Multinational CFOs increasingly view tax as reputational risk

Tax directors and CFOs at multinational companies are facing increasing numbers of tax audits, and are becoming concerned about the impact of public perception of their tax planning on their company’s reputation, according to research by Taxand

Its fifth annual global survey of CFOs, tax and finance directors across Europe, Asia and the Americas found that 77% reported a year on year increase in the number of tax audits – up from 60% in 2015.

The research also found that 91% of respondents said they feel exposure to the public of tax planning activities, through the media, has a detrimental impact on a company’s reputation – an increase from just over half five years ago (2011: 51% and 2015: 77%).

In addition, 75% said they were concerned about the potential exposure of tax planning information needed to meet the OECD’s BEPS initiative regulations on country by country reporting standards.

When looking at the approach companies take to tax planning, 76% of CFOs and tax directors said that tax is a top issue on their board’s agenda with nearly a third of respondents stating that increasing tax scrutiny had made them change their corporate growth strategy in specific countries.

Tim Wach, Taxand global managing director, said: ‘In recent years the heat on multinationals and their tax policies has been turned up and up as a result of a growing belief amongst the general public that multinationals are not paying enough tax and should be punished.

‘The result has been an increasing pressure on tax policy makers and tax administrators around the globe to raise the number of measures directed against tax evasion and perceived “aggressive” tax planning or any planning at all, and so a rise in aggressive audits faced by the CFOs and tax directors of businesses across the world.’ 

‘The furore is unlikely to calm down anytime soon and CFOs now need to firmly add reputational considerations to their tax affairs.  Authorities will continue to push multinationals to disclose further information. Multinationals therefore need to ensure they have watertight policies and audit trails in place to quantify and qualify their actions to ensure they stand up to even the most aggressive scrutiny.’

While the survey results revealed that when looking at where to locate their business, 59% of respondents said tax is not a factor considered, paradoxically just over a third (37%) confirmed that a 5% reduction in corporation tax would tempt their business to change HQ.

Just over half (53%) of respondents believe the OECD’s BEPS initiative will make countries more competitive in relation to their rate of corporation tax, down from 76% in 2015. In general, the majority (81%) expect tax competition between countries to increase.

Taxand’s Global Survey 2016 is here.

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