Tax Transparency and Reporting: The Issues that Multinationals Care Most About Now

To better understand the challenges currently facing tax professionals, and how these are being prioritised, Deloitte’s 2024 Global Tax Policy Survey polled more than 1,000 tax and finance executives among Forbes 2000 companies.  When asked about the key themes in global tax policy, respondents ranked them in the following order:

1. Transparency and Reporting 
2. Digitalisation of Tax 
3. International Tax Reform 
4. Future of Work 
5. Climate and Sustainability 

Globally, jurisdictions are demanding ever greater levels of reporting. While much of this stems from tax transparency processes such as Country-by-Country Reporting, it extends to information on matters other than taxation (for example on carbon emissions). In addition, businesses often feel the need to report further data voluntarily to ensure that their public disclosures are adequately contextualised. All these increased burdens contribute to respondents ranking Transparency and Reporting as their top concern.

The survey found that most professionals expect mandatory public disclosures to only grow in the years to come. Seven in 10 respondents said they expect their public tax transparency disclosures to increase, and 37% said they expect those new disclosures to require new kinds of information.

Many tax professionals are still figuring out a roadmap to compliance. The volume and complexity of required information increasingly means calling-in people outside of the core tax practice to gather it. Almost all respondents to the Deloitte survey (97%) said they have a tax transparency strategy in place today. Still, 27% expressed “very high concern” about “getting appropriate assurance to provide comfort to senior leadership.”

The latter are the cases that tend to make headlines. The news last year that a Hong Kong finance worker was tricked into sending $25m to fraudsters by a deepfake video call, broke the topic out of its niche and into the mainstream. The trouble is, most fraud is much less flashy. Retail Banker International reported in March that ID fraud may account for half of all bank-related fraud by 2025.  

Explaining why this is an issue, Rehaks said, “There are a couple of high-profile cases where someone steals $25m, and that’s nice, but typical cases that we hear about every day range from $5,000 to $50,000. If you lose that much money, it doesn’t make the news, but the real news is how normal this crime is. If you look at the rates where these crimes are investigated and they apprehend the perpetrators, they are essentially zero.

“Typically, this means someone walking away with the money, and not much money left for the victim. There are some exceptional cases where the gangs get prosecuted, but most of the crime is targeting different countries for political reasons, and convincing police to investigate a case that spans multiple countries and makes them do 60 different paperwork requests in five different languages is very hard. They are trying to combat the crimes of the 21st century using the means of the 19th.

As AI becomes more sophisticated and more widely used, it is likely to ease some of the burdens tax professionals face in collecting and reporting data. While many respondents believe AI will bring substantial benefits – at least in the longer term – many are also unclear on how specifically to achieve them. Still, technologies like e-invoicing and e-trade/customs requirements are already making tax compliance easier.

Some of the outcomes tax professionals hope to achieve with AI include improved accuracy (34%); reduced costs (23%); greater consistency in tax strategy across the enterprise (15%); and more time/focus spend on core functions (14%). The fact that relatively small percentages of respondents can envision these benefits, suggests that businesses are still cautious about the technology.  

International tax reform refers to the initiatives Pillars One and Two under the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.  Pillar One, if agreed, would direct some companies to allocate a portion of their profits to the countries where they sell their products and services, while Pillar Two institutes a new 15% minimum global corporate tax.

Given that these changes significantly alter the landscape for global business and investment and bring complex compliance and data gathering requirements with them, it’s somewhat surprising to find them in the middle of the priorities list. This could be at least partially due to the fact that implementation is neither certain (in the case of Pillar One), nor imminent for some (given the temporary safe harbours which apply under Pillar Two). It is also possible that the considerable reporting burdens generated by Pillar Two have been classified by respondents as a Transparency and Reporting issue, rather than as a specific Pillar Two effect.

Most respondents (77%) expect to see the introduction of alternative investment incentives following the implementation of Pillar Two.  This would mark a shift in the nature of international tax competition, as jurisdictions would no longer be able to compete on headline corporate tax rate alone. 

Remote work is now a permanent fixture in many parts of the world. Among other things, this new reality complicates the tax status of many multinationals and their employees, bringing with it both foreseeable and unforeseeable legal risks.

Respondents to the survey reported concerns across a range of taxes including corporate, employees, social security and indirect taxes.   Of all respondents, 35% said that harmonising tax rules between jurisdictions should be the priority for OECD work in this area. 

While a third of the survey respondents ranked ‘climate and sustainability’ as the most significant topic, overall it was the lowest priority of the five themes.  Notwithstanding this, over 70% of respondents expected to face moderate to significant impacts from climate taxes (on energy consumption, resources, carbon, transportation, and waste and pollution).

This policy area will also be a major source of new reporting requirements with 83% of respondents expecting that future ESG requirements would impact their tax reporting.  

It is striking how far Transparency and Reporting emerges as a common thread across the themes explored by the Survey. From straightforward tax transparency reporting, to reporting under Pillar 2 and in response to climate change measures such as CBAMs, international tax and reporting processes are demanding more information than ever from multinational companies, and the pressure on businesses for additional disclosure competes with other business activities for resources and attention from the C-suite.

As professionals build new processes to comply with these requirements, it will be important to draw together expertise from a range of specialisms while maintaining strong strategic focus at the corporate level. Tax professionals at accounting firms will continue to work with in-house counterparts to successfully adapt to these changes as they emerge. 

Main image: Amanda Tickel, Deloitte Global Leader - Tax & Legal Policy