June 19, 2024

Advancing Business Journey

Empowering Business Excellence

The importance of tax integrity for internationally active organizations

5 min read

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In recent years, there has been an increasing focus on Environmental, Social, and Governance (ESG) factors in the corporate world. As companies strive to demonstrate their commitment to sustainability and social responsibility, attention has turned to every aspect of their operations, including tax practices. Tax integrity, or the fairness and transparency of tax payments, is now under the ESG spotlight, and for good reason. 

For example, financial institutions like trust offices are considered important gatekeepers of the financial sector to avoid tax evasion and tax avoidance (together tax integrity risks) (facilitate). There is a risk that business service providers focus only on assessing individual group structures and transactions for their economic responsibility and tax rationale. However, no matter how much the tax laws are tightened, there will always be gray areas that call for sound judgment. In order to recognize those situations and document these within your client portfolio, thorough training of your staff is of great importance. This also applies to internationally active organizations which are facing increasing tax integrity expectations.

This article is written by Rafi Mardroos ([email protected]) and Suzanne de Boer ([email protected]). Rafi and Suzanne are both part of RSM Netherlands Business Consulting Services with a specific focus on international tax and ESG.  

The importance of tax transparency

Tax integrity refers to the adherence to tax laws and regulations, as well as the transparency and fairness of a company’s tax practices. It is a fundamental aspect of corporate responsibility and sustainability. Companies that engage in aggressive tax planning, exploiting loopholes to minimize their tax burden, often come under scrutiny for their lack of transparency and contribution to society.

Tax integrity is not just a legal issue; it is also a matter of social responsibility. When companies avoid paying their fair share of taxes, it places a heavier burden on individuals and small businesses. This, in turn, can exacerbate social inequality and hinder economic development. Therefore, ensuring tax integrity is essential for building trust among stakeholders and maintaining a social license to operate.

ESG considerations have become central to how investors, consumers, and regulators evaluate companies. Investors are increasingly looking for companies that not only deliver financial returns but also demonstrate a commitment to sustainability and ethical business practices. As a result, companies that prioritize ESG factors tend to have better access to capital and enjoy stronger long-term performance.

Tax integrity is an important component of the “S” (social) and “G” (governance) factors within ESG. By paying their fair share of taxes, companies contribute to the social welfare system, which funds essential public services such as healthcare, education, and infrastructure. Moreover, transparent and responsible tax practices enhance a company’s governance by demonstrating its commitment to ethical behavior and accountability.

The advantage of tax transparency

Embracing tax integrity is not just a matter of corporate social responsibility; it also makes good business sense. Companies that engage in aggressive tax planning may face reputational damage, legal risks, and increased scrutiny from regulators. In contrast, companies that prioritize tax integrity can enhance their reputation, build trust with stakeholders, and mitigate the risk of financial and reputational damage.

Furthermore, paying taxes responsibly can help companies avoid the reputational fallout associated with tax scandals. In recent years, high-profile cases of tax avoidance and evasion have damaged the reputations of several well-known companies, leading to consumer boycotts, regulatory investigations, and shareholder activism. By contrast, companies that demonstrate tax integrity can differentiate themselves in the market and gain a competitive advantage.

Forward Thinking

It is of great importance that organizations are transparent about their tax practices, including their strategies, effective tax rates and exemptions. Not only it is about publishing your tax strategies, it is also about proper engagement towards your stakeholders, including investors and regulators. Proper training is essential for your employees to understand and commit to the responsible tax practices of your company. 

At RSM, we believe in the power of repetition and providing an interactive solution. We offer a full package training with interactive and practical training through an alternation between theory and recognizable cases from your own client portfolio. Our training offers practical knowledge of the tax standards framework (including ATAD I – III, DAC6 and other outcomes of the Base Erosion and Profit Shifting Project of the OECD) Within these sessions there is ample room for interaction and questions.  We believe that, by underlining the importance of tax integrity, arranging the necessary tax policies, making sure to be transparent towards your stakeholders and properly training your employees will be essential stepping stones into a tax compliant structure, and a more sustainable way of doing business.

RSM is Thought Leader in the field of International Tax and ESG Consulting. We offer frequent insights through training and sharing of thought leadership that is based on a detailed knowledge of regulatory obligations and practical applications in working with our customers. If you want to know more, please reach out to one of our consultants.

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