Recent events in Parliament and associated media coverage confirm that businesses operating in the UK need to navigate a new tax landscape. Amid all the noise, the public debate on tax avoidance is leading to some tangible changes. Companies that do not have, and as importantly are not perceived to have, a responsible tax approach can run the risk of losing out on government contracts, losing stakeholders through brand damage or finding themselves out of pocket.
The OECD released a report into base erosion and profit shifting of corporate taxes. There has also been a UK ministerial statement confirming the Government’s intention to put rules in place to ban companies, partnerships and individuals which take part in tax avoidance schemes from being awarded Government contracts. Companies, whether headquartered here or overseas, now find themselves under pressure to publically defend their contribution to society at large at the same time as continuing to deliver value to their customers, investors and others.
How should CFOs prepare?
Executives in large organisations that are responsible for the management of taxes need to play a key role in shaping and driving their organisation’s strategic direction and response to public attention. CFOs will need to assess their tax profiles, benchmark their current position to where they want to be and create a roadmap of how they will get there.
CFOs need to be aware of the evolving regulatory environment which can provide companies with opportunity as well as compliance and reporting pressures. For example, the implication of the OECD’s base erosion and profit shifting of corporate taxes may lead to a restructuring requirement affecting more than the just the Tax department.
Are you ready to respond?
In considering whether your business is ready to respond to this evolving tax debate, you might want to consider the following questions:
- Tax strategy: Is there engagement from the Board/outside Tax around the organisation’s tax strategy? Has the strategy been fully implemented and communicated?
- Risk of scrutiny: What is the potential risk of scrutiny of the business, both from the public and from HMRC/other tax authorities? Does your organisation have attributes which could attract attention and are not easily explained by reference to publicly available documents?
- Impact of scrutiny: Should your organisation be subject to scrutiny, what might be the financial and other impact of key stakeholders (investors, suppliers, customers etc) withdrawing their support?
- Readiness for scrutiny: How ready are you to respond in a controlled and robust manner to scrutiny? Are there clear accountabilities and standards for tax? Do you have controls over key risks associated with your tax position which are periodically monitored? Is there coherent reporting to both internal and external stakeholders?
In this rapidly evolving environment, the key to achieving sustainable tax outcomes is by having a responsible approach.
Towards a responsible future
To achieve this outcome CFOs and their teams must be prepared. This includes having an understanding of the public debate and what it would mean for stakeholders through to setting of goals, maintaining the people, process and systems and reporting tax positions clearly and effectively. Benefits that could be evidenced from this forward planning range from tax savings from efficient planning through to managing stakeholder expectations; impacting sales, investments and staff members.
For many companies, tax planning continues to move up the priority list using this as an opportunity to plan for a responsible future.
Rachel is a Partner in Tax Management Consulting, specialising in tax technology and the tax aspects of Finance Transformation programmes. One of the key aspects of her work involves business process improvements and reporting enhancements covering corporate and indirect tax reporting, transfer pricing and withholding taxes.