Fewer than four in ten of those working in banks, asset managers and hedge funds believe investments in corporate tax policy have a significant impact on reputation, according to a new report from professional services firm Kinetic Partners. Despite this, the firm’s 2014 Global Regulatory Outlook (GRO) report says tax is to be a “defining issue” for the remainder of the decade.”
The survey reveals that while large majorities believe investment in independent governance (84%) and internal compliance arrangements (93%) strengthens firms’ reputations, only 38% of respondents think the same of tax policy investments.
Kinetic Partners CEO and Founding Member Julian Koreksays: “Despite high profile controversies over large businesses’ tax arrangements, most still don’t see the link between tax and reputation. As governments continue to face years of stretched public balance sheets and public pressure to ensure businesses pay their fair share, that link will only strengthen.”
According to the report, the effects are resonating most acutely in offshore centres, which suffer from their portrayal in popular culture.
Gary Ashford, Tax Risk Member at Kinetic Partners, says: “Offshore centres are facing unprecedented scrutiny and pressure to demonstrate transparency. Efforts to shed their reputation as tax havens, however, are continually undermined by the ‘Hollywood effect’, as well as unfortunate headlines. Moreover, huge numbers of international exchange of information agreements are being signed around the globe. We are seeing tax disclosure facilities introduced in many countries enabling wealthy individuals to regularize their tax affairs.”
Despite these developments, many of those surveyed believe that adherence to the letter of the law is enough to satisfy the public and others. Only 29% of those polled agreed that stakeholders expected compliance with tax legislation beyond that set down in statute, compared with 43% who disagreed. The remainder, 28%, said they were unsure.
In the 2014 Global Regulatory Outlook report, Guernsey Financial Services Commission Director General William Mason urges firms to adapt to today’s more stringent regulatory environment.
“Having a business model that is only marginally compliant with international regulatory expectations is unlikely to provide a recipe for commercial success in what is a much less forgiving regulatory climate,” he writes.