Strategic disclosure

Apr 01, 2019
There is good reason why some companies might be willing to specify when and where they pay their taxes.

When income tax was first introduced to the United Kingdom at the turn of the 19th century, the very first return of income was a model of restraint and decorum. The taxpayer only had to certify that the amount being paid amounted to no less than 5% of their income for the year of assessment.

And that was it. No description of sources, no amounts, no calculations, no claims for allowances and reliefs. The civil servant at the receiving end of the cheque had only the taxpayer’s assurance that he (and undoubtedly, at the time, it was a he) was paying the correct amount.

That concern for the privacy of the individual has been turned both on its head and inside out by social media, but the boundaries still exist when it comes to sensitive commercial and financial information. The single biggest challenge of the knowledge economy is not the management of data per se, but the extent to which the custody of information passes from the individual or the business to the regulator, assessor or stakeholder. It places a whole new duty of care on the authorities that they might not be capable of managing. There is perhaps more data being created today than can ever be properly secured.

So often when confidential data comes into the public domain, it is due to a human factor rather than a technological one. Judicious “leaks” can and have been used to influence popular perceptions and political policies. The Paradise Papers, the Panama Papers, Luxleaks and the leaks from US military archives have been the result of the actions of disaffected individuals like Edward Snowden rather than the activities of gifted hackers. The tax planning information that came to light from the Panama Papers and Luxleaks undoubtedly changed European tax policy.

While there have also been occurrences of data breaches from persistent cyber attacks, it does seem that the real risks to data security come either from people knowing exactly what they are doing or, as was the case some years ago when HM Revenue & Customs lost thousands of taxpayer records, human carelessness.

This phenomenon presents both a significant threat and a tangible opportunity for the accountancy profession. While individuals can and do blithely give away valuable personal information on social media for the exploitation of marketers and abusers alike, business is far more circumspect when it comes to publicising sensitive data.

An EU initiative to create a public register of the activities of multinational taxpayers is currently stalling because there is conflicting advice as to whether such a register would be legislated for as a matter of EU tax law or as a matter of EU regulatory law. Despite this legal wrangling, some companies might be quite willing, for reputational reasons, to specify when and where they pay their taxes.

New opportunities for the profession lie where there are options for this type of discretionary disclosure. Accountants have long been custodians of financial information, but now have the opportunity to be the curators of the information as well. Knowing how, when and where to disclose is becoming as vital a skill as assembling the information in the first place. Deciding, for example, to report in more detail on tax filing and payment in a company’s accounts could attract risks, but could also enhance the reputation of that business as a first mover in an area of legitimate public interest.

Unlike those early tax returns, nothing is taken solely on trust anymore. But business reputation and trust can be enhanced by wise decisions on what to disclose and when.
Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland.