The role of political regulation in the area of CSR and tax

IBIS conference 21 June 2012

Søren Jesper Hansen, PwCTax Partner

PwC

Existing regulation on reporting of taxes for corporations

Regulation on reporting of corporate taxes

• Corporate taxes must be reported according to certain acounting standarts

• Reporting on group level

• Taxes payable related to the year in question including the movement in deferred taxes

• No requirements on country-by-country reporting

• EU-directive proposed on country by country reporting of corporate taxes

• One issue is to be able to audit the data

• New Danish rules adopted this spring on publishing corporate taxable income on SKATs homepage

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Appetite for more transparency on tax payments?

•PwC analysis in May 2011 among Danish multinationals • answers received from people working with investor relations and

communication

•Some of the conclusions:

• 50% of the participating companies were ready for more transparency

• A majority believe that more communication on taxes will lead to negative media attention

• A majority do not believe that more communication on tax payments will attract more attention from SKAT

• A majority believe that a voluntary reporting will have a positive effect on possible future legislation on tax transparency

• At the same time the companies believe that more communication on taxes is a CSR issue

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But what to do if you want to be a good corporate citizen?

Source: www.skm.dk

Total tax revenue (Denmark)

2010 2011

Total tax revenue 842.2 838.4

Taxes on income 516.5 499.5

- Personal 426.5 439.8

- Corporate 47.7 54.9

VAT 173.2 184.7

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What can we conclude?

•Taxes on personal income amount to more than 50% of the total tax revenue

•Corporate taxation is less than 10% of the total tax revenue

•Tax revenue from VAT is around 4 times as high as the income from corporate taxes

•Pattern on allocation of tax payments is similar in most Western European countries

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What is important now for the politicans?

•Financial crises and debt crises

•Tax revenue drop or threatens to drop due to decrease of activities

•Focus among the different Western European Parliaments is to create more tax revenue in their respective countries

•Can that goal be acheived by a more detailed regulation of tax reporting – e.g. country by country reporting?

•Is there a fear that a more detailed reporting will lead to loss of local revenue? I.e. if a multinational is to pay more taxes in e.g. an African country wuld that mean that less taxes would be paid in the country where the company is resident?

•Probably yes, main focus is on generating jobs locally as this has the most significant impact on the total tax evenue