Tax Responsibility and Transparency Index to launch at European Parliament
On 19 April, at the European Parliament, co-hosted by MEP Paul Tang, CSR Europe and the Fair Tax Foundation will launch the Tax Responsibility and Transparency Index for multinational enterprises who wish to benchmark themselves against the best of the best – be that high-bar civil society voluntary standards or exemplar companies.
The Tax Responsibility and Transparency Index has been constructed after 12 months of extensive consultation with business, investors and civil society and will allow multinational businesses of all sizes to strive for the highest standards of responsible tax conduct.
It has been co-developed with CSR Europe, the leading European business network for corporate sustainability and responsibility, as well as pioneering multinational companies including Enel, Fortum, Grundfos, Orsted and Vattenfall.
What is the Tax Responsibility and Transparency Index?
The Index is a radical new tool that enables multinational enterprises to benchmark themselves against pending legislation and emerging best practice. In order not to reinvent the wheel, criteria build upon existing best practice: such as, the public Country-by-Country Reporting recommendations of GRI 207, questions on current tax reconciliation disclosure from the Fair Tax Mark, and guidance from the United Nations Principles for Responsible Investment and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct. Uniquely, the Index also considers and rates activities such as:
- Commitment to the spirit as well as the letter of the law
- Supply chain conduct
- Public policy and lobbying
- Involvement in tax controversies
- Public country-by-country reporting of not just corporation tax, but all taxes paid[i]
“We support this project because we believe that fair and responsible tax behaviour promotes sustainable development of the communities in which we operate. We believe that the development of shared and measurable metrics can contribute substantially on the one hand to communicating in a clearer and more understandable way to all stakeholders and on the other hand to constantly improving internal practices over time. The opportunity to collaborate with other leading companies from various sectors and a wide range of stakeholders from civil society, investors, and European policymakers is of great value to us.”
Alessandro Bucchieri, Head of Tax Affairs, Enel Group
The Index has been constructed with a view to the future: be that pending legislation, emerging civil society consensus on best practice or the increasing demands of institutional investors and asset managers.
For example, legislation is increasingly emerging to mandate country-by-country disclosure of data on income, profit and tax, but the Index is also looking for accompanying narrative that explains areas of seeming disconnect. The Index is applicable to multinationals of all sizes, especially those with European operations.[ii]
How does it work?
Participation in the Index creates a safe space for multinational enterprises to benchmark their performance in five areas:
- Policy and strategy
- Management and governance
- Stakeholder and engagement
- Transparency and reporting
- Contribution and narrative
Multinational businesses opting to be assessed against the Index’s detailed requirements will be awarded an overall score (out a possible 100), with feedback provided by way of an itemised scorecard.[iii]
Participating businesses can then benchmark themselves against an anonymous leadership cohort to understand how current practices and disclosures in the five distinct areas compare to their peers.[iv]
Businesses will be free to disclose their scores should they wish, and stakeholders can take assurance from the fact that assessments have been undertaken by qualified professionals rooted in civil society. Although, it makes equal sense for participating businesses to initially restrict scores to internal discussion while they enact improvement measures.
“Development of the Index is an excellent initiative. It gives stakeholders a way to benchmark the tax responsibility and transparency of organisations, based on objective criteria providing much needed clarity and comparability. Tax integrity is vital for sustainable value creation. The Index makes this measurable and will help to drive positive change by rewarding responsible tax behaviour.”
Sarah Joiner, Head of Tax Management & Risk, DNB Bank ASA
As use of the Index grows, we anticipate businesses wanting to improve their scores will be able to access peer-to-peer learning to mutually advance performance improvement, led by CSR Europe.
Greg Yates, Senior Ratings Manager at the Fair Tax Foundation said: “Civil society, investors, policymakers and many businesses now recognise the importance of tax transparency and responsible tax conduct. The ongoing emergence of legislation and voluntary initiatives in this area is encouraging, but this can also create confusion.
“So, we are delighted to have worked with CSR Europe and pioneering multinationals on this year-long project, the result of which is a state-of-the-art tax toolkit that has been shaped by contributions from a wide variety of stakeholders.
“The Index gives businesses an opportunity to benchmark themselves against both pending legislation and emerging best practice. With assessments undertaken by qualified professionals that are rooted in (and trusted by) civil society. The Index will also act as an excellent entry level point for businesses who may later want to move on to Fair Tax Mark accreditation, the gold standard of responsible tax conduct.”
Spyros Perikleous, Senior Project Manager at CSR Europe said: “It is high time that companies adopt responsible tax conduct and commit to upholding ethical standards. Tax responsibility and transparency are a fundamental aspect of corporate responsibility and a vital tool to promote sustainability. We believe that tax should be considered a core element of the sustainability agenda and the overall ESG practices of companies.
“Civil society, investors, and most importantly policymakers, are demanding companies to enhance their tax transparency and ensure compliance within bounds of legal and moral frameworks by paying their fair share of taxes in every geographical location they operate.
“We are thrilled to have collaborated with the Fair Tax Foundation and a group of leading multinationals and key stakeholders to develop the Tax Responsibility and Transparency Index. We believe this tool will enable companies to understand the current expectations and requirements from legal and voluntary initiatives in the area of tax transparency and responsible tax conduct.”
Launch event: 19 April 2024
The Tax Responsibility and Transparency Index will be launched on 19 April 2024 at the European Parliament in Brussels (9am-1pm, including lunch). The event will explore the current state of play of corporate tax responsibility and transparency, and feature reactions to the launch of the Index from a range of stakeholders.
If you would like to learn more about the Tax Responsibility and Transparency Index or the upcoming launch event, please contact Graham Drummond for further details (graham@fairtaxmark.net and +44 (0)161 513 8019).
[i] Corporation tax is an implicit focus of much of the Index’s consideration. However, where it makes sense to look at a broader range of taxes, this has been incorporated into the assessment.
[ii] Given the European Union and the UK have in recent years been the centre of progressive initiatives, be that legislative or voluntary.
[iii] Scoring based as follows, with total points available 100:
– Policy and strategy (15)
– Management and governance (20)
– Stakeholder and engagement (15)
– Transparency and reporting (25)
– Contribution and narrative (25)
[iv] Seven multinational enterprises have so far been assessed against a draft version of the Index.
