The impact of tax-related risks can be severe and cover a large number of portfolio companies. Multinational enterprises have become much more vulnerable to unexpected tax assessments and increases in tax liability as strengthened enforcement has spread around the world.
These concerns and political pressures led to a more concerted response from an international regulatory perspective through the OECD Base Erosion and Profit Shifting (BEPS) project. This project attempted the first comprehensive reform of international tax rules for over 80 years, on the basis of a consensus among nearly 50 states.
Investors are largely unable to assess a multinational’s tax risks due to a lack of transparency around the strategies a company might be using and the policy and governance practices that guide those strategies. For this reason, the engagement was addressed to request information about Tax fairness principles.