While strict tax secrecy used to be the norm in Switzerland, this has been weakened by the international automatic exchange of information ("AEOI"). The introduction of the OECD minimum tax (BEPS 2.0) also indirectly leads to more transparency in tax matters (towards the tax authorities!) and is therefore a step towards more Public Tax Transparency.
The introduction of OECD minimum taxes (BEPS 2.0) is no longer politically controversial in Switzerland. The people have clearly spoken out in favour of its introduction. The global trend is also clear: more transparency. However, this is not just a bureaucratic burden, but also offers opportunities for companies to distinguish themselves from competitors. The keyword is Public Tax Transparency. More and more internationally active Swiss companies are considering publishing certain tax information on their own initiative.
But what exactly is Public Tax Transparency and what are the benefits of a Public Tax Transparency Policy for companies?
I. Definition of Public Tax Transparency
There is no legal definition of Public Tax Transparency in Switzerland, as there is no corresponding legal obligation. The disclosure of tax information is voluntary.
Public Tax Transparency is the practice of presenting the economic and social value generated by a company as a taxpayer and as a part of the socioeconomical ecosystem it operates in a corresponding report.
A company can use a Tax Transparency Report to show what it contributes to society. This includes not only taxes on profits and capital. It also includes other government levies (VAT, CO2 levies) and customs duties. In addition, most companies contribute to the development of the local economy through investments, locally awarded contracts and wage payments.
II. Content of a Tax Transparency Report
In Switzerland, companies are free to design their own Tax Transparency Report.
A tax transparency report generally consists of the following main sections:
- Overview of contributions made (tax and macroeconomically).
- Tax strategy of the company.
- Control and risk framework of the tax strategy.
- Country-by-country reporting of the countries in which the company operates.
It is important that Public Tax Transparency is not just about making public how and where taxes are paid. It is also about putting this information in the right context. In addition, the corresponding Tax Transparency Report and the relevant information should be easy to understand. It is by no means a report that is only submitted to the tax authorities. Rather, it is a cross-stakeholder information and communication tool. It is therefore primarily about the public perception of a company.
Of course, achieving full transparency is not always possible for a variety of reasons. In particular, business secrets that a company does not want to disclose, especially to competitors, should not be included in a Tax Transparency Report for obvious reasons. Therefore, a strategy regarding the information to be disclosed must always be defined in advance of tax transparency reporting. Accordingly, it depends on the company what a specific tax transparency report looks like and what the report contains. It is essential to find a company-specific balance.
III. ESG and Public Tax Transparency – GRI Standard (GRI 207: Tax 2019)
Transparency obligations are a key element of ESG regulation. In Switzerland, for example, "large companies" (article 964a Swiss Code of Obligations) must prepare and publish a report on nonfinancial matters. The companies subject to the reporting obligation are quite free in terms of content (see article 964b Swiss Code of Obligations). Tax transparency is not required by law.
Many companies link the report on non-financial matters (also known as sustainability report or CSR report) to international reporting standards, in particular the Global Reporting Initiative (GRI). GRI is one of the most important organizations that publishes guidelines for sustainability reporting. The topic-specific standards cover the three areas of economy, environment and social issues (ESG dimensions). The topic of taxes affects all ESG factors:
- Environmental: environmental taxes, environmental levies, tax incentives
- Social: How much tax does the company pay (“fair share”)? How transparent is the company regarding taxes? What is the company’s attitude towards taxes?
- Governance: How is the company organized with regard to taxes?
The new GRI Standard 207 "Tax" has been relevant for all companies reporting in accordance with the GRI Standard since 1 January 2021 and contains four topic areas:
- Approach to tax (tax concept; Disclosure 207-01): The tax concept includes a description of the general approach to tax, the tax strategy (including the link to the business and sustainability strategy) and the approach to complying with regulatory requirements.
- Tax governance, control, and risk management (Disclosure 207-02): This section aims to present the company-wide tax management and control system: Who is responsible for complying with the tax strategy? How are tax risks identified, managed and monitored? How is compliance with tax governance and the control framework monitored?
- Stakeholder engagement and management of concerns related to tax (Disclosure 207-03): Information on the approach of cooperating with the tax authorities and political influence on tax issues. The handling of issues raised by internal (whistleblowing) and external stakeholders must also be described.
- Country-by-country reporting (Disclosure 207-04): Disclosure of a variety of information regarding all tax jurisdictions in which the company operates (including principal activity, number of employees, earnings, amount of income taxes paid and incurred, and explanations of differences between the effective tax rate and the standard tax rate (if any)).
Exception criterion insignificance
The disclosures in accordance with GRI Standard 207 are required if taxes are a significant topic. Conversely, an exception is only possible if the issue of taxes is not significant. From the stakeholders' perspective, the payment of appropriate taxes ("fair share") is seen as part of the company's social responsibility ("good corporate citizen"). This means that the corresponding information is in general considered a significant issue for every company.
IV. Advantages of a Public Tax Transparency Policy
In recent years, a major regulatory and social change has been observed in the area of taxes. The direction of travel is clear: more transparency.
Taxes are increasingly perceived from a risk perspective. Transparency creates trust and enhances reputation. Especially in times of the Panama Papers and offshore leaks, this is a commitment to greater transparency and a clear signal for investors and customers.
Especially, large, or thematically exposed companies are being closely observed by the public and face questions from politicians, the media and NGOs. This dialog is of strategic importance. Information about the company's positive contributions is key for the reputation of the company and for the maintenance of the free-market economy itself as a system of prosperity and fairness.
V. Challenges
Successfully navigating the ESG, BEPS and Public Tax Transparency environment requires both solid tax and ESG expertise.
Furthermore, an advanced IT architecture as well as consistent and efficient data management are a must.
Transparency also means that the information published must be correct. Otherwise, there is a risk of reputational damage or even legal consequences (unfair competition; keyword: Greenwashing; Blue washing). The information should of course also be consistent with the information provided to the tax authorities.
As an interdisciplinary consulting company, MME offers the expertise and the necessary tools to master the upcoming challenges in the area of BEPS 2.0 and Public Tax Transparency from a tax, legal, governance and compliance perspective. We are at your disposal for any questions.
