Tax transparency: a complex challenge for companies
Tax is becoming an increasingly important aspect of a company’s social responsibility and overall values. This is evident in its inclusion in sustainability reporting frameworks, such as the Corporate Sustainability Reporting Directive (CSRD). The trend towards integrating tax disclosures into sustainability efforts indicates that companies face a complex and ongoing challenge regarding tax transparency and sustainability.
Our 2024 Tax Transparency Report analysed the tax disclosures of all 20 companies listed on the main market of the Irish Stock Exchange (Euronext Dublin) to see how prepared they are for tax disclosures under CSRD and how it affects their tax approach.
We found that companies primarily make tax disclosures through a tax strategy, also known as a company's approach to tax or tax policy. We discovered that 80% of companies mentioned tax in their broader sustainability reports, a 14% increase from last year. This indicates that companies recognise the importance of tax as an ESG metric in which their stakeholders are interested. Additionally, one more company reported on tax with reference to the GRI 207 standard compared to last year.
However, few companies describe how their approach to tax is linked to their sustainability strategy. This may be due to simply not connecting the dots between tax and sustainability efforts. CSRD is still in its relative infancy, as such, we would anticipate the number of companies reporting a link between their tax and sustainability strategy to increase over the coming years. Integrating economic and social impacts into the tax strategy reflects an organisation’s commitment to considering the broader implications of its actions beyond mere financial gains, including its impact on communities and the environment.
Key actions businesses can take today
1. Engage the Board
Increasing investor pressure on tax means tax transparency is now a board-level issue. It’s essential for your Board, tax function and ESG teams to fully engage with this issue and to align tax practices with sustainability strategy.
2. Engage with your sustainability teams
Tax and sustainability teams should work closely to ensure CSRD reporting's double materiality assessments consider tax-related impact, risks and opportunities. This will contribute to informed decisions on the materiality of tax.
3. Prioritise your tax strategy
Prioritise creating a formal tax strategy to guide disclosures and to control the narrative around your company’s tax practices and transparency efforts.
4. Consider what, and to whom, you are reporting
Understand the material tax matters your stakeholders want to know about and why. Review your current disclosures to see if they align with stakeholder expectations and/or regulatory requirements.
Consider clarity and context in communications to help your target audience understand what’s at stake.
5. Establish the optimal reporting framework
Choose a reporting framework that aligns with your company's values and stakeholder interests. If you’re using an existing framework like GRI for sustainability, align your tax disclosures accordingly.
6. Set up tax disclosure processes and procedures
Implement formal procedures and governance to uphold the integrity of both qualitative and quantitative tax disclosures. This helps to ensure accountability and consistency.
We are here to help you
The tax transparency landscape is evolving. Companies need to adapt to keep up with stakeholder expectations on tax disclosures. We can support you in defining your tax transparency strategy and understanding your tax disclosure obligations, placing sustainability and ESG at the heart. Contact us today.
Tax Transparency Report
Navigating tax transparency in the advent of CSRD.
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