Corporate tax – The ‘Pub Test’

Corporate tax – The ‘Pub Test’

Stephen Callahan and James Gordon highlight Senate hearings into corporate tax avoidance, featuring the major pharmaceutical companies operating in Australia.

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In last week’s Senate hearings into Corporate Tax Avoidance featuring the major pharmaceutical companies operating in Australia, a few observations were made that strongly reflect today’s changing tax world. Only a few years ago, discussions with mates at the pub around the professional lives of those working in tax were generally short-lived and polite.

As many have already discovered, those days are gone. The media and political focus on tax has firmly moved it into the public eye, and even the most highly technical of terms now find themselves firmly in the Australian vernacular. Corporate tax arrangements, once tested only by reference to legal provisions, are now the subject of a much more unclear yet discerning benchmark, this week labelled the ‘pub test’ by Senators.

Brands worldwide are at risk of significant damage if there is a lack of proper reference and preparation for the ‘pub test’, which can be carried through into a company’s affairs at any time. Anything from a high level comparison of the local to global margins, company ownership structure, a few years of losses or a weaker profit or revenue performance against peers can be enough to trigger public interest and debate. A failure to identify matters the public may perceive as indicative of a lesser tax outcome now exposes companies to brand and reputational risks, as well as a missed opportunity to be on the front foot in promptly explaining one’s affairs in an environment which moves and opines very quickly.

Companies must now be prepared to have a dialogue with stakeholders, and be ready to contribute to the debate. This dialogue should be informed by good preparation, well calculated numbers and an explanation of arrangements comprehensible in layman’s terms to sit alongside the technical. In essence, companies are being challenged not only on their numbers, but also on matters such as their purpose, and why they are structured the way they are. It is also important to consider broader communication within the organisation, for example, to employees who themselves are having conversations in the pub and on social media with friends and followers on tax.

The story of tax is one which is changing and developing beyond the technical. It is an analysis which involves us all, and one that is playing out both locally and globally. The time to understand your own tax history and information in Australia and beyond, including how to articulate it correctly and openly to your stakeholders, whether it be at the Senate, on social media or down the pub, is now.

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