Business Laws

Why tax transparency report enhances value

Sachin Garg/ Sanjoli Maheshwari | Updated on September 06, 2021

Stakeholders’ growing demand for tax info from MNCs necessitate the maintenance of maximum standards of tax transparency

Global tax environment has entered a new era of transparency. In today’s world, the focus on transparency is not just a legal requirement, but one of the cornerstones of long-term value propositions to deliver value to shareholders and society. Stakeholders’ growing demand for tax information from multinational companies necessitate the maintenance of maximum standards of tax transparency.

Tax Transparency Report (TTR) is an annual report providing an overview of tax strategy, governance and tax contributions made by a particular corporate group to the government. This helps to facilitate information about its contribution to economic development, improve stakeholder understanding of its business, build trust, ensure robust tax governance, improve transparency of tax payments and compliance with tax authorities. Thrust areas of a TTR encompasses company’s overall contribution towards economic development, its tax planning and sustainability under the current tax statutes, the tax governance and various strategies followed by the company in the form of substance and aligning the same with its commercial and business purpose, company’s contribution to government treasury in the form of various statutory taxes and levies, consolidated tax contribution summary for all group entities and the overall group tax strategy statement in compliance with tax laws of the jurisdictions where it operates.

Global recognition of TTR

International community has achieved great success in achieving tax transparency. Various countries worldwide have implemented robust standards prompting an unprecedented level of transparency in tax matters. For instance, Australia’s Board of Taxation developed a tax transparency code defining standard guidelines for businesses on public disclosure of tax information. Likewise, in Canada, the extractive companies are required to publicly disclose payments to governments, annually. The United Kingdom’s Finance Act 2016 requires large companies to publish an annual tax strategy in respect of activities relevant to UK taxation. Recently, the EU also laid down rules that require multinationals present in more than one country to publish the amount of taxes paid in each.

At present, there is no prescribed law that mandates the issue of TTRs in India; few companies provide a TTR. TTR is a voluntary effort aiming to maintain transparent dialogue with stakeholders on contributions made to public finances. Initially, preparation of TTRs may require strengthening of internal systems and processes, disclosure of group structures, tax data integration etc. which may result in increase in compliance costs of the enterprises as it may entail collation of more data, frame and disclose additional information to larger audiences. Nevertheless, the benefits reaped in the form of trust and reputational impact from decoding the enhanced knowledge about its business activities to its stakeholders and investors will outweigh all the initial encumbrances. Thus, voluntary publishing of TTRs is will be a useful tool for large corporate players, especially listed organisations, as they demonstrate a positive contribution to the country’s economy. Given the ever-increasing focus on tax transparency and with the ever-changing rules and laws in various jurisdictions across the globe, TTRs are the need of the hour.

(The authors are Partner and Director, respectively, at Nangia Andersen, a law firm)

Published on September 05, 2021

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