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Tax strategy publication Are you ready? 2016
1 Tax strategy publication | Are you ready?
Key facts
What? Finance Bill 2016 introduced a requirement for certain businesses to publish their tax strategy online as it relates to, or affects, UK taxation. There is a financial penalty and potential reputational impact associated with non-compliance.
The legislation stipulates that the published tax strategy must cover the following points in relation to UK taxation:
► the approach of the business to risk management and governance arrangements in relation to UK taxation
► the attitude of the business towards tax planning (so far as affecting UK taxation)
► the level of risk in relation to UK taxation that the business is prepared to accept
► the approach of the business towards its dealings with HMRC.
Who? The legislation applies to over 2,000 UK businesses including those within the scope of country-by-country reporting (CbCR) (global turnover of more than €750mn), UK groups with an aggregate UK turnover of greater than £200mn and UK companies of the same size. The requirement equally applies to UK permanent establishments, partnerships and other ‘relevant bodies’.
When? The legislation will be applicable for accounting periods commencing after the Finance Bill receives Royal Assent which is expected later this year.
Where? The tax strategy must be published annually on the internet for the period covered by the business’s annual report or accounts and before the end of each current financial year.
2Tax strategy publication | Are you ready?
Key themes
Many businesses are exploring a number of key themes that require consideration when developing a tax strategy. In particular, businesses should determine how they will operationalise their tax strategy, ensure its consistency with other disclosures, and consider the impact on key stakeholders. These themes inform our suggested approach to helping you develop a tax strategy that is aligned to your business needs and meets the legislation’s requirements.
Our suggested approach
Operationalising your tax strategy: Developing a tax strategy that is unique to your organisation and you can evidence in action.
Consistency of message: Benchmarking your tax strategy to your tax, CSR and corporate governance disclosures, as well as what peers have published.
Understanding your stakeholders: Determining where your tax strategy may be challenged, developing a Q&A in readiness and drafting a Board Paper to share with internal stakeholders outlining your journey.
We are seeing leading practice as:
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3 Tax strategy publication | Are you ready?
1. Does your business have an internal tax policy or tax risk and control framework that you can refer to in your tax strategy? HMRC will expect your tax strategy to have practical application and see evidence of it working across your business.
2. Does this requirement highlight the need for the Board to have a greater involvement in tax decision making or for a change in your approach to tax from a risk or operations perspective?
3. What role can technology and data play in helping you to identify and mitigate tax risk more effectively and proactively going forward?
4. Are you confident that your tax strategy is consistent with the information that HMRC will receive from other sources e.g. CbCR reports (which may require publication), your risk review and the findings from any audits?
5. Are you confident that your tax strategy aligns with corporate governance and CSR disclosures in addition to tax disclosures in annual reports and elsewhere?
6. Is there enhanced value in adding contextual information to your tax strategy and/or outlining your total tax contribution?
7. Would you rather publish a global tax strategy to demonstrate a more consistent approach to tax across the wider group?
8. How might your tax strategy be interpreted by external stakeholders, including NGOs?
9. How might decisions to structure transactions or presence in low tax jurisdictions be explained without adversely impacting your reputation?
10. What is your timeline to publication? Does this consider the internal stakeholders who will need to approve the tax strategy e.g. Public Relations? Have you considered how you will present your tax strategy to the Board?
Our top 10 points for you to consider
Operationalising your tax strategy
Consistency of message
Understanding your stakeholders
4Tax strategy publication | Are you ready?
How we are supporting businesses
We consider that a business’s tax strategy is unique and the starting place is to understand the current approach to tax risk and governance. As a result, our approach is bespoke to your individual requirements and will be based on an initial assessment of your needs. The support that we have provided to businesses is therefore wide and varied, including the following approaches:
► Supporting businesses to develop a project to develop their own tax strategy
► Providing a bespoke questionnaire to identify and capture the key components for the tax strategy
► Reviewing existing tax strategies to test compliance with the legislation and benchmarking against other businesses
► Holding a workshop with key stakeholders to formulate the strategy
► Providing assistance in presenting the tax strategy to the Board for consideration
► Supporting businesses to evidence ‘governance in action’ and formulating a tax policy to ensure the strategy is adopted and tested for adherence
Benefits of our approach
►Your tax strategy is reflective of your internal tax risk management processes and can be easily evidenced to HMRC.
Your tax strategy is consistent with other tax and relevant non-tax disclosures and is therefore less likely to be challenged by your stakeholders.
The right internal stakeholders are engaged in the process.
You benchmark well to what your peers publish.
Our approach will help to ensure that:
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5 Tax strategy publication | Are you ready?
Why do something now?
HMRC already asks for evidence of the tax strategy and governance in action as part of business risk review meetings. To evidence a ‘low risk’ approach to tax, you need to evidence a low risk tax strategy that is working in practice.
In our experience, the process of developing an effective tax strategy takes some time, particularly if:
► Work is required in operationalising the strategy
► Consultation of various internal stakeholders is required prior to publication
► There is a need to ensure consistency with other tax and non-tax disclosures
Case studiesWe have found that a hands-on and proactive approach, through collaborative and engaging workshop sessions with internal stakeholders, is the most effective means of developing a robust tax strategy. Here are some examples of how we have supported businesses with their tax strategies:
A European business required support to improve their internal tax risk management and governance processes in the UK. This work was used as a platform to develop a robust tax strategy for publication. Short-term benefits of this exercise included a favourable impact on their Senior Accounting Officer compliance and the risk rating with HMRC.
Through interactive workshop sessions, we helped a multinational commodities group use their existing tax risk management framework to develop a tax strategy for publication. Importantly we supported the group in carefully aligning their tax strategy to existing CSR and Corporate Governance disclosures, to ensure that a consistent message on the group’s approach to risk management, governance and CSR was shared with stakeholders.
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Our Tax Governance and Assurance network support businesses in responding to the challenges of increased transparency and regulatory change. Please contact any of our specialists to discuss further.
Governance, Strategy and RegulatoryPaul Dennis [email protected] | +44 121 535 2611John Georgiou [email protected] | +44 207 951 2831
Employment TaxesSue Robinson [email protected] | +44 207 951 8194
Indirect TaxesSian Beusch [email protected] | +44 1223 394 449
Financial ServicesMark Irving [email protected] | +44 113 298 2217Rob Skinner [email protected] | +44 113 298 2565
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