WHO IS COVERED?
As a broad rule, any business which is dealt with by a CRM under the Large Business Directorate will have to comply, but other entities meeting the criteria are also caught. The definition of businesses covered includes stand-alone companies, partnerships (including limited liability partnerships), permanent establishments, groups and sub-groups which meet either thresholds of at least £200m turnover or £2bn balance sheet total at the end of the previous financial year. However, smaller UK entities may nevertheless still be caught, as noted below, if they are part of a large multinational group.
Groups can include UK headquartered groups, UK sub-groups or multinational groups. The following examples illustrate the types of situation where businesses are likely to be required to publish their tax strategies:
- A UK headquartered group will have to consider the consolidated turnover of all of its subsidiaries, regardless of where they are resident. If the group meets one of the tests on a consolidated basis, the rules will apply. This contrasts with the Senior Accounting Officer rules which only aggregate UK resident entities.
- A UK resident business which does not satisfy either the turnover or balance sheet test will still be required to publish its strategy if it is part of a group which has a turnover in excess of €750 million – i.e. it reaches the threshold for Country by Country Reporting (or would do if the parent was UK tax resident).
WHEN WILL THE RULES COMMENCE?
Affected businesses will have to publish their first tax strategy at the end of their first financial year after the Finance Bill 2016 receives Royal Assent, which is delayed this year due to the EU Referendum but cannot be later than 16 October 2016. Therefore any business with a 31 December year end is likely to have to publish its first tax strategy by 31 December 2017. The tax strategy must remain available free of charge and then be updated for future years, as necessary by no later than 15 months of the publication of the previous strategy document. If no changes are needed to update the tax strategy document in subsequent years, then that should be made apparent.
THE TAX STRATEGY DOCUMENT
The Tax Strategy will need to cover a number of key areas about the group’s tax policy, as regards UK taxation, including:
- Its approach to tax planning;
- The level of risk in relation to UK tax the business is prepared to accept;
- Its risk management and governance processes; and
- Its attitude to dealing with HMRC
The document must also provide relevant background information about the business to put it into context. The tax strategy may be prepared for, say, the UK group or sub-group as a whole, or by reference to individual group members. It must be approved by the Executive Board and published either as part of an annual report or on the website. There is no requirement, however, to publish details of taxes paid or the effective rate of tax as part of the tax strategy document.
Penalties can be applied if a company does not publish its tax strategy, or if HMRC judges that it is not complete. Penalties can also be charged if the document does not remain publicly accessible for the full 12 month period. There is an initial penalty of up to £7,500, with further penalties if the failure continues.
HOW MAZARS CAN HELP
The issue of tax transparency is of huge significance and affected businesses can expect their published strategy documents to be subject to intense scrutiny. Mazars has taken a lead in driving the discussion on tax transparency, and we can help you to develop a tax strategy by considering such questions as:
- How involved does the board need to be in setting and monitoring tax policy?
- What controls are in place to manage tax risk?
- What is “aggressive tax planning” and is the business involved in it - where do its tax planning activities sit on what is a broad spectrum?
- At the recent Public Accounts Committee, MPs asked Google how their staff would feel about their tax planning activities - how will staff and other stakeholders view the published policy?
- How concerned would the business be about public and media scrutiny of its tax affairs?
- What taxes other than corporation tax does the group pay to ensure that the tax policy fully reflects its contribution to the Exchequer in all areas?
- How does the business manage its relationship with HMRC?
At Mazars, our tax staff already have wide ranging experience of supporting large businesses in these areas. We have already worked to assist businesses to produce tax strategies, to ensure that they comply with their Senior Accounting Officer responsibilities, and in Risk Review meetings with their HMRC CRM.