Advisory and tax services firm PwC's 'Tax transparency and sustainability reporting in 2023' report indicates that there is an increasing willingness by companies around the world to report publicly on their tax approach.

While organisations do report on their tax strategy or tax control framework more frequently, this increased willingness should not hide the fact that tax is often still seen purely as a financial issue, subject to complex legislation, and reported in financial statements.

However, tax is more than a financial issue. Tax is a vital way for companies to contribute to society, public services, economic development and social welfare, PwC said.

The tax reporting landscape, both locally and globally, has been evolving for many years, through country-level requirements and, more recently, by being incorporated into wider sustainability reporting frameworks.

“It is important for today’s business leaders to understand that increasing transparency can and should help to build trust between organisations and their stakeholders. For corporate organisations, transparency and trust are vital to making smart tax policy choices for a sustainable future, which is an important theme in this year’s report,” said PwC South Africa tax reporting and governance specialist Carla Perry.

The report is a global study on tax reporting by 269 companies listed in Austria, Brazil, Germany, Ireland, South Africa, Spain, Switzerland and the UK and based on international best practice specifications.

This report takes a closer look at the tax contribution role that corporations play, as well as their role in enabling the broader tax system to work.

Further, this is the first year that South Africa has participated in the global study, which includes the review of the top 30 companies listed on the JSE based on their market capitalisation on December 31, 2022.

“South Africa pioneered integrated reporting as a core element of corporate governance. The King IV Code, a global leader in corporate governance standards, outlines principles and recommended practices for organisations to achieve good governance, manifested in four outcomes: ethical culture, good performance, effective control and legitimacy,” said PwC South Africa tax reporting and strategy manager Kerneesha Naidoo.

Some of these practices are embedded in the JSE listings requirements, which reinforce the expectations of being a responsible taxpayer.

“For nearly a decade, PwC has evaluated the tax transparency of large JSE-listed companies, recognising those that excel in insightful tax reporting and distinguish themselves from their peers,” she said.

“Some of the top performers in this study are South African companies, even though there is no specific legislation or regulation that mandates tax transparency in the country.”

Additionally, some of these companies have shown a long-standing commitment to public tax transparency and have adopted reporting in line with GRI 207 and other frameworks that were examined. South African companies also demonstrate strong governance of tax by their governing bodies, in line with King IV, and a keen awareness of investor expectations regarding tax disclosure, said Naidoo.

Meanwhile, leading tax reporters in South Africa effectively communicate their broader impact and the value they create for all their key stakeholders, fostering better, open communications rather than mere compliance with regulation.

This finding is consistent with those of the seventh edition of PwC South Africa’s 'Building Public Trust through Tax Reporting' report.

“They do so by disclosing and explaining much more than the statutory requirements, such as their tax strategy, their effective tax rate analysis, their total tax contributions in the countries where they operate and voluntary country-by-country reporting.

“However, despite many guidelines and transparency drivers, many large listed South African companies still do not report more information on tax publicly, beyond what accounting standards require,” she highlighted.

Additionally, in terms of environmental, social and governance frameworks, Spain and South Africa have the most companies that meet at least 75% of each of the framework’s requirements. However, when we examine each framework separately, we see that Spain leads in the S&P Global Corporate Sustainability Assessment, while Brazil, South Africa and UK have similar overall scores in terms of the GRI 207: Tax 2019 standard framework.

The significant increase in the number of companies and countries examined this year makes it possible to compare the tax transparency reporting of large corporations internationally, and to identify similarities and differences.

Irrespective of the location of respective companies, industry-specific comparisons show that the financial services, energy, utilities and resources, and technology, media and telecommunications sectors perform best.

“Commonalities among all the surveyed companies is that only a few provide comprehensive quantitative tax information. Most of them initially limit themselves to qualitative information. For the small number of companies that do provide quantitative information, clear regional differences can be identified,” Perry said.

Meanwhile, total tax contribution (TTC) disclosures are better known in the UK and South Africa. The frequency of TTC disclosure in the reports we reviewed reveals a regional difference. Companies in South Africa and the UK tend to use a TTC approach, while European Union (EU) companies are more likely to publish public country-by-country reports.

“This is not surprising, given that the TTC approach originated in the UK and has been increasingly used in South Africa for several years,” Perry noted.

“TTC is not reported at country level like the public country-by-country reporting, but shows all taxes and duties paid and withheld by a company in full at group level,” she said.

“Therefore, TTC is not limited to income taxes paid, but also includes sales, payroll, industry-specific and other taxes. One advantage compared to the public country-by-country reporting is that here the actual contribution of a company to society is made more visible in absolute figures on the basis of all taxes paid.”

Further, with the implementation of the EU Directive on public country-by-country reporting and other framework changes coming into play, more companies will be affected by increased mandatory tax reporting requirements. It is therefore essential that companies take the time to understand how they will be affected by the changing reporting landscape, and to consider their response, Perry highlighted.