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In brief

The proliferation of sustainability-related disclosures is a key trend in the prevailing socio-economic and legislative landscape. Tax – an increasingly important metric in the sustainability agenda – is starting to follow suit. In recent years, global, regional, and domestic measures have emerged with a view to increasing tax transparency, and this trend shows no sign of abating.

In this article, which is part of our ESG & Tax series, we outline the evolving tax transparency landscape and identify some of the key trends for businesses to get to grips with.

In depth

Tax transparency: an evolving legislative landscape

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters, originally developed jointly by the Council of Europe and the OECD in 1988, was amended in 2010 to provide for an all-encompassing legal tool for the exchange of information that is foreseeably relevant for the administration or enforcement of domestic tax laws (by way of various methods including the exchange of information on request, the automatic exchange of information and spontaneous exchange of information). One hundred forty-seven jurisdictions are currently party to the Convention, with Vietnam being the latest jurisdiction to deposit its instrument of ratification in September this year.

Also, in 2010, the US enacted the Foreign Account Tax Compliance Act (known as FATCA). The effect was given to FATCA by way of intergovernmental agreements, and this led to the first automatic exchange of tax information systems relating to financial accounts. FATCA served as a model for the Common Reporting Standard (CRS) issued by the OECD in 2014. The framework for the CRS (which was updated in 2022) includes a Model Competent Authority Agreement (MCAA) for the automatic exchange of financial account information as well as a Multilateral Competent Authority Agreement on the Exchange of Country-by-Country (CbC) Reports. Recent data by the OECD shows that these instruments are widely used by tax authorities globally.

CbC reporting was addressed by Action 13 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, and since then, many jurisdictions have implemented the OECD CbCR requirements in order to provide tax authorities with insights into the amount of revenue, profit before income tax and income tax paid and accrued, as well as the number of employees, stated capital, retained earnings and tangible assets of large multinational enterprises in each jurisdiction in which they do business. Recent data from the OECD shows that over 110 jurisdictions have domestic CbCR rules in place, of which 89 have agreements in place for the exchange of information. This information is automatically exchanged amongst tax authorities and is not visible to the public.

However, on 24 November 2021, there was a significant shift in the tax transparency landscape when the EU adopted a Directive on public CbCR (PCbCR Directive). Similar transparency requirements were already in place globally for listed and large non-listed companies in the oil, gas, mining, financial, and other sectors, but this was the first time the rules would apply more broadly. The PCbCR Directive requires multinational groups located in the EU or with operations in the EU, with total consolidated revenue exceeding €750,000,000, to publish a CbC report. The report will include a brief description of activities, the number of employees, revenues, profit or loss before tax, tax accrued and paid, and the amount of accumulated earnings in the EU Member States and jurisdictions on the EU list of non-cooperative jurisdictions on a CbC basis and for other jurisdictions on an aggregated basis. In-scope multinational groups will be required to publish the CbC report on their website as well as in a publicly accessible commercial register. EU Member States were required to transpose the PCbCR Directive into domestic legislation by 22 June 2023, but in July 2023, the European Commission sent 17 EU Member States letters of formal notice giving Member States two months to reply and complete notification of transposition of the Directive. As of October 2023, seven Member States are yet to complete the transposition of the Directive into national law.

Under PCbCR, in-scope multinational groups will be required to report the required tax information in respect of financial years commencing on or after 22 June 2024 at the latest. The scope of domestic legislation may, of course, be broader, for example, the publication of data for EEA countries (France) and potential criminal liability for non-compliance (Poland). In all instances, the effect of the EU rules is that multinationals’ tax data will be public for the first time, and this level of enhanced disclosure and transparency is likely to result in increased scrutiny of multinationals operating in Europe.

In April 2023, the Australian government published a comprehensive public CbCR framework for multinationals that is broader in its application than the EU CbCR regime, requiring disclosure of certain additional information, including related parties’ expenses data and the effective tax rate for all jurisdictions in which the business operates. The final legislation was expected to be implemented in June 2023 but has been delayed until 1 July 2024 and is subject to amendment. The Australian legislation has the potential to be ground-breaking both in terms of its scope and paving the way for other jurisdictions to follow suit.

Finally, in August 2023, the US Financial Accounting Standards Board (FASB) unanimously approved changes to certain income tax disclosures (following the publication of an exposure draft on 15 March 2023), which will be effective for fiscal years beginning after 15 December 2024 (for public companies) and for fiscal years beginning after 15 December 2025 (for private companies). The FASB declared that the amendments – primarily related to reconciliation and information on foreign income taxes paid – are required to enable investors, lenders, creditors, and other allocators of capital to have access to tax information to better assess tax-related risks and opportunities. FASB disclosures will be limited to an investor audience, and we are yet to see a proposal by the Securities and Exchange Commission (SEC) to make public CbCR-type disclosures mandatory, although the SEC has commended the FASB developments. In parallel, bill S. 638 (IS) requiring PCbCR for public companies was introduced and supported in March by Democrat senators, but it has not progressed to date.

Developing nations have also been engaging in discussions over tax transparency, notably countries in Africa and South America. Many developing nations have not been able to successfully implement and comply with the complex technical requirements that would enable access to CbCR data, and even if they had done so, many would not have legal means to activate the exchange of information due to the absence of bilateral tax treaties. The Africa Initiative (a partnership between the Global Forum on Transparency and Exchange of Information for Tax Purposes, its African members, and several continental, regional, and international organisations and development partners) has agreed on a work program aimed at improved tax transparency in African countries.

On a global level, the UN recently proposed a UN Convention on Tax, which aligns with the reporting requirements in GRI’s tax standard (GRI-207). The EU has commended the initiative for a global and inclusive effort, but to date, we have not yet seen significant progress on a global standard for public reporting of tax data.

The publication of data and an environment of transparency by default is the first stage of a new “business as usual,” which will give rise to risks and opportunities for businesses.

Preparing for the “new business as usual”

Tax transparency is an increasingly popular tool that can be used by different stakeholders for a variety of reasons. Governments and tax authorities may use the data for policy-making as well as in pursuing disputes against taxpayers. Investors and other capital allocators may use the expanded set of tax data to assess risks and M&A opportunities and to evaluate long-term value creation. Employees, industry groups, and consumers may use the data, which is likely to be scrutinized by media and other stakeholders, for decision-making purposes.

Therefore, tax transparency may result in direct and measurable financial impacts for countries, businesses, financial markets, and communities.

Many businesses have yet to prepare for this data being made public and, more importantly, evaluate the risks and opportunities associated with these new requirements.

As illustrated above, tax transparency can have profound practical consequences for businesses. The data made available through the EU PCbCR, for example, provides only quantitative data, leaving space for interpretation and creating reputational, financial, and operational risks. In this context, businesses may wish to consider the adoption of voluntary standards such as GRI-207 or Fair Tax Mark, which provide businesses with a framework to provide qualitative data on tax matters and share their narrative, as well as facilitate meaningful dialogue with stakeholders. Such an approach also enables businesses to contextualize how their tax strategy fits into their wider sustainability strategy, which is likely to be of increasing importance.

It is also important for business functions to work collaboratively on sustainability-related disclosures and reporting requirements, enabling a consistent approach to be adopted across the business. Businesses that focus on coordinating data gathering, disclosure, and governance efforts across functions, including tax, with strong direction from senior leadership will certainly reap the benefits.

For more information on how to navigate the tax transparency landscape and the intersection of sustainability and tax, please contact Natalie Dunne and Gabrielle Galdino-Glaeser.


Natalie is a Partner at the London office of Baker McKenzie under the Corporate Tax department since qualifying as a solicitor. Natalie was seconded to Baker McKenzie's Tax Practice Group in Hong Kong for three months in 2010.


Gabrielle is a Senior Associate in the London office with over 15 years of experience (in the UK, EU and Brazil) supporting global businesses and non-profit organisations with legal, strategy, disputes, risk management and governance advice, in particular for tax and ESG matters.

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