The Global Reporting Initiative (GRI) has released a new tax standard for transparency reporting (GRI207) which may have an impact on work carried out by the tax department. In this article we describe some practical implications for the tax department.
To comply with the GRI207 standard you need to compile and make publicly available descriptions of how you work with taxes and disclose several figures with explanations.
GRI207 points 1-3 mainly relate to descriptions of your approach to tax, the tax governance and control framework, and the approach to stakeholder engagement and management of stakeholder concerns related to tax.
GRI207:1-3 information needs to be updated on a yearly basis and requires that you review the decisions you have made on how you work with taxes and your processes to make sure you correctly describe them. In addition, you need to make sure you have implemented proper systems for identifying, managing and monitoring tax risks.
GRI207 implies that you, for the first time, need to disclose and show that you have a coherent process for collecting and analysing tax data with an audit trail. You need to make sure that the tax risk management system includes a possibility to appoint responsible people for each legal entity, collect relevant information on a regular basis, and keep track of how risks change over time. Your system should categorize your risks and evaluate the monetary risks as well as the risk level. For income taxes you would benefit from connecting the tax risk reporting to FIN48 or IFRIC23.
Finally, GRI207:4 requires you to disclose Country by Country information and, if you follow the recommendations, additional figures which are not included in the Country by Country reporting. You also need to give reasons for any differences between corporate income tax accrued on profit/loss and the tax due if the statutory tax rate is applied to profit/loss before tax.
GRI reporting differs from Country by Country reporting
You probably already have a process for collecting Country by Country information. However, this information needs to be presented differently in the GRI reporting compared to how you currently present it. In addition, you may want to increase your review and analysis of the figures since the information will now become publicly available. This means that you need a structured process which enables an automated handling of data, and which collects and analyses data in time for inclusion in the sustainability reporting.
A proper system which demonstrates that you comply with GRI207 implies that you have a good system for keeping track of your entities and basic entity information. It is important to keep track of all entities and entity related information since this information is required in all tax compliance processes. Entity information is for example required in your Country by Country reporting where you need to show which group entities you own as well as entities which have been disposed of and when. To keep track of tax risks you may need to tie them to your legal entities to properly monitor your risks and link documentation, such as communication with tax authorities, to the entity in question.
You need to give reasons for any differences between corporate income tax accrued on profit/loss and the tax due if the statutory tax rate is applied to profit/loss before tax. This means that you need to analyse the differences to be able to disclose the reasons for any difference. Depending on the reason, this may require an analysis on a per entity basis, since a difference may concern one or more entities. Therefore, you may have to collect Country by Country figures per legal entity.
Finally, it is advisable to collect all disclosable information in one place and archive it for each year of disclosure so you can easily go back and look at the details should any questions arise from external stakeholders. A robust process for collecting and analysing information, and a system for updating it, is key to be in control of the GRI reporting.
If you, as a responsible person from the Tax Function or from the Sustainability Function of a multinational company, would like to know more about how Blika´s tax solutions could support you in your GRI 207 reporting, please contact us for a discussion.
The Global Reporting Initiative (GRI) is an international independent standards organization that help businesses and organizations understand and be more transparent on issues such as environmental, economic, and social impacts. One of GRI reporting frameworks are the GRI Standards, which are used by multinational organizations in their sustainability reporting.