Are you considering reputation risk in corporate tax?

Companies the world over are coming under ever-closer scrutiny when it comes to the tax affairs. After the financial crisis and global recession governments have found solid PR success from demonising firms considered to be avoiding their fair share of tax.

From Google to Starbucks, big multinationals have been under the microscope. But the issue of reputational risk arising from tax affairs is just as important for small and medium-sized businesses. For accountancy firms, helping clients to navigate the minefield is a key role.

All this has been made clear in a recent survey of businesses worldwide that shows a sharp rise in the level of reputational risk perceived by firms. EY found a 72 per cent increase in companies concerned about media coverage of taxes.

Not surprisingly the most worried were the largest companies.  The Americas saw the highest level of concern by region, though it was still “prominent” in Asia-Pacific and the BRIC countries, where nearly 70 per cent of companies are concerned.

The good news is that more than half the companies are doing something to manage reputation risk.

Measures include companies taking a more structured approach to managing public tax profiles and changing the way they communicate tax-related information to external stakeholders.

Even when the business is doing things ‘above board’, effectively communicating this is a problem. As EY says, reputation risk poses “many tangible challenges for companies, even when the allegations may be of dubious accuracy”.

Accountancy firms can play a key role in assisting the businesses they work with. EY advises: “Companies need to act deliberately and assertively to manage this complex and sensitive issue rather than being put in a situation where they must react to reputational challenges from a defensive posture.”

Of course, despite the significant degree of concern, companies remain keen to reduce their tax liabilities. Research by Moody’s shows US firms have stockpiled close to a trillion dollars in offshore accounts to reduce their tax bills. It should come as no surprise that Apple, which has borne the brunt of a lot of media attention, accounts for roughly ten per cent of this cash hoard. When it comes down to it, reputation always has to be balanced with profit.