66 th Annual Tax Conference Vancouver 2014

Transcription

1 The role of the tax executive in a Corporate Social Responsibility Agenda Managing Tax Risk on the Public Stage Kathleen O Neill, FCPA, FCA, Independent Corporate Director, Toronto Douglas Powrie, Teck Resources Limited, Vancouver Greg Wiebe, FCPA, FCA, KPMG International, Toronto Vancouver 2014 The world we are in > Attitudes and approaches to tax are fundamentally changing - no longer just an expense to be managed > Tax and the issue of paying your fair share is one of the most prominent areas being scrutinized by governments, the general public and, to a great extent, the media > Expectations of transparency are increasing > Tax systems have not kept up with changes in business models and practices 2

2 Factors driving the debate Post Global Financial Crisis revenue and expenditure Rise of corporate social responsibility Rise of media focus Internationalization of business Increasing use of the internet and social media New reality public distrust We re clearly experiencing a crisis in leadership business and government leaders must change their management approach and become more inclusive by seeking the input of employees, consumers, activists and experts such as academics, and adapting to their feedback. The must also pass the test of radical transparency. Richard Edelman 2013 Edelman Trust Barometer 4

3 Declining public trust in government 14 point trust gap between business and government Source: 2014 Edelman Trust Barometer 5 Our changing environment Global Watchdogs take on the corporate tax dodgers. Globe and Mail 19/09/14 6

4 Two schools of thought There is a moral element to tax and there is a fair amount that should be paid. If you follow the rules and get an unintended result, the government should fix the rules. 7 Global trends in CSR reporting > CSR reporting sees exceptional growth in emerging economies 71% Almost three quarters of companies based in Asia Pacific prepare CSR reports > Gap narrowing between leading and lagging industry sectors 50%+ More than half of companies in all sectors report on CSR > CSR information in annual reports is now standard practice 51% Over half of companies include CSR information in their annual reports > Use of Global Reporting Initiative (GRI) guidelines is almost universal 78% Over three quarters of companies reference GRI guidelines in their CSR reports 8 > Assurance among the largest companies has reached a tipping point Source: KPMG Survey of Corporate Social Responsibility % Over half of the G250 companies reporting CSR invest in external assurance

5 Tax on the CSR agenda 9 From the point of view of the corporate responsibility agenda, tax avoidance is the elephant in the sitting room. [ ] Businesses which engage in aggressive tax avoidance are failing in their role as corporate citizens and demonstrating a lack of integrity in their dealings with society. - Tax Justice Network it is becoming evident that it shares some of the main characteristics of other traditional CSR issues such as labour conditions and the environment. Is tax the next big CSR issue? - International Centre for Tax and Development Tax avoidance poses the same risks for the company as other social or environmental CSR issues. - International Centre for Tax and Development Some major businesses are starting to view taxation as a mainstream part of their corporate social responsibilities. Others should follow their example. - OECD Observer Paying your taxes is a CSR issue > Paying taxes helps companies contribute to the services that directly benefit them The health system that supports your workforce. The education system that supports your workforce. The roads that ship your goods to market. The courts that enforce your contracts. The police who protect your property. 10

6 Role of the Tax Group 1. Timely, accurate tax filings. 2. Timely, accurate accounting for taxes. 3. Response to government queries. 4. Dispute resolution 5. Support to Business Units, Business Development, Project Development, and Finance. 6. Structural optimization and streamlining. Legal Obligations Planning and Advice 11 Teck s Sustainability Strategy Six Focus Areas: 1. Community 2. Our People 3. Water 4. Biodiversity 5. Energy 6. Materials Stewardship 12

7 Community Teck s vision: Collaborate with communities so they genuinely benefit in a self-defined and sustainable manner from our activities. 13 Approach to Taxation Teck contributes to the wealth and prosperity of the countries, regions and communities where we operate through tax and royalty payments. Teck is committed to publicly disclosing taxes, royalties and other payments, which should contribute to the equitable sharing of benefits from resource development. In 2013, Teck paid $425 million in income and resource taxes to various levels of government, creating benefits where we 14 operate.

8 Tax Revenue Benefits Communities Each one of the 1,800 coal trains that ran through British Columbia in 2011 provided equivalent tax revenue to fund approximately: 33 hip surgeries; Almost 1200 hours of service for emergency room doctors; 8 grade school teachers; or Over 2500 rental supplements for B.C. seniors. 15 Teck s Tax Policy In all tax matters Teck is compliant, transparent, cooperative and ethical. Teck files all required tax returns and information slips on an accurate and timely basis. Teck pays its taxes on time and in full. Teck responds openly and fully on a timely basis to all government requests for information pertaining to taxes in the course of their audits. Teck seeks to build open and trusting relationships with the tax authorities in all jurisdictions in which it operates, building on the common interest it has with the authorities in efficiently reaching a timely and accurate determination of its financial responsibilities for taxes. Disputes, when they occur, are resolved through statutory processes based on full disclosure and legal principles. Where possible, Teck will reach an agreed statement of relevant facts. 16

9 Teck s Tax Policy Teck undertakes tax planning in accordance with applicable laws and tax policy in relation to matters that arise in the ordinary course of Teck s business. The goal is to support the growth and development of Teck s business in a way that reflects its legal obligations and its commitments to its people, its shareholders, and to the communities in which it operates. The tax consequences of material transactions are the subject of written analysis supported, where appropriate, by written external opinions and/or local government authority advance tax rulings. 17 Teck s Tax Policy Taxes are a material cost of Teck s business. The VP Tax reports regularly to the CFO and to the Audit Committee of Teck s board. Principal tax risks regularly monitored include: o Financial: unexpected tax liabilities can have a material adverse impact on financial results. o Social Licence: both the technical legal result and the tax policy framework must be evaluated to ensure that tax planning is consistent with Teck s values. 18

10 Example: Tax is a CSR issue for RioTinto Tax is a major subject of debate for all businesses, governments and other stakeholders. At Rio Tinto, our tax strategy and payments are central to our approach to achieving sustainable development for the long term as a business, as a sector and as a global corporate citizen. 19 Ethical indexes and awards: Dow Jones Sustainability Indexes FSTE4Good Index Water Stewardship Award winner 2011 Global Water Awards Building Public Trust Award for Taxes Paid Report (PwC Building Public Trust Awards) - RioTinto, Taxes paid in 2013 report Example: Tax is a CSR issue for companies in Canada [Our] goal is to be the best Canadian-based international financial services company. As we make progress towards this goal, we gain the means to create, improve and expand the products and services we offer to our customers, and to contribute to the economy more broadly by creating jobs, purchasing goods and paying taxes - within our own company and indirectly among suppliers and customers. [Our] contribution to the prosperity of our country is evidenced through our responsibility as a corporate citizen. Over the past nine years, [the company] has remitted taxes of approximately $11.8 billion to federal, provincial, local and international governments, which in turn, support services for Canadians in those jurisdictions where [the company] operates. Including annual spectrum fees and spectrum purchases over the same period as well as the 700 MHZ spectrum auction costs in 2014 to the federal government, [the company] has remitted more than $14.2 billion to various levels of government in support of services for Canadians. In turn, these taxes and spectrum fees are helping to support services for citizens in communities across Canada where we live, work and serve. 20 Our Principles for a Responsible Tax Practice bring to life KPMG s values and Global Code of Conduct in a way that is meaningful for the every day situations we face as tax professionals. They recognize that the value we add to our firms clients is built upon the quality of our technical skills but is differentiated by the way we help them appreciate the long-term consequences of their actions. Tax Code of Conduct for the global PwC network. It is a general principle that taxpayers have a legal right to manage their tax affairs provided they act within these laws. However, the global nature of the business world together with the complexity and competing priorities of national laws are such that it is not always clear where lines should be drawn. Accordingly, the member firms of the PwC Network have adopted a code of conduct to assist their clients, other stakeholders and their respective partners and staff.

11 KPMG s Principles for a Responsible Tax Practice > We act lawfully and with integrity and expect the same from our people, our firms clients, tax authorities and other parties with whom we interact > We provide tax advice to our firms clients to allow them to pursue their commercial objectives, respecting the needs of our people and the communities in which we operate > We maintain objectivity by seeking the facts and providing insight, consistent with our professional duties, in providing tax services to our firms clients > We support a relationship with tax authorities based upon mutual trust and respect, which will enable constructive dialogue and responsiveness by all parties, in order to fulfil our responsibilities to our firms clients 21 The link between tax avoidance and CSR Level of CSR disclosure Level of corporate tax aggressiveness > The higher level of CSR disclosure, the lower the level of corporate tax aggressiveness (in terms of effective tax rate) Source: Lanis, R. and Richardson, G. (2012). Corporate social responsibility and tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 31(1), pp > When excessive irresponsible CSR activities are present, the probability of tax avoidance practices is higher Source: Hoi, C., Wu, Q. and Zhang, H. (2013). Is corporate social responsibility (CSR) associated with tax avoidance? Evidence from irresponsible CSR activities. The Accounting Review, 88(6), pp Irresponsible CSR activities Probability of tax avoidance 22

12 The changing landscape Canada Transparency Rules OECD / G20 countries OECD BEPS Action Plan Norway Transparency Rules EU Accounting and transparency directive US Dodd Frank Act Section 1504 Hong Kong HeX extractive listing reporting Australia Business Tax Transparency 29 compliant countries 17 candidate countries EITI 23 Tax inversions on the rise 47 Number of US corporations that have moved oversees in to pay less tax in the last decade Source: US Congressional Research Service, July 2014 Tax inversion are legal (i.e. they do not violate relevant tax rules), but should the rules be changed? 24

13 OECD 15 Point Action Plan on BEPS Address the tax challenges of the digital economy Prevent treaty abuse Establish methodologies to collect and analyze data on BEPS and the actions to address it Neutralize the effects of hybrid mismatch arrangements Strengthen CFC rules Limit base erosion via interest deductions and other financial payments Counter harmful tax practices more effectively, taking into account transparency and substance Prevent the artificial avoidance of PE status Develop rules to prevent BEPS by transferring risks among, or allocating excessive capital to, group members. Develop rules to prevent BEPS by engaging in transactions which would not, or would only very rarely, occur between third parties. Establish methodologies to collect and analyze data on BEPS and the actions to address it Require taxpayers to disclose their aggressive tax planning arrangements Re-examine transfer pricing documentation Make dispute resolution mechanisms more effective Develop a multilateral instrument Illegal State Aid Grants an economic advantage Financed through State resources Distorts or threatens trade and competition between Member States Specific or selective by benefitting certain undertakings or the production of certain goods Noncompliance is referred to European Court of Justice Decision may be appealed Decision no later than 18 months may require repayment Consequences for Corporate Taxpayers Targeted by EU State Aid Procedures Serious doubt raised as to compatibility with EU State aid rules Commission is obliged to open investigation EU Member State and interested parties may submit observations

14 Automatic Exchange of Information Common Reporting Standards initiatives involving governments obtaining information from their financial institutions and exchanging data automatically with other nations. Collecting complex and varied information: Interest Dividends Account balance Income (from certain insurance products) Sales proceeds (from financial assets) 27