Transparency is the window to our trust!

The phrase ‘eyes are the window to the soul’ struck me when I struggled to see through my work-room’s window, which was made a bit opaque by the outside dust. It made me to think why ‘transparency is the window to our trust’ in liberal societies and needed most where freedom to information is stifled. 

In a COVID-19 crisis like situation, the desire to have transparency grows exponentially as individuals tend to look for assurance when they are faced with social, economic, and political challenges amid crisis.

Transparency in tax is no different!

In ordinary times, there has been a growing push by governments to enact rules requiring MNEs to share information on their tax affairs and allowing the exchange of that between tax authorities.

Besides embracing operational transparency to demonstrate value to customers, MNEs adopt transparency in tax to comply with rules, and as an integral part of corporate sustainability drive, which also enhances their brand value.

The financial crisis of late 2000s provided a fillip to tax transparency, which took center stage when the OECD launched its Base Erosion and Profit Shifting (BEPS) project in 2013, with a notion that (BEPS) can’t succeed without further transparency at different levels. The EU has also been active in formulating and implementing transparency rules across Europe. The different facets of tax transparency included Mandatory Disclosure Rules (MDR) rules, the exchange of tax information and rulings, and Country-by-Country Reporting (CbCR). In transfer pricing, the tax transparency-drive also encouraged the alignment of tax positions with substance and value creation and with the tax data disclosed to tax authorities. 

As tax transparency, which has now become a must requirement, is meant to not only satisfy tax authorities but also wider stakeholders, including investors and public, I list below certain points highlighting processes, workflows, and systems which are critical ingredients for an organization to achieve the desired tax transparency:

1. The Board well-informed of key tax risks brings tax closer to business and helps in getting an organisation-wide buy-in on drive towards tax transparency.
2. Preparing transfer pricing documentation on a contemporaneous basis allows an MNE to use most authentic data to comply with tax transparency.
3. The use of technology solutions to collect and analyze tax data improves the speed and accuracy in its filing with regulatory authorities. For example, the use of tech solution for justifying benefits received from intra group services avoids cherry picking, and accordingly builds trust in such data submitted to tax authorities during a transfer pricing audit. Similarly, an interactive value chain analysis (VCA) technology tool provides a transparent inside-outside view of the value chain of an MNE for discussions with competent authorities during bilateral advance pricing agreement (APA) negotiations.
4. Pursuing a two-sided analysis in transfer pricing not only assists in analyzing an intercompany transaction (‘ICT’) holistically, but also endorses tax transparency, as it is easier to demonstrate the independent behavior when the perspective of both parties, for example, borrower and lender to an ICT (financing) has been taken into account.
5. Although, in most cases, substance of an ICT takes precedence over its form, having a formal documentation in place, such as contracts, invoices, and internal communications could serve well as an audit trail when needed to support the transfer pricing data disclosed for tax transparency purposes.
6. Effective collaboration between different teams within the organization, such as tax, finance, legal, and IT on capturing, reflecting, and concluding on tax data builds trust in the data disclosed as part of tax transparency drive.
7. Tax transparency also reduces ‘moral hazard’ in ICTs by driving companies to have a proper governance framework in place which would discourage a group entity to make the other related entity to an ICT suffer for the risky behavior that the group entity has assumed.
8. Although, too much influx of data from multiple sources could tempt a biased ‘intuitive judgment’ on forming certain views on inter-company pricing, pursuing tax transparency could help in mitigating such prejudices as the data would be reviewed and tested before being disclosed.

Tax transparency is not something new, however, with the faster adoption of technology tools by MNEs and tax authorities and the growing desire of wider stakeholders for tax transparency, which will be accelerated by the current pandemic, reemphasises the importance of pursuing tax transparency more than ever to ensure brand reputation, manage tax risks, and last but not least maintain trust in stakeholders.

Share tax policy and strategy with public could enhance brand value. Some companies have already done that

Both public opinion and BEPS drives tax authorities. Engaging in horizontal monitoring drives transparency and helps in having a cooperative than adversarial relationship. I have experienced where in-house tax team representing the case builds trust in the officer.

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Transparency in tax means sharing tax data with regulatory authorities or public, which requires robust internal process to capture data and ensures its accuracy In light of the above,

Transparency drives the regular checks between TP assumptions and business realities. Making aware the board of the key tax risks 

by allowing the establishment of information loop ultimate objective of both has become serving stakeholders. Providing the required minimum knowledge to business people to appreciate tax nuance. Reputation risk could create enough disruption. Hence, more engagement with C-suite required on transparency.

Transfer pricing rules leave some space to not have the full documentation in place at the time the transaction is happening but as a matter of best practice it is always good to have a document in place when the ex-ante pricing is being determined.

9)    In addition to three layers corporate tax governance, contracts, invoices, standard operating procedures, and internal communication, ISO certificate.

10) For example, the se of risk matrix and proper visibility would help.

11) 

12) Data and technology provide tools not only to taxpayers but also to tax authorities. Use of technology would increase transparency. For example, use of technology solutions to support benefit test in intra-group services, have both inside and outside view on value chain analysis. Such uses become crucial when we are dealing with huge amount of data to bring accuracy and speed. It would also help her during the crisis time like COVID-19 because it would be very difficult to find her uncontrolled comparables to support any given transaction. Also in certain countries where less evidence draws suspicion and selectiveness. Transparency becomes crucial when we could hold or perceive things in physical form, i.e. digitization is moving us towards formulary approach BEPS 2.0. Trail left behind could support both payer and recipients were conscious of what charges were involved. My experience in MAN Trucks.

13) In that case instead of furnishing either very selective selective information or huge amount of information and technology belongs to submit only the most relevant information by improving keep accuracy of the information submitted and also the speed which ultimately reduce the number of FTEs required to build evidence to justify benefits received. Similarly one can use technology solutions carry value chain analysis almost virtually now where not only the existing validation of client can be mapped but also those processes can be checked with the processes of companies like competitors elsewhere in the industry and one could also go to the extent to check what profitability all the EBIT of competitors or similar companies are spread over the value chain. Deptford provide an inside outside view on the value chain analysis.   

as the organization will In the next few years the best project has changed or refined how we apply trespassing principles to intercompany transition. Nowadays to bring business realities closer to Tax realities it helps to do a valuation analysis where ever it is pertinent and also look for to side approach very check both sides even if I am benchmarking routine. It does help what the ultimate independent and does entity zoning. ThereforeThe application of VCA and two-sided approach in profit split method encourage transparency would encourage the application of transfer pricing because we will have a better control on where is business factors responsible for certain intercompany pricing and also more than one related party would be involved consciously in discussing and reaffirming any specific intercompany pricing position.

and integrity With within the team and also to external world. Having an internal communication mechanism in place which encourages to bring to light any potential anomalies which could endanger a company’s reputation. Consistency between communication strategies is crucial. Effective tax control framework builds trust in incorporate transparency set up. Example sustainability strategy vis a vis tax strategy. Holistic view. More ongoing review and analysis.         

Having people in team with from mix of technical background– economics, finance & accounting, tax and law Could help in appreciating what transparency would mean, how not a boy or Bing it could impact brand reputation, what language do we need to speak with business people within the organisation. Better access to data, skillful people, and technology would help in achieving the required transparency.

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Hi

Attaching some

In crisis time people expectation for transparency increases manifold. Governments with the right intention to capture data of public, companies have to take certain hard decisions, people also keep distance from each other, good only what is sustainable if the parties what affected the most know the justification of all this and transparency helps in achieving that. It’s just like how the transparency drive big dipper momentum after the last session because the public was conscious on if the right taxes are paid or not so in this attached notes to my video I’m sharing my thoughts how transparency is sort of living during this crisi           

As we know governments, companies, NGOs, individuals they are striving to ease the pain of this pandemic on individuals. There are various measures taken by them to reduce such agony or to provide support to people.

An MNE with a robust data capturing tool can also ensure that the tax information extracted from different sources is in sync and if not, can be reconciled and adjusted.