place more trust in organisations that demonstrate a sustained interest in communities, the environment and good governance.”
Tax is not just tax
The reimagining of tax reporting is bringing non-financial information into the narrative to demonstrate how the organisation is contributing to the ultimate attainment of social change, such as reaching the UN Sustainable Development Goals.
Perry says there are five key issues CFOs and tax teams need to consider in presenting more transparent tax reporting in future. “The first is to comply with growing pressure from investors and other stakeholders to make tax transparency a board-level issue. Second, transparency need not include everything possible related to tax issues, but should be based upon a comprehensive baseline of accepted metrics and disclosures, such as Global Reporting Initiative (GRI)’s tax standard (GRI 207), so that compliance is meaningful.
“Third, whichever baseline or framework is selected, the information needs to be reported effectively. The numbers can only be trustworthy if the processes, controls, assurance and governance underlying them are in place. Fourth, non-financial information such as how and where taxes are paid should be revealed with as much rigour as the financial numbers. Lastly, the information should all be provided in flexible digital formats that stakeholders can process and use,” says Perry.
