Corporate tax planning is at odds with HMRC
More than three quarters of UK companies feel their approach to tax planning conflicts with HMRC’s expectations, a new survey has found, as corporates struggle to strike a balance between the needs of investors and tax authorities
Law firm Allen & Overy found that 78% UK corporates believe their approach to tax planning is at odds with HMRC’s expectations, 6% higher than across the world as a whole.
With the imminent introduction of the OECD’s base erosion and profit shifting (BEPS) action plan, the firm said that investors had been placed on high alert.
Allen & Overy reported that, increasingly, corporate organisations are torn between the need to increase their tax transparency and investors’ desire to make savings. In the UK, 77% of businesses say that investors have increased their influence in businesses’ tax strategies, with many demanding more access to data.
According to the research, 59% of respondents feel that tax is now very important to their firm’s overall strategy, compared to 22% five years ago. Furthermore, 72% of executives said they feel tax is of the highest importance to their overall strategy. The research shows that 88% of respondents believe the role of a tax director has evolved over the past five years, with 69% saying expectations have changed from being a technical function within the business to taking on a more strategic role.
Lydia Challen, a tax partner at Allen & Overy, said, “Businesses have to consider a range of often conflicting factors – including fiduciary duty to shareholders, social responsibility and what the law allows – when setting their tax strategies.
“Governments may need to start thinking about how to sell the idea of tax fairness to investors if they want to see a sea-change in corporate tax behaviour.”
Allen & Overy also found that, while some investors are more focused on transparency, reputation and ensuring stability of the tax position, for many it is simply a question of minimising leakage on their returns. Indeed, minimisation of tax liabilities was the most important task for 19% of firms, up from 15% five years ago.
Turning to HMRC, Challen said the Revenue had been “quite intelligent about the cases they’ve chosen”, with wins reported about 80% of the time. “They nearly always have an avoidance flavour to them,” she added.
Allen & Overy said the introduction of the diverted profits tax (DPT) – also known as the Google Tax – in the UK has been one of the more controversial tax developments of recent years.
As a result, 52% of executives in other countries would consider changing their tax strategy if a similar proposal was introduced in their region.
Challen said, “We can understand corporates’ concerns about it being replicated elsewhere because under the proposals there is a real risk of double taxation. Businesses are trying to find their feet in this new landscape.”
Even though there’s greater awareness of tax issues in the boardroom, Challen urged the need for heads of tax to sustain that momentum.
The firm surveyed 350 senior-level executives about their tax strategy. Half of the companies had a turnover of between $500m (£325m) and $1.99bn (£1.29bn) and the other half had $2bn (£1.3bn) or more.
