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UK tax strategypublication
What you need to knowabout the new rules
www.pwc.co.uk
2017
Legislation in Finance Act 2016 Schedule 19,introduced the requirement for qualifying groups topublish their UK tax strategy. The deadline forpublication is before the end of the first periodbeginning after 15 September 2016.
At the same time as considering Country by CountryReporting (‘CbCR’) and significant legislative change asa result of BEPS, organisations will have to make apublic statement on how they approach themanagement of tax. The new requirement willhave a considerable impact on largecompanies, as they are forced to engage withthe public on their tax affairs, explaining theirpreviously private views on tax management.All at a time when their approach to tax is underimmense scrutiny internally and externally.
We know from our work with organisations to datethat it is not advisable to consider the publication of aUK tax strategy to be a simple exercise. Groups mustthink broadly and consider:
1. How senior stakeholders will be engagedand whether a global tax strategy publication ismore appropriate, given potential scrutiny by non-UK tax authorities;
2. How the strategy will be embedded inpractice; and
3. How tax risks and opportunities whichrequire further investigation will beidentified, to ensure alignment to the agreedstrategic objectives on tax.
If this approach is not taken, organisations leavethemselves open to HMRC and wider stakeholderchallenge with an increased risk of higher tax penaltiesshould tax errors arise in the future. This is reinforcedby HMRC directing its efforts on Senior AccountingOfficer (‘SAO’) to require proactive monitoring of keytax controls, which is also a key feature behind thestrategy legislation. Requiring oversight bycompanies on tax to move from being passive toproactive will, in our view, make formal taxcontrol frameworks a necessity and represent astep change in tax governance.
The new legislation mirrors wider globaldevelopments on tax governance andcooperative compliance across the OECD, andshould be considered in this context. See below for anoverview of the new rules and our recommendedresponse.
Introduction
1 | UK tax strategy publication | PwC
Your tax strategy must include the following per the legislation and guidance
Overview of the new rules
Who: UK SAO Groups (include permanent establishments in the threshold test, butconsider partnerships separately), or; Multinational Groups with EUR 750mworldwide turnover (‘MNE Group’).
What: Statements covering four areas required by legislation and HMRCguidance (below).
Where: Any publicly available website.
When: By the end of first period beginning on or after 15 September 2016(for MNE Groups, use the foreign parent year-end).
PwC | UK tax strategy publication | 2
PwC Tip
Whilst board approval is notrequired, it is recommended.Your tax strategy should alignto published statements onbusiness strategy and ethics.Consider if publishing aglobal tax strategy ismore appropriate.
How you manage tax risks
Include what tax risks are linked to your business’s size, complexityand any changes to your business. Other information on governancearrangements to include:
• Details on how you manage your business’s tax risk.
• A high level description of key roles and their responsibilities.
• Information on the systems and controls in place to manage tax risk.
• Details on the levels of oversight of your business’s board andits involvement.
PwC Tip
It’s really important to explainhow you operate governanceby reference to HMRC’s2016 guidance in relationto the Senior AccountingOfficer regime.
Your tax risks
You should say if your business’s internal governance has rigid levelsof acceptable tax risk. If so, you should explain how it is influencedby stakeholders.
(For example, your organisation may have defined your approach totax risk appetite in the context of the wider risk framework).
PwC Tip
Your organisation may have anenterprise wide approach torisk management, and as far aspossible, existing riskprocesses should be referenced.
Your attitude to tax planning
If your business has a code of conduct you should include details of it.You should also include:
• Why you might seek external tax advice, if any.
• An outline of your tax planning motives.
• The importance of each to your tax strategy.
PwC Tip
Approach to forward planningis important but you must alsoconsider historic planning toensure consistency with yourpublic statements.
Working with HMRC
While your business’s approach to working with HMRC will be understoodby your Customer Relationship Manager (CRM), you’ll still need to put it inyour tax strategy. You should include:
• How your business meets its requirement to work with HMRC.
• How you work with HMRC on:
1. Current, future and past tax risks;
2. Tax events; and
3. Interpreting the law.
PwC Tip
Many groups will find it helpfulto explain the approach toworking with tax authoritiesbeyond the UK. You should alsoconsider whether you havestrategic objectives on tax thatgo beyond the four areasmentioned by HMRC.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professionaladvice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members,employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for anydecision based on it.
© 2017 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for furtherdetails.
PwC contacts
Mark Schofield
T: +44 (0)20 7212 2527
Andrew Packman
T: +44 (0)1895 522104
Stella Amiss
T: +44 (0)20 7212 3005
Ray Farnan
T: +44 (0)20 7213 1542
How do you respond?
Develop a published tax strategy
As well as setting out your Group’s approach to taxplanning and how you engage with HMRC, the strategymust also confirm publicly that the company haseffective tax governance and what level of risk anorganisation is willing to accept. Prior to publication wewould strongly recommend active engagement withHMRC on all of these points.
If there is no tax strategy currently in place, companieswill need to work through who to involve in the processand how to develop a strategy. Equally, there may beinternational aspects to be addressed such as consideringhow public statements on tax strategy might beinterpreted by other tax authorities. In particulate, thiswill require multinational groups to engage at HQ level.
Ensure effective monitoringof tax governance
Whilst a lot of the wording in HMRC’s tax strategyguidance is not new, CRMs will give greater attention tomeasuring taxpayer behaviour against statements madein the strategy, as part of business risk reviews.
HMRC has clarified what good tax governance looks likeas part of a revamped approach to SAO. We now knowthat organisations organisations must have a clearunderstanding of key tax risks, and be able to evidencethe assessment of the mitigating controls design andoperating effectiveness. This goes beyond the activity onSAO that many groups undertook when SAO was firstintroduced, shifting the emphasis to proactive oversight.This approach also ensures your tax strategy statementaligns to, and does not contradict, your other tax filings.
Companies should engage early with the new legislation and key stakeholders to undertake two main activities;
How we can help
Minimum requirementDevelop a tax strategy document in line with the newrequirement and signed off by senior stakeholders. This canlikely be undertaken towards the publication deadline forsmall and simple organisations. If you take this approach,you must at least consider your overarching tax governance.This will enable you to explain to HMRC how your taxstrategy is implemented in practice, when questioned.
How you approach the new rules needs to be considered in thecontext of an environment of increased public scrutiny overtaxes globally through BEPS, Country by Country Reporting,and ongoing developments in the EU and OECD onmandatory public tax transparency reporting. The PwCapproach reflects this and is flexible depending on whetheryou have significant or minimal activity in the UK, are UK orforeign parented, and have a simple or complex operatingmodel. Your facts and circumstances will determine whetheryou need to take a 'minimum requirement' approach or abroader perspective to satisfy the new rules as explainedopposite;
A broader perspectiveYour UK tax strategy should be developed whilst havingregard for the wider tax environment, and the need to haveconfidence in what you are disclosing externally. It mustreflect the views of your key stakeholders and how youoperate in practice. Recommended actions include:
• Consider examples of best practice tax disclosure in theUK andglobally
• Identify key stakeholders and understand their needs
• Discuss the consistency between statements andapproach on strategy, CbCR andSAO
• Develop a tax risk management framework to detailrisk appetite and how the implementation of your taxstrategy is monitored
• Possible risk and control review to confirm theidentification of key tax risks and review the design andoperating effectiveness of key tax controls
• Prepare disclosure to satisfy UK rules but appropriate towider needs or context (perhaps global or coveringmultiple divisions)
We want to work with you to understand, design and implement a strategy to suit your needs. PwC’s One Tax approach mirrorsyour need to draw on a number of different company stakeholders and views. We bring expertise from a range of specialistteams to help you address the specific requirements of the rules, whilst considering the broader tax environment.
