Name and Shame: Governments Publish Corporate Tax Report Cards
Tax transparency has become more than a buzzword for tax authorities. Outrage over companies not paying their fair share of tax has become front page news in many countries, and politicians have reacted by implementing some radical new disclosure requirements.
One newsworthy development: programs developed to help identify aggressive tax strategies are now leading to public disclosures of taxes paid by companies.
On March 22, 2016, Australia published how much income tax was paid by certain public, private, and foreign-owned multinationals. The spreadsheet provided company names, revenues, taxable income, and taxes paid. Several countries have already proposed following Australia’s lead.
We expect the recent release of the ‘Panama Papers’ will only intensify demands for similar public disclosures elsewhere.
Start with Apple, Google, and Starbucks, but Smaller Companies Also Face Risks
Governments worldwide are working together to crack down on aggressive tax structures. The Organisation for Economic Co-operation and Development (“OECD”) has been central to the development of new tax transparency requirements.
Numerous countries have already announced that OECD’s initiatives will be implemented starting with years starting on, or after, January 1, 2016. We expect the IRS will unveil their strategy on June 30, 2016, applying for years starting on, or after, January 1, 2017.
A particularly noteworthy change is tax authorities will have higher transfer pricing documentation standards, affecting companies of all sizes.
What Does a Report Card Include?
The Australian Taxation Office (“ATO”) released tax information on companies with more than A$100 million (U$75 million) in revenue, including 985 foreign-owned public and private companies. While the ATO did caution that companies paying no tax did not equate to tax evasion, some companies have already posted explanations for their tax payments on company websites.
The European Union, for one. EU-wide legislation is currently under negotiation, but company revenue thresholds for reporting tax payments publicly have not been established.
Multinational companies not only face enhanced transfer pricing scrutiny but higher reputational risks from public disclosure of corporate tax payments. We expect other countries to follow suit as tax transparency programs are implemented over the next two to three years.