Tax Transparency

It has two sides. Between governments, it means automatic exchange of information on accounts, ownership and group activity, so that income cannot be hidden abroad. For companies, it means publishing their tax strategy, the tax they pay in each country and how it relates to profit, either because the law requires it or because investors, civil society and customers expect it. Voluntary standards, such as reporting frameworks for sustainability, include tax disclosures. Some countries require a public version of country-by-country data. Transparency does not alter how much tax is due, but visibility changes behaviour: firms avoid arrangements they would find hard to explain. Critics point to the cost of reporting and the risk of releasing commercially sensitive data. Journalists, investors and tax authorities now compare what a company says about its tax approach with what it files.

A large retailer publishes an annual tax report setting out its tax strategy, the taxes it paid in each country and why the effective rate differs from the statutory rate. After a journalist questions its rate in one country, the report lets the retailer show the explanation with figures, rather than make a late statement.