This section highlights key trends in the PRI-commissioned study on tax disclosures in policy, governance and risk management and reporting areas.
- Almost 30% of companies had published a tax policy (either global or for the UK) as of 1 December 2017 and, since the study, others have published UK tax strategies to adhere to regulations. Most of these policies included statements on complying with all relevant tax requirements, filing obligations and dealing with tax authorities openly and transparently.
- About 20% of companies published more comprehensive tax policies and strategy documents: These applied to the entire organisation as opposed to a single jurisdiction and addressed responsibilities to shareholders and society. They also explained how their taxes paid align with the generation of economic value and discussed training and compliance programmes, as well as tax risks and treatment of uncertainty. However, very few companies linked their tax policies with broader economic impacts or discussed how their approach to tax aligns with their sustainability and business strategies.
- Around 25% of companies provided a meaningful narrative on tax risks: Detailed disclosures on this indicator discussed key risks in the context of business operations, providing concrete examples of potential impact. However, only a couple of companies gave examples of what they deemed to be acceptable or unacceptable tax practices. Overall, while the rate of reporting on this indicator was particularly high among companies that need to comply with SEC reporting requirements in the US, some disclosures were fairly high level and referred to economic and political changes resulting in potential adverse impacts on finances.
- Just over 15% of companies described how their tax structures and strategies align taxes paid with economic value generated: Some companies explained where they operated and how this corresponded to where they paid taxes. However, they did not provide detailed country-level reporting to further support this.
- Around 25% of companies (mainly those bound by the UK Finance Act) reported on their relationship with tax authorities: These companies noted their commitment to transparent and constructive dialogue and timely correspondence, in some cases including procedures to resolve uncertainty in legal interpretation.
- None of the companies disclosed in detail their lobbying and advocacy activities on tax, or the channels they used to influence public policy: Investors are interested in policy positions, the amount spent on activities relating to tax lobbying and advocacy and how companies identify and manage any misalignment between their tax policy and trade association positions.
Governance and risk management
- Over 20% of the companies stated that the board is responsible for tax governance: Over 10% of companies outlined the mechanisms in place to implement their tax policy. Although several companies provided narrative around their compliance with tax laws, only two companies committed to complying with the spirit of law.
- Around 10% of companies referred to staff training to manage tax positions appropriately or to meet regulatory requirements: However, they did not elaborate on the content of the training or indicate that all relevant staff are trained on the links between tax strategy and the company’s business strategy.
- None of the companies explicitly referred to their whistleblowing procedures relating to their tax policy.
- Nearly 50% of companies clarified why their ETR increased or decreased from previous years: These companies reported on how the ETR is affected by operations in jurisdictions with lower tax rates. All companies reconciled their ETR with the benchmark comparison rate (usually the statutory rate where they are headquartered) as part of their financial accounts, given that it is a statutory requirement. However, under 5% of companies used the weighted average statutory rate in the reconciliation, which would allow companies to more meaningfully explain their reconciliation without needing to reference the variability in tax rates across operations.
- None of the companies described tax strategies that may be contributing to changes in UTBs: However, some companies commented on the expected direction of movement in these balances in future years and discussed the potential impact on the ETR. A growing UTB balance may signal a higher tax risk tolerance.
- Around 5% of companies provided some level of information on debt arrangements with subsidiaries: Even among companies that reported quantitatively on their intra-company debts, very little context was provided regarding these transactions, including information on the countries where debt is held and the average interest rate paid by the firm’s subsidiaries on that debt. Recent tax reform in the US impacts interest expense tax deductibility and makes the disclosure of this information even more pertinent.
- Over 35% of companies (particularly those covered by SEC reporting requirements) reported on tax incentives: Among them, some companies provided general statements on using tax incentives as per the legislator’s intention and economic substance. Over 15% of companies provided more detail such as access to specific incentives in their countries of operation.
- None of the companies surveyed published a public country-by-country report: Around 50% of companies provided a regional breakdown. Among them, the companies that are required to file 10K reports differentiated between foreign and domestic taxes paid, in line with SEC requirements. All companies published a list of their subsidiaries, although some only named their principal subsidiaries.
- Over 70% of companies reported on disputes with tax authorities. Among those, about 25% of corporate disclosures were relatively general while others disclosed specific disputes and provided information on which tax years are open or under audit in which countries, and the anticipated impact on UTBs due to settlements with tax authorities.