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

1. A Brunswick Guide to Understanding and
Preparing for this Looming Tax Development
NavigatingReputationalRisk:
OECD’sBaseErosionand
ProfitShiftingProject
May 2017

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. © 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
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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. 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