Thousands of companies may soon be reporting tax-related and other financial information on a country-by-country basis, following Thursday’s finalization of a proposal by the Global Reporting Initiative (GRI), a sustainability standards-setting body.
Three-quarters of the world’s largest companies that report their sustainability results use GRI’s reporting standards. Internationally, 62 countries have policies that reference or require the use of the GRI standards for sustainability reporting, including capital market regulations in 45 countries.
In the United States, 78% of the companies that comprise the Dow Jones Industrial Average voluntarily use GRI standards for environmental, social, and governance (ESG) disclosure.
The new standard — GRI 207: Tax 2019 — calls for companies to report on tax practices as part of their sustainability reporting. The requested information includes disclosures on tax strategy, governance, and risk management that meet different stakeholder expectations of reporting.
Companies adhering to the standard also will publicly provide country-by-country reporting of business activities, revenues, profits, and tax.
The standard also promotes disclosure of the reasons for any difference between corporate income tax accrued and the tax due if the statutory tax rate is applied to profit/loss before tax.
The GRI tax standard was developed by a multi-stakeholder technical committee consisting of representatives from PricewaterhouseCoopers, MFS Investment Management, Vodafone PLC, and the Tax Justice Network, among others.
According to GRI, the proposal received very strong support from investors during the comment period.
“More nations are scrutinizing and cracking down on profit-shifting schemes and other aggressive tax avoidance strategies,” said Gary Kalman, executive director of the FACT Coalition, an organization devoted to promoting corporate financial accountability and transparency.
“The resulting changes to tax planning and growing liabilities mean rising risk for investors,” Kalman said. “Company valuation estimates have varied by as much as 120% because of uncertain offshore tax liabilities.”
He added that in numerous discussions, FACT has heard that investors don’t currently use much tax information in their risk models — “not because it isn’t valuable, but because it does not exist in any public form.”
He noted that GRI received more comments from investors on this issue than on any other in its history.
“The required information is already known to company management and, in various forms, to national tax authorities,” said Kalman. “Prior to the release and adoption of this standard, the only ones left in the dark were the investors putting their money at risk. This standard rights that wrong.”
GRI gave four reasons why companies should publicly report on tax:
- To show the contribution they make to the countries in which they operate.
- To promote confidence and credibility in the tax practices of organizations and in tax systems.
- To enable stakeholders to make informed judgments about an organization’s tax practices.
- To help inform public debate and support the development of socially desirable tax policy.