FTSE 100 sets aside £1.66 Bn for tax litigation in 2015
Pharmaceutical sector accounts for 88% of provisions for tax disputes
FTSE 100 companies have set aside £1.66 billion to cover the cost of tax disputes this year, reveals Thomson Reuters legal business, the world’s leading source of intelligent information for businesses and professionals.
Thomson Reuters says that this represents a fall of 31% from the £2.39 billion set aside for tax litigation purposes by FTSE 100 companies in 2014.
This reduction suggests that tax authorities’ pursuit of corporate tax evasion and avoidance in recent years may now be paying off, with businesses wanting to avoid reputational damage from disputes over the amount of tax they pay.
“There has been political, media and public pressure on governments to investigate corporations that are considered not to be paying the right level of tax,” explains Raichel Hopkinson, Head of the Practical Law Dispute Resolution Service at Thomson Reuters.
“The focus worldwide has been on reducing what some view as aggressive tax avoidance through the use of intra-group transactions in particular. Governments are keen to be seen to tackle the problem. No business wants to be made an example of, or to find itself explaining a costly settlement.”
“Consumer-facing companies also have to deal with direct pressure from the public threatening to take their business elsewhere if they consider companies to be unethical in their tax policies.”
“The public’s perception of a company is often based on its ethical record, including whether it is perceived to be paying its fair share of tax.”
Thomson Reuters adds that more businesses are providing further detail and information about their tax strategies and general approach to taxation to the public. As of May 2015, 56 FTSE 100 companies had provided such information, up from 32 in 2012*. This includes matters regarding their relationships with national tax authorities and their attitude towards tax planning.
The Government recently announced proposals to force all large businesses to publish these reports, with a named director taking personal responsibility for tax arrangements.
Pharmaceutical companies dominate tax dispute provisions
Thomson Reuters notes that pharmaceutical companies made the biggest provisions for tax disputes and litigation in 2015, setting aside £1.46 billion. This accounts for 88% of the total amount of provisions set aside by FTSE 100 companies – up from 79% in 2014.
One company was responsible for almost all of these provisions, with £1.44 billion set aside – the largest amount of provisions from all FTSE 100 companies. Pharmaceutical companies are under particularly intense scrutiny by tax authorities because of the allocation of the costs of business across the countries in which they operate.
Money set aside by FTSE 100 companies for tax litigation provisions
*Data from PwC analysis of 2014 annual reports
