Achieving transparency, whether as a taxpayer or tax authority, can often feel like you are treading water. When it feels like you are getting closer to the shore, another wave of proposals, each with new rules and threats of controversy pushing you out into open water.
Internal procedures, data gathering, analytics, and clear policies all play a key part in achieving transparency. However, transparency initiatives are vulnerable to subjective judgements (page six).
Nevertheless, companies are often accused of pursuing the lowest effective tax rate possible. Many companies are now focused on educating tax authorities, stakeholders and the public to explain how they pay their taxes (page 74). Meanwhile, The B Team has found a framework that it believes could work for many large businesses (page 20).
Many reading this will argue that this is a problem for taxpayers as they aim to comply and protect their business reputation. However, tax authorities are dealing with the same challenges.
Country-by-country reporting (CbCR) and the automatic exchange of information (AEOI) are just two transparency initiatives where it is not entirely clear how governments are analysing and using the data. There are still deep trust issues partly because of this. Furthermore, if tax authorities are viewed as more aggressive and less trustworthy, taxpayers will be ever-more cautious about how open they are with their tax affairs.
It's a vicious circle between taxpayer and tax authorities, but what makes it tougher are tax justice networks fighting for more transparency and fairness. Despite the CbCR and AEOI initiatives being introduced, it's not enough for some non-governmental organisations (NGOs) and they continue to push the debate further (page 40). These networks, while performing an essential service, are not letting taxpayers and governments rest.
No matter what policies are put in place, it seems the water beneath our feet is always getting deeper as NGOs push the boundaries. Many will be trying to stay afloat and avoid getting lost at sea.
Managing editor, International Tax Review