Country by country reporting: managing your tax reputation risk
Bernadette Pinamont and Nanzy Manzano discuss the risks of country-by-country reports leaking, in our video series with tax automation experts Vertex
The OECD’s BEPS initiative was a response to rising public anger at multinational corporations’ aggressive tax planning. The BEPS actions make companies’ transfer pricing arrangements more transparent to tax authorities – but there’s concern it will go further. This is the final part of a three video series with Vertex: if you haven’t already, watch Bernadette Pinamont discuss the main challenges adapting to country-by-country reporting, and Nanzo Manzano explain how businesses can update and future-proof their processes.
Bernadette Pinamont: Companies must assume – and be prepared for – the country-by-country report in particular to be made public, and/or potentially leaked. And they must be ready to defend themselves, and state their facts and circumstances in public, to defend how aggressive or conservative they may have been in tax planning.
Nancy Manzano: Tax reputational risk is not super brand-new. I mean, back when I was leading tax departments, you know: we didn’t want any bad tax news showing up as a headline. Nowadays that’s probably not good enough. There is so much media attention down to a very grassroots, social media level, around this issue of base erosion and profit shifting, and all of the things that companies are doing to avoid paying tax. That it’s very much something that on a daily basis companies need to be paying attention to.
We need to make sure that the tax story that the company has created for itself is something that they can explain to not just tax authorities, but to the general public as well. Because the public is really hungry for, you know, the kind of tax transparency that the country-by-country report is providing. The problem is, they just don’t know how to interpret it.
Bernadette Pinamont: Many companies will say the CbCr report is only nine elements; it is not the whole story, it is not the whole value prop for transfer pricing, it only tells you a certain slice of the picture.
Nancy Manzano: So, giving them that access to that information, without some defensible and understandable language would be really risky. I think some education around the full economic picture of the base erosion and profit shifting initiative, and the changes that it could bring about, could be really helpful for people to understand.
World Finance: So how do tax professionals need to adapt to this new age of tax transparency?
Nancy Manzano: I think tax people in general kind of have this tendency to hold back, just a little bit, until they know that something’s really real. Until they have all the information around that something. But I think the pace at which things are coming at tax departments nowadays – they don’t really have that luxury anymore, to kind of wait.
Bernadette Pinamont: The tax department of today has to be even more agile and quicker. They are always challenged with new administrative filing requirements, new legislative changes, new audits, whether it’s aggressiveness by a local state or municipality, or it’s the countries. And they’re forced with looking at some pretty quick turnaround times to be able to inform their CFO or CEO what does that legislation mean that I just read this morning? And that will be their future.
Nancy Manzano: We’re shifting to a world where doing things using manual processes time after time is becoming even more risky, with each new initiative, with each new public disclosure requirement. So you’ve got to find systems and processes that can help you get through that, and you’ve got to have the right technology, and you’ve got to have the right people to run that technology in the tax department.
Finally – and I think most importantly – we’ve really already entered into a world where tax shaming is commonplace. Now tax departments really in earnest have to be able to stay away from the prying eyes and ears of the tax paparazzi.
So, I would say: be ready. To answer the questions from whomever they come. Whether they be internally or externally. Be ready.