When paying tax is more than duty

Tax forms the basis for public spending, and governments want larger budgets to achieve their specific goals. Business contributes a significant amount in tax whether it’s paying employees National Insurance Contributions, Business Rates, VAT, Corporation tax or a Bank levy. Where tax decisions were once considered transactional to comply with the rule book, they’re now important considerations driving organisational strategy and reputation. So decisions made by the tax team are increasingly visible in the public domain and attracting attention.  

Globalisation has driven greater awareness of competing tax regimes as governments attract and incentivise businesses to establish on their shores. Business, operating on this global stage, is looking to increase profitability and reduce tax payments to the minimum required, making the most of the tax incentives and rates it has access to. But, companies now have pressure from a variety of stakeholders, not just shareholders, to pay their ‘fair share’ of tax, not necessarily the minimum legal amount required, but the morally acceptable amount. Increased public interest means that consumers expect not only transparency around corporate tax contributions, but acceptability. With social media enabling rapid knowledge sharing, business has to be mindful of how its tax activity is perceived and the potential repercussions of the approach taken. 

Tax has become part of the bigger picture

Positioned in a wider context, as business looks beyond its financial metrics to understand its total impact, a company’s attitude towards tax has the potential to become not only a reputational issue, but a risk to business as usual. Business is now far more likely to be held to account for its tax decisions and these tax decisions need to be in the mix when implementing strategy.  

Understanding the impact of tax decisions (both positive contribution and negative) and the trade-off between alternatives is an important component of understanding total impact. It also enables a more informed dialogue with stakeholders.

As part of Total Impact Measurement & Management framework, PwC uses its Total Tax Contribution analysis to determine an organisation’s tax contribution. Developed by PwC, it’s a well-established approach in its own right, and provides the necessary data to outputs quantifying and monetising the tax impact for a company.

Four TIMM quadrants

  1. Social Impact - Measures and values the consequences of business activities on society such as health, education and community cohesion.
  2. Environmental Impact - Puts a value on the impact business has an on natural capital eg. emissions to air, land and water, and the use of natural resources.
  3. Tax Impact - Values a business' contribution to the public finances, including taxes on profits, people, production and property, as well as environmental taxes.
  4. Economic Impact - Measures the effect of business activity on the economy in a given area, by measuring changes in economic growth (output or value added) and associated changes in employment.