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Postcards from Davos: Day 4

Postcards from Davos: Day 4

Postcards from Davos: Day 4

Jane McCormick | Leadership,

Yesterday and today in Davos I took part in discussions on responsible tax behavior, tax transparency and the relevance of tax principles to businesses and advisors. On the subject of tax transparency, a number, but still a minority, of large groups have published detailed explanations of their tax position and some have told me that they feel they have benefited from doing so. The question is whether others will go this route.

Some speculate that country by country reporting, which currently only goes to tax authorities, will eventually be made public, although there is even push back within the EU on this. A main consideration here was that this reporting was designed for use by tax authorities, who have access to other data as well and only use it as a risk assessment tool, not as a substitute for the actual tax return. Some attempts to analyze country by country data that is in the public domain have only served to prove to me how misleading this information can be if it is taken out of the broader context and without an appreciation of some of the oddities in the reporting format (such as what you do with losses). So, this confusion creates concern about disclosure, and it means that if this information does become public, it is likely that companies will need to publish additional information to provide the needed context.

You might ask, what would be the point of greater disclosure? After all, the tax authorities scrutinize returns and have strong powers to obtain additional, even confidential, information so we are not in a position to second guess them. A quite persuasive answer is that greater disclosure would better illuminate the debate. It is depressing to note that, in Davos, as elsewhere, the scale of tax avoidance by multinationals has been estimated using numbers and statistics that are wrong, misquoted, extrapolated or historic (sometimes all four). Clearly the people quoting these numbers are not reading the accounts of the companies concerned or not understanding the tax disclosure in these accounts as these tend to reveal a very different story (nor are they taking into account a lot of tax law changes that have recently been enacted). Perhaps greater or better disclosure by companies (by which I mean words, rather than numbers) would help to stop some of the misrepresentation which has on occasions driven a reactive form of regulatory change.

Another point on transparency discussed here related to the attempt to try and identify common metrics and consistent reporting of sustainable value creation. A number of different organizations are trying to develop metrics to measure company performance in this area which is causing confusion and an attempt is being made to get to a single standard. Many of these sets of metrics, including the outline discussed here, encompass measures on tax. So, further tax transparency could come through this route as part of the wider Environmental, Social and Governance (ESG) agenda.

The publication of tax principles by companies is also a minority activity amongst corporates and advisors. Yesterday I met with Robin Hodges from The B Team. The team has drawn up a set of tax principles, which have been adopted by a number of companies. In relation to advisors, it’s worth saying that those of us that are members of accounting professional bodies are subject to the principles in the rules of those bodies and I know from experience that drawing up further international principles which confirm to the web of tax law and other regulation we are subject to is not easy. At KPMG we do have a set up Responsible Tax principles (PDF 840KB) that we published some time ago. KPMG member firms have always taken the view that, in advising clients, we should not only consider what is legal (of course!) but also what is wise, and what aligns with the values of the organization. Our principle are what guide us in this and we believed that our clients and other stakeholders had a right to understand our approach.

At the end of the day, responsible behavior in relation to tax by all players is important, if we want to have a cohesive and sustainable tax system that works for all. Irresponsible behavior by taxpayers results in financial and reputational risk to them and possibly wider damage to the system as a whole, as it frequently results in changes to tax law that have an impact beyond the target of the law. Irresponsible behavior by tax authorities (which does happen; for example, by excessive use of powers or unrealistic tax assessments) breaks down trust between taxpayer and tax collector and impedes voluntary compliance. And irresponsible behavior by commentators, such as through the misrepresentation of fact, also erodes trust that society has in the tax system itself and creates a risk to tax morale. We all have a role to play in advancing a productive discussion and future for tax as a catalyst for trust and trustworthiness.

I have one more session on tax to go before I leave Davos. A few other things to note are that I have definitely seen more women here than I did during the first time I came 4 years ago. I now know what the inside of a quantum computer looks like, and I have observed that you can learn to ski when you are really, really young. Maybe if I had, I would be less paranoid about falling over!