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OECD's Base Erosion and Profit Shifting Project

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A Brunswick Guide to Understanding and Preparing for this Looming Tax Development

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OECD's Base Erosion and Profit Shifting Project

  1. 1. A Brunswick Guide to Understanding and Preparing for this Looming Tax Development NavigatingReputationalRisk: OECD’sBaseErosionand ProfitShiftingProject May 2017
  2. 2. © Brunswick 2017 | 2 Overview A significantglobaltax developmentison the horizonfor multinational corporations.It hasthe potentialtocreatea litanyof reputational,operationaland politicalchallenges. Companieswillsoon haveto disclose,on a country-by- countrybasis,detailedtax and financialinformation, includingrevenue, profit, scaleofoperationsand taxes paid– potentiallyexposing some tocriticismthatthey are not payingenough. Why This is Happening: Governments wantmore transparency around corporatetaxes.In part this is because many need revenue – especially those with agingpopulationsand costly social-welfareentitlement programs. Hence the desire to shine a lighton the amount of tax corporationspay and where they pay it. Aneffortled by industrialized nationsto crack downon tax avoidance strategies that exploitgaps and mismatches intax rules -- knownas Base Erosionand ProfitShiftingorBEPS – has been under way since 2013, under the auspices ofthe OrganizationforEconomic Co-operationand Development(OECD). One ofthe recommendations stemming from the projectis that corporations disclose financialand tax informationfor every country inwhich they operate and that participatinggovernmentsshare corporatetax data among themselves. Multinationalcompanies willbe required to submit tax reports ineach of the countries inwhich they operate by the end of2017, with countriesexchangingdata the followingyear. The firstwave ofthese disclosures is set to occur later this year. Some countries,such as Canada, have required publicdisclosure requirements as early as this month.The European Unionis also currently discussing a piece oflegislationthat would make this informationavailable to the public. What’s at Stake: The exchange ofreports betweentax administrationsaround the world and the potentialfor publicdisclosure puts companies at heightened riskof reputationaldamage and litigation.The informationexchanged could raise questionsin the recipient tax administration,promptinvestigationsor provide inputto ongoinginvestigations.In addition,whilethis data is supposed to be keptconfidential,it is largelyup to each country to protectthe information.The data could ultimately find its way into the publicdomain,including via cyberattacks, weak privacy safeguards orthrough other governmentlitigationagainstcompanies. When the Panama Papers were released in2016 revealing tax havens used by wealthy individuals and corporations, more than 1,000 publicly-listedfirms around the worldwere named, resulting ina loss ofapproximately$230 billionin market capitalizationfor those companies. OECD’s Base Erosion and Profit Shifting Project Brunswick Group’s Senior Counselors Neal Wolin and Tim Griffin explain the significance of the global tax project, why it poses reputational risk and how companies should prepare.
  3. 3. © Brunswick 2017 | 3 StakeholderReview: Corporationsneed to engage in stakeholder mapping to ensure they knowwho willcare about this issue, where those stakeholders willbe coming from and what messaging willbest resonate with those audiences. Risk Assessment: Corporationsshould review their organizationalstructure and tax payments to identify which areas postthe most vulnerabilities.They should conduct research into which key markets and countries pose the greatest level ofrisk. C-Suite Buy-In: Top executives, including the CEO,need to be aware ofand engaged onthis issue in order to planforfallout. ContributionAssessment: Beyond tax payments, companies should identify and review how they contributeboth economicallyand sociallyinthe areas where they operate and consider boostingeffortsto help mitigatereputationaldamage. Builda narrative: Corporationsneed to be ready to explaintheir tax structure in a credible,persuasive and non-defensiveway. They need to fully understand how to communicate withvarious stakeholders, includingwhat messaging is most persuasive withvarious groups.This will ensure they are prepared wellin advance and notcaught flat- footedor surprised by what may appear in the media. The reputationalriskassociated witha leak ofthis size can be as damaging. Followingthe Luxembourg Leaks,which revealed corporatetax avoidance strategies,companies were continually associated withnegative headlines around the world.The informationgleaned from the fileswas used by NGO campaigners and trade unionsto produce reports on the companies,highlightingtheir alleged misdeeds and callingon tax authorities to take legalaction to recover funds. In Europe this led to the European Commission’shigh-profileactionsagainst Apple,Amazon,McDonald’sand Starbucks. It is therefore clear that the large number ofcountries participatingin the BEPS disclosures, alongwith the inherent complexityoftax structures for large corporations,enhances the likelihoodof reputationalriskas the informationmakes its way into the publicdomain. The Upshot Corporationswhose tax payments are notseen as commensurate withtheir level of revenue, profitsor operationsin a givencountry, or whoseorganizational structure favors low-taxjurisdictions, are likelyto face pressure from a multitude of stakeholders including media, government,investors,labor groupsand NGOs. Brunswickspokewith two ofour government and tax expertsabout how companies should be thinkingabout and preparingfor the OECD’sBEPS package: Neal Wolin,former Deputy Treasury Secretary during the Obama administration and Tim Griffin,the Lieutenant Gov.of Arkansas who served in the U.S.Congressand sat on the House Ways and Means Committee. Bothsay companies should be takingsteps nowto anticipate,plan forand potentially mitigatefallout. The firstthing you’ve gotto do is identify who your audience is. Are you a consumer brand witha well-known publicimage or a lesser knownbrand? That willfactor intowho your audience is and how exposedyou may be to reputationalrisk -Tim Griffin Companieswoulddo wellto do a tax planningrisk assessment where they lookat how they organizethemselves and where they’re doing a significant amount of business or generatinga lot ofeconomic activity inthe form of revenue orearningsbut are paying littletax.These are places of vulnerabilityand government authorities willlikely wantto figure out how to generate additional tax revenues -Neal Wolin It is notenough to delegate preparationto mid-level executives. You need to get C-suite buy-inand CEO engagement-TimGriffin It’s a goodthingforthe long-termvalue ofa companyto be and to be seen as a responsibleand involvedpartner in the communitiesinwhich they do business -Neal Wolin SimplysayingI obeyedthe tax law in that jurisdictionisnotgoingto be enough.It has to be part of the conversationbutthat’s notthe lead. The message needsto betailoredforthe specificmarketwhere they are operating-TimGriffin 1 2 3 4 5
  4. 4. © Brunswick 2017 | 4 How Brunswick can help Effectively protectingyour reputation and licenseto operate requires toolsand strategies that are aimed at engagingyour different stakeholders. This requires proactive and reactive responseplans tailored to the different segments that are criticalto your business. Brunswickcan use its globalreach and expertiseto provide strategic counsel and to develop toolsto help you best prepare forpublic disclosure of potentially embarrassing or harmful information. This includes identifyingareas of vulnerabilityand performingthorough research into key markets that may pose the most risk.Our experiencein crisis preparation and management, stakeholder engagement and media willensure that you have the best resources and experts available to protect your reputation. Brunswickis already workingwitha number ofclientsrelated to BEPSand other tax issues and has globalteams well-versed in the subject area. Our tailored approach includes: Questions? Formore information,please contact our Brunswickpublic affairs team members around the world: Leak preparation Scenario preparation Litigationcommunication Country-specificresearch Research-testedmessagingand othermaterials Crisismanagement Digitaland socialengagement Stakeholdermapping/engagement StrategiccounselforC-Suite executives,including CEO Businessand Society programs Employeeengagement
  5. 5. Brunswick Group Base Erosion and Profit Shifting Brunswick Group Brunswick is an advisory firm specializing in business critical issues. We help companies build trusted relationships with all their stakeholders. When clients turn to us, it’sbecause they knowthat engagingeffectively with everyone who has a stake in the company is about more than managingperceptions- it is essential to making business work. Our backgroundin financial communicationsmeans we understand how businesses operate and how they are wired.It also means integrityis deep in our nature: confidentiality,diligence,openness and accuracy. Brunswickis one firm globally.Delivering anywhere, we have a reputation forhigh- caliber,highly experienced peoplewho have diverse backgroundsand skills. Whatever the task,no matter how complex or where it is takingplace, we can assemble the right expertise across the firm. Our purposeis to help the great value creating organizationsofthe worldplay a more successful role in society. For more information NealWolin SeniorCounselor Washington,DC TimGriffin SeniorCounselor Dallas DeborahSolomon Director Washington,DC Darren McDermott Partner New York NickBlow Partner Brussels WashingtonD.C. NewYork Europe www.brunswickgroup.com

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