ESG and Corporate Tax

Transparency is increasingly becoming a key element of ESG and Tax, and various initiatives have been integral in advancing the concepts. The OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS) has been a catalyst for increasing tax transparency. BEPS addresses many aspects of aggressive tax planning, including treaty shopping, hybrid structures, earnings stripping, transparency and substance. Country by Country Reporting (CbCR), which is now widely adopted by many countries, mandates global reporting of income, profit, taxes paid and economic activity among tax jurisdictions in which multinational enterprises operate.

The EU recently mandated that enterprises with more than EUR 750m in annual turnover are required to make public tax disclosures. It is still unknown whether there will be public CbCR beyond the EU, but advocates of this approach, including Norges and the French government, view public CbCR as key step forward in promoting tax transparency. Another tax transparency development is the EU’s requirement that tax intermediaries disclose qualifying cross-border arrangements to tax authorities.

The mandatory disclosure rules (“MDR” or “DAC 6”) require that intermediaries and relevant taxpayers disclose potentially aggressive tax planning arrangements, aiming to discourage aggressive tax practices and ultimately promote the payment of responsible levels of tax. With the US and more than 130 other countries recently endorsing the key components of the OECD two-pillar proposals to address major changes to certain rules of international taxation, we are all anticipating further developments to promote and support “Responsible Tax” as an integral part of ESG.