Building Trust Through Tax Reporting, Tax Transparency in an ESG Era

Our Building Public Trust Awards 2022 workshop on Tax Reporting attracted a large audience who enjoyed a packed programme of presentations and debate featuring leading tax standard-setters and practitioners. We also heard from the winners of this year’s two Tax Reporting awards about how they’ve put themselves in the forefront of this complex and increasingly scrutinised area of reporting.

Mapping out the changing landscape of tax transparency

Kicking off the proceedings, PwC’s Tax Transparency Leader Andrew Packman welcomed the audience and gave a brief overview of how the tax landscape has evolved during his decade in the role. He summed up: “A good deal has been achieved by large companies in the way they approach their tax disclosures – but there are some new challenges coming up.” Andrew then handed over to Andy Wiggins, who’ll be taking over as Tax Transparency Leader, to examine those challenges in detail.

Andy pressed on with a comprehensive update on developments in tax transparency globally, highlighting developments including the move towards country-by-country reporting (CbCR) in the EU and several other jurisdictions; the development and rising usage of voluntary ESG reporting frameworks, including from the Global Reporting Initiative (GRI) and World Economic Forum; the emergence of ESG standards such as the Task Force on Climate-Related Financial Disclosures (TCFD) and EU’s Corporate Sustainability Reporting Directive (CSRD); and the Pillar 2 global minimum tax regime.

The net implications of all this for businesses? Pulling together the various strands, Andy recommended that firms take three key steps. First, understand the green taxes and incentives applying to them as an organisation. Second, assess how their business model will be impacted by climate change and how to articulate that impact. And third, link it all together so it’s reflected in the financial statements in areas like deferred tax asset recognition.

Insights from the GRI

To drill deeper into what’s happening in tax transparency, we then heard from someone who’s leading the charge: Eelco van der Enden, CEO of the GRI. In a wide-ranging interview with Andy Wiggins, Eelco began by succinctly defining the GRI’s role: “We enable businesses, investors and society to make decisions on impacts based on facts and not on perception.” He went on to examine areas including impact and “double” materiality, and the progress being made towards a single global baseline for ESG reporting.

One of Eelco’s most intriguing insights was that he believes CbCR will eventually become part of the wider EU CSRD regime. He commented: “One day in the future, and perhaps sooner than we think, the EU public Country-by-Country Reporting Directive will become obsolete, because tax will be included in the European Sustainability Reporting standards.” He also highlighted the rise of sector-specific impact reporting – and the paradox that with green taxes, paying less is actually good.

Showcasing the winners

This all set the scene for the presentation of the two awards for Tax Reporting in the FTSE 350. Michael Sunderland of HM Treasury – a member of the independent BPTA judging panel – gave a perspective on what the judges were looking for. Then the winners were announced. The Multinational Award went to BP, and was presented to the company’s Senior VP for Tax, Jan Lyons. The UK-focused award was won by SSE, and was collected by Head of Tax Martin McEwen.

The panel debate

Following the awards, PwC’s Head of Tax Laura Hinton chaired a panel discussion. Among themes that came to the fore, one of the most prominent was the ability of tax regimes to change companies’ behaviour to be more sustainable. Another was the challenges of complexity and cost created by having to comply with different ESG and tax standards in different jurisdictions, and the need for guidance on how to navigate these differences. Panellists offered some practical actions to help companies do this, as we head towards global standards.

A further point stressed by a number of panellists was the importance of linking tax policy to the ethos and values of the business. This creates value among stakeholders both externally and internally, in turn helping to attract talent. One panel member commented: “It’s about building up an understanding around the taxes we pay and our ethos when it comes to tax…which I think our employees very much appreciate and understand.”

Transparency and trust are converging

The biggest takeaway from the workshop? That there’s an ever closer linkage between transparency and building trust, in tax and across ESG more generally. And also an opportunity to drive changes in behaviour by bringing all of this together, helping to reinforce the direction of travel towards sustained outcomes. As we heard, the leaders are innovating in their tax reporting to support this process. But how does your organisation’s reporting measure up? To discuss the issues, please feel free to contact PwC’s Tax Transparency team.

The future of corporate reporting is taking shape. Together, we can build it.