The Fair Tax Foundation’s global standard, launched on November 25, will allow businesses headquartered around the world to access the accreditation. The addition to the Foundation’s UK-only standard was driven by demand from MNEs keen to demonstrate their tax morality.
“The internationalisation of the Fair Tax Mark has been driven by approaches from businesses across the world who are seeking accreditation and to stand up for responsible tax conduct,” said Paul Monaghan, chief executive of the Fair Tax Foundation.
Businesses are increasingly seeking to enhance and prove their tax policies as the tax morality landscape shifts and MNEs face higher expectations from stakeholders. A combination of tax scandals such as the Pandora Papers, legislative changes in tax transparency, and a growing appetite for ethical investment options is increasing the pressure on companies to adhere to responsible tax policies.
The first company to be accredited under the Foundation’s global standard is the Swedish renewable energy MNE Vattenfall. The company’s Chief Financial Officer (CFO) Kerstin Ahlfont said that accreditation can confirm what tax teams are doing right, as well as suggest areas for improvement.
“We believe that this is one additional step towards increased tax transparency,” said Ahlfont. “The accreditation process has given us confirmation that we have much of the required information and processes in place but also that we can further improve in some areas.”
Monaghan said that there could be a short time lag before other MNEs follow Vattenfall, as businesses ensure that internal communications and politics are in line with public country-by-country reporting (CbCR).
However, Monaghan added that “the trend toward tax transparency is now strongly in one direction and we expect a glut of activity from 2023, hastened by both legislation and institutional investors”.
Tax teams are grappling with tax transparency legislation including CbCR, the directive on administrative cooperation 2018/822 (DAC6) and its later iterations, e-invoicing requirements, and agreements such as the OECD’s BEPS project.
A growing number of companies are also becoming aware that tax transparency is crucial for attracting investment from risk-averse and image-conscious funds.
Investors are looking at ESG
A key reason for MNEs to improve their tax responsibility status and gain accreditation from independent bodies is to raise their environmental, social, and governance (ESG) ratings. Ethically conscious funds are increasingly using rating agencies such as MSCI and S&P Global to decide where to invest.
Monaghan told ITR that Epworth Investment Management, which has more than £1 billion ($1.33 billion) of assets under management, will promote Fair Tax Mark accreditation across its global investment portfolio.
Meanwhile, MNEs such as Snap Inc., the technology company that owns the social media platform Snapchat, have already voiced support for the global standard.
“We commit to publicly disclosing, on a country-by-country basis, our total tax contribution when we become profitable and income tax expense and income taxes paid become material, at which point we look forward to receiving certification from Fair Tax Mark,” said Jonathon Locascio, senior director of tax at Snap Inc.
The Foundation’s announcement of the global standard was welcomed by other groups that advocate for tax justice and transparency.
“Initiatives like the Fair Tax Mark demonstrate that there are plenty of companies out there that take pride in being transparent and have no interest in engaging in the kinds of tax trickery that has brought the corporate sector into disrepute,” said George Turner, director of the UK think tank TaxWatch.
“It is great to see the Fair Tax Foundation take their accreditation beyond the UK, so that companies from around the world can demonstrate publicly their commitment to playing by the rules,” added Turner.
In the rapidly changing landscape of tax morality, MNEs are increasingly taking the initiative in asking for standards and accreditation options. The Fair Tax Foundation’s global standard is yet another addition to the landscape and will further increase the pressure on MNEs to ensure their tax practice is transparent and responsible.
