In Canada and around the world, corporations are dealing with changes in public attitudes toward taxation. Governments, news media, investors, customers and citizens are holding businesses and their boards accountable for the income taxes they pay. The issue is being debated in moral rather than legal terms – often ignoring the fundamental differences between illegal tax evasion and tax planning by legal means.
Nevertheless, corporations are being forced to consider how they respond to public demands for greater transparency. In recognition of the scale and scope of the problem, the Organization for Economic Co-operation and Development released a 15-step action plan on July 19, 2013, to address base erosion and profit shifting (BEPS). The report was strongly endorsed by the Group of 20 and could bring about a major shift in international tax rules.
The need to address tax avoidance through BEPS is recognized and supported by multinationals in Canada. As the C-Suite survey reveals, 67 per cent of the executives reported that they somewhat or strongly support the BEPS action plan. In addition, more than one-third reported that they or their boards have taken steps to address the issue of whether their company is paying their fair share of tax.
As governments around the world remain under immense financial pressure and take action to combat tax avoidance, the expectation is that the trend toward increased transparency will continue. The oil and gas and mining sectors are already subject to tough new mandated public disclosure of payments to governments, and one of the key action points from the BEPS report is establishing a framework for automatic exchange of information between taxpayers and tax authorities. Any new international tax standards will require wide acceptance and must respect national sovereignty.
In Britain, the debate about tax morality escalated rapidly. It is crucial that companies and their boards brace themselves for increased scrutiny by tax authorities and in the court of public opinion. With reputations at stake, it is vital that senior business leaders take stock of their current position and its risks, develop a transparency strategy, follow the regulatory environment as it develops, and prepare to participate in the debate. Preparation is essential to deal with this new tax environment.
Iain MacIntosh is a tax partner and national industry leader of KPMG's tax transparency team. The 32nd quarterly C-Suite survey was conducted by Gandalf Group, sponsored by KPMG, and published by Report on Business and BNN.