Why Tax Transparency Matters for Corporate Sustainability

Photo by John Guccione from Pexels, text design by Erica Eller, made in Canva

I wrote this piece back in February of 2019 on my website blog when the Paradise Papers had angered many people, myself included. But with NY Times’ incredible report on Donald Trump’s taxes coming out yesterday, I decided to repost it on Medium. Tax is an even more pressing issue of fair corporate governance just a year and a half later.

The flip side of corruption, whether in the form of tax evasion through shell companies, offshore banking or any other means, is a clear story that shows you’ve invested in your local community and broader nation by paying fair amounts in tax. This is exactly why tax is an excellent way for sustainable companies to show their responsible governance.

The World Economic Forum reports that more than $7.6 trillion currently sits in tax havens (and this is a conservative estimate). That amounts to roughly $500 billion in global annual tax loss.

This is a big problem. But I wonder what this means for companies that actually pay their fair share of taxes. Shouldn’t the companies that uphold their civic duties at least get recognition?

We all know that tax avoidance can severely stain an organization’s reputation. But have you considered that tax transparency and effective tax approaches can improve an organization’s reputation in the eyes of stakeholders? This could be a quick win for your sustainability content marketing strategy.

Since tax is something your organization probably already tracks and reports, you’ve already collected most of your data. After that, it’s a matter of framing, analyzing, showing trends and taking a stance about your tax policies. This can serve as a potential rallying point for your stakeholder audiences.

But before I get into the details of different ways to share your tax story, I want to examine the current climate of accountability that’s on the horizon.

In the wake of the Paradise Papers, tax keeps cropping up in the news. Rutger Bergman called out billionaires at Davos for tax avoidance, making an analogy go viral: “I feel like I’m at a firefighters conference and no one is talking about water.” Alexandria Ocasio-Cortez proposed a wealth tax of 70 percent, a bold move supported by Nobel Prize winning economist Paul Krugman in the New York Times. As a result, nearly everyone’s mind is on taxes.

Tax loopholes and corporate tax bargaining with local governments can leave communities and institutions that rely on tax-based funding either just scraping by or bankrupt. International in scope, this issue implicates corporations and governmental actors alike. It seems that even if reforms are pushed through, international businesses may start to shop around for better tax rates in distant jurisdictions. Or, using another popular strategy, they may hide their assets behind layers of shell companies.

To counteract these unsavory tax evasion strategies, the movers and shakers of social responsibility are releasing standards to urge organizations to show their true tax colors. Such standards are designed to create a greater climate of accountability in which businesses compete for positive recognition. Recently, two major standards have laid the groundwork for making tax part of a company’s corporate social responsibility profile.

B Team Tax Principles

In February 2018, the B Team published a set of responsible tax principles entitled “ A New Bar for Responsible Tax.” The principles were developed in collaboration with civil society, international organizations, institutional investment firms and corporations including Allianz, BHP, A.P. Moller — Maersk, Natura Cosméticos, Repsol, Royal Dutch Shell Plc, Safaricom, Unilever and Vodafone Group Plc.

B Team presents these standards as a means to align business practice with the UN 2030 Sustainable Development Goals. In doing so, it acknowledges the importance of tax for redistributing wealth, forming bonds between civil society and government, enabling ease of international investment and discouraging bad environmental activities.

Here are the seven best practices it outlines for corporations to adopt regarding tax:

• Accountability and Governance
• Compliance
• Business Structure
• Relationships with Tax Authorities
• Seeking and Accepting Tax Incentives
• Supporting Effective Tax Systems
• Transparency

Key Takeaways:

1. The standards emphasize clear leadership for tax management by assigning this responsibility to the Board of Directors.
2. They assert the importance of lawful tax management that adheres to particular localities where economic activities take place to prevent businesses from “shopping around” or using empty shell structures to minimize exposure of existing assets to tax.
3. The standards point out the strong need for dialogue between government and corporations to ensure tax payments support tax systems that actually work and to prevent corporations from undermining the social benefits brought by taxes.
4. Finally, transparency is included as a means for civil society to constructively critique a corporation’s tax policies.

GRI Draft Tax Standards

In December 2019, the Global Reporting Initiative published its draft “ Standards for Tax Payments to Governments “ to outline how companies can report their tax payment practices. Established in 1997, GRI is the most popular sustainability reporting standard used worldwide. It provides thorough standards for social, environmental and economic accountability and responsibility. While its tax standards are still under review, GRI outlines the following disclosures:

Key Takeaways:

1. These standards ask corporations to take a proactive role in shaping their tax approach by specifically linking it to sustainability.
2. Assurances that the tax approach will be followed and analysis of risks are embedded into the reporting process.
3. Corporations are called on report on the approach they’ll take for collecting stakeholder feedback.
4. In addition, corporations specify the entities that they own and their local jurisdictions and brief financial statements for each, including clearly disclosed tax incentives.
5. GRI’s standards would make tax evasion easier to discern and available for comment by stakeholders.

Turning Tax into a Storytelling Opportunity

So, we’ve covered how standards are outlining ways to expose bad actors and encourage good relationships with tax authorities. On the flip side of worst-case scenarios, we land at that sweet spot where positive storytelling opportunities emerge. Here are a few ideas on how to turn your tax management policies into an engaging brand story:

• Do you actively engage the tax authorities in your local community to work towards constructive local tax-funded programs? Tell your stakeholders about it in a report that outlines the civil society issues you have supported.
• Do you have an impeccable standing in terms of your tax transparency or compliance? Maybe you’d like to share the percentage of your income that has actually contributed to the local community over time. Make some infographics and underscore your tax approach in a content marketing campaign to put corporate tax responsibility on the map.
• Has your business turned down attractive opportunities to move its headquarters in favor of supporting your community and improving long-term stability in its region? Use this information to create a timely social media campaign or newsletter just in time for tax season.
• Does your business operate according to a particular set of tax beliefs or commitments that your stakeholders should know about? Introduce this through a series of videos or blog posts.
• Show your stakeholders that you value their insights about tax responsibility by creating a survey that sparks discussion and debate. Use this to share your findings and refine your own tax approach and include it in your mission statement.

While tax may not seem like the most glamorous way to highlight your “doing good” story, its an issue that really hits close to home for many people. In the U.S., we’ve watched tax-funded programs slide out of existence and not just due to corporate tax evasion, but tax policy from government as well. It has created a generational divide that’s not in favor of younger people.

Gone are the days of guaranteed social security or wages that matched the rate of inflation. And the consequences of not having tax-funded safety nets are deeply felt throughout the U.S. That’s why the issue of tax resonates with so many audiences.

The beauty of purpose-driven marketing is that you can proudly wear your colors when you’re making sustainable decisions. In the case of responsible tax management and approaches, you may be surprised to find an apt audience for your positive performance.

Thanks for reading. For more of my recent posts on sustainability, check out the following:

• How to Create 750,000 Climate Change Jobs: Decarbonize.
• Doughnut Economics: How Sustainability Got Rebranded as a Pastry
• 5 Circular Economy Examples that will make you Swoon

Originally published at https://www.ericaeller.com on February 7, 2019.