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Tax reporting transparency reaches a tipping point

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2 years ago

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Transparency is a critical component of sustainability that is foundational across the environmental, social and governance pillars: transparency in the supply chain, transparency in employee management and transparency in business decision-making. 

To achieve sustainable business models and greater long-term value creation, transparency with stakeholders is fundamental. Tax is one of the items that businesses need to consider within this broader transparency trend. 

We have reached a tipping point in global corporate tax reporting and disclosure. Regulators, investors and the public are demanding ever greater tax transparency, and companies must navigate evolving, complex reporting requirements around the globe. From expanded Financial Accounting Standards Board disclosures in the U.S. to public Country-by-Country Reporting legislation in the EU and reporting requirements under countries’ new Base Erosion and Profit Shifting 2.0 Pillar Two global minimum tax rules, companies face an array of new tax information responsibilities. 

Many of these tax reporting and disclosure regimes are coming online imminently. By proactively assessing these changes, highlighting the global tax footprint and managing the level of tax transparency in ESG agendas, companies can position themselves to tell their own story. Those that proactively adapt to this rapidly changing tax reporting and disclosure landscape will be better equipped to address risks, embrace opportunities and effectively communicate their tax narrative to the wide range of different stakeholders. 

Tax reporting here, there and everywhere

In the United States, in the EU and around the world, tax transparency is becoming commonplace, as governments and regulatory bodies seek additional visibility into corporate tax profiles. In a recent move that reflects the new corporate tax reporting environment, FASB late last year approved expanded income tax disclosures for U.S. companies that file under U.S. GAAP. 

FASB’s Accounting Standards Update 2023-09, which applies to annual periods beginning after Dec. 15, 2024, requires companies to disclose more specific and disaggregated information regarding the effective tax rate reconciliation; income or loss from continuing operations before income tax expense or benefit; and income tax expense or benefit from continuing operations. It also requires disclosure of income tax payments made to international, federal, state and local jurisdictions.  

At the same time, more widespread public CbCR disclosure obligations are being enacted around the globe. Within the EU, 21 member states currently have either proposed or enacted public CbCR legislation following the approval of an EU CbCR directive in December 2021. Differences in local rules, reporting requirements and timing can present challenges to multinational entities headquartered outside the EU and operating in multiple EU jurisdictions. 

Additionally, the BEPS 2.0 Pillar Two initiative of the Organization for Economic Cooperation and Development is creating new, complex tax reporting requirements for MNEs. Many countries are beginning to implement Pillar Two legislation, but the specifics and timing differ from country to country. Pillar Two calls for a global minimum tax of 15% for multinational corporations with group revenue of more than €750 million, and the necessary calculations require a substantial volume of data, some of which has not been maintained by tax departments for other purposes. 

The details of these various initiatives differ, but taken together, they share common themes and signal a broad shift in expectations about tax disclosures and reporting. In order for companies to keep up, they must transform their systems, processes and overall frameworks for tax reporting.

Opportunities and risk in a more transparent world

Greater tax transparency is quickly becoming the norm, and tax authorities around the globe are increasing their reporting requirements. Understanding the gaps and overlaps between the various tax reporting and disclosure regimes presents an opportunity to re-examine and leverage existing data and systems. Doing so can reveal ways to streamline cross-functional processes and can provide stakeholders with a more complete view of the financial impact on communities and society.

While regulators around the globe are heavily focused on income tax disclosures, those represent only one element of companies’ total tax contributions. Income taxes are significant, but the amount of non-income taxes companies pay similarly is often very significant. Companies also play a role in tax collection when they collect value-added taxes, sales and use taxes and payroll taxes, potentially alleviating some of the burden of governmental entities.      

Adapting to this world will require addressing new data and technology needs associated with addressing the above-mentioned tax disclosure and reporting requirements (e.g., FASB, public CbCR and Pillar Two reporting requirements). Collecting and analyzing the necessary data for reporting will require an in-depth process review and level of granularity not previously required. By proactively addressing these potential barriers and investing in suitable technology tools, companies can help facilitate more accurate, efficient, consistent and timely reporting and disclosures. 

While this may entail new costs, being able to collate data globally for all tax types allows for enhanced analytic capabilities and enables companies to make their societal contributions clearer, a key element of the ESG agenda. Companies will be better able to explain their tax situations to interested parties and demonstrate how their tax contributions support their communities. 

In this way, companies can take ownership of their tax narrative, which enhances trust with investors, customers and the public. This, in turn, can create a competitive advantage. Those that fall behind in responding to global trends calling for a more complete view of companies’ corporate tax profiles risk forfeiting control of their tax narrative and, in the process, losing stakeholder and public trust.  

Making transparency work — meeting the challenge 

Many companies have already started the tax transparency journey as part of their ESG agenda and are highlighting how tax obligations reflect societal commitments. One potential method is global tax footprint reporting, which can bridge the transparency gap and provide a more complete and holistic view of a company’s tax contributions. 

Reassessing data and technology needs and reporting practices in light of increasing transparency trends and reporting requirements allows companies to connect the tax function in a more meaningful way to ESG practices. By promoting a greater understanding of the complete tax picture, the tax function can add clear value to the ESG agenda. 

Proactively addressing transparency and reporting requirements can help companies establish themselves as forward-looking, engaged contributors to communities and society, able to balance business and strategic objectives with obligations to tax authorities, regulatory bodies, investors and the broader public. Below are some questions that can help start the process. 

Questions to consider

  1. How does tax currently fit into the company’s ESG reporting framework, and how might this plan need to change given expanding reporting obligations to tax authorities and public expectations for transparency?
  2. What is the company’s approach to showcase its global tax footprint and access the data and technology platforms needed across various tax jurisdictions to comply with new tax reporting requirements?
  3. What is the communication strategy for helping internal and external stakeholders understand the nuances of the tax data disclosed to the public? 

Tax transparency is here to stay, and companies need to develop action plans to respond. 

Kevin Dehner is EY Americas sustainability tax deputy leader. Other contributors to this article include Kristen Gray, EY Americas sustainability tax leader; David Campbell, EY Americas tax technology and transformation senior manager; and Colleen Sebra, EY Americas tax technology and transformation partner.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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6 days ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

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1 week ago

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August 5, 2026

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Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

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Accounting

Automated Tax Compliance and Global Regulatory Harmonization in 2026

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1 week ago

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August 5, 2026

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Corporate tax accounting departments are navigating an era of unprecedented regulatory complexity as global tax harmonization frameworks take full effect alongside real-time digital tax reporting mandates. Tax directors and accounting teams are adopting cloud-based tax compliance automation tools to manage multi-jurisdictional tax liabilities and satisfy stringent reporting rules across international jurisdictions.

Implementation of Global Minimum Tax Provisions
The implementation of international tax reform agreements—notably the Pillar Two global minimum tax framework—has reshaped multinational corporate tax planning. Multinational enterprises with consolidated revenues exceeding established thresholds must ensure an effective tax rate of at least 15% across every jurisdiction in which they operate.

Accounting teams are implementing specialized tax calculation modules integrated directly into enterprise resource planning (ERP) platforms. These automated tools calculate effective tax rates per country, identify top-up tax liabilities, and generate standardized compliance documentation required by national tax authorities.

Real-Time Digital Invoicing and E-Reporting Mandates
Tax authorities across Europe, Latin America, and Asia-Pacific have enacted mandatory electronic invoicing (e-invoicing) and continuous transaction controls (CTC). Under these systems, corporate transaction data must be submitted electronically to government portals in real time at the point of sale or invoice issuance.

This shift toward continuous digital tax reporting eliminates traditional annual tax audits in favor of ongoing automated compliance monitoring. Accounting departments are upgrading invoicing software to ensure seamless XML data formatting, digital signature authentication, and real-time validation against tax authority databases.

Automation and Data Analytics in Corporate Tax Strategy
To keep pace with dynamic tax legislation, tax departments are transitioning from reactive compliance teams to proactive strategic advisors. Machine learning algorithms analyze corporate transactional data to identify tax credits, research and development (R&D) incentives, and cross-border transfer pricing adjustments.

By automating routine tax return filings and calculations, corporate tax directors can focus on long-term capital structuring, evaluating the tax implications of corporate mergers, and optimizing international supply chain networks.

Strategic Priorities for Tax Executives
1. ERP System Upgrades: Ensure enterprise software is capable of generating real-time, granular tax data required for global minimum tax compliance.
2. E-Invoicing Integration: Implement scalable e-invoicing platforms to satisfy regional continuous transaction control regulations.
3. Strategic Tax Analytics: Utilize predictive tax modeling tools to evaluate structural changes in corporate operations and cross-border trade.

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