‘Tax’ has come in from the cold and is now a hot topic in the boardroom

Corporate tax transparency is increasing, with new mandated disclosures in the EU, US, and Australia. Deloitte’s 2023 survey found 39% of tax directors are concerned about media scrutiny, and 75% expect increased stakeholder interest in tax behaviour.

Investors want assurance that investees embrace responsible tax conduct

Institutional investors and asset managers are urging multinationals to adopt responsible tax practices as part of their ESG credentials. This is seen as beneficial for competition, public services, and economic growth. Poor tax conduct is viewed as a red flag for weak governance.

But how do investors separate the wheat from the chaff?

Investors may rely on rating agencies or develop bespoke KPIs for tax conduct. The Fair Tax Foundation has identified KPIs and associated green and red flags to help investors assess tax practices. These indicators are informed by Fair Tax Mark standards and a decade of experience.

Key performance indicators of responsible corporate tax conduct – and their green and red flags

• Freely available, complete set of annual financial statements
  • Green flag: Full financial statements in the public domain, including detailed tax information.
  • Red flag: No consolidated set of financial statements are freely available or abbreviated version only is available.
• Robust responsible tax conduct commitments that are subject to annual compliance confirmation
  • Green flag: Public tax policy committing to avoid tax avoidance and declare profits in the place where they are generated.
  • Red flag: Basic compliance pledges without addressing tax avoidance or governance.
• Public Country-by-Country financial disclosures, with narrative to explain unusual positions
  • Green flag: Comprehensive public disclosures of financial data by country, aligned with Fair Tax Mark or GRI 207 standards.
  • Red flag: Lack of country-specific disclosures, use of selective reporting to obscure tax contributions.
• Disclosure of uncertain tax positions, with narrative to explain significant tax disputes
  • Green flag: Detailed disclosure of uncertain tax positions and significant disputes.
  • Red flag: Minimal or no discussion of uncertain tax positions or related disputes.
• Corporate cash taxes paid, over five-year period
  • Green flag: Average tax rate (cash taxes paid) over five years above 20% of profits, indicating alignment with global tax rates.
  • Red flag: Average tax rate below 7.5%, suggesting potential tax avoidance.