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.
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)