To explain its motivations, and underpinning the principles, the CBI says public trust in the tax system is “a vital part of any flourishing democracy” and that transparency and cooperation between HM Revenue & Customs and business leads to greater compliance.
The first four principles, which come under the banner of tax planning principles, are:
- UK businesses should only engage in reasonable tax planning that is aligned with commercial and economic activity and does not lead to an abusive result;
- UK businesses may respond to tax incentives and exemptions;
- UK businesses should interpret the relevant tax laws in a reasonable way consistent with a relationship of “cooperative compliance” with HMRC;
- In international matters, UK businesses should follow the terms of the UK’s double taxation treaties and relevant OECD guidelines in dealing with such issues as transfer pricing and establishing taxable presence, and should engage constructively in international dialogue on the review of global tax rules and the need for any changes.
The remaining three principles relate to tax transparency and reporting obligations:
- UK businesses should be open and transparent with HMRC about their tax affairs and provide all relevant information that is necessary for HMRC to review possible tax risks;
- They should work collaboratively with HMRC to achieve early agreement on disputed issues and certainty on a real-time basis, wherever possible; and
- Firms should seek to increase public understanding in the tax system in order to build public trust in that system, and, to that end:
n They should consider how best to explain more fully to the public their economic contribution and taxes paid in the UK;
n This could include an explanation of their policy for tax management, and the governance process which applies to tax decisions, together with some details of the amount and type of taxes paid.
Mike Lewis, tax policy adviser for tax justice campaign group, ActionAid, welcomed the code of conduct.
“It’s a mark of how far the public debate has come that the CBI now accepts there’s a problem with some corporate tax behaviour,” said Lewis.
Lewis, who described this as an “important and welcome shift”, said ActionAid now wants to see specific details. This is in line with the recent release of the campaign group’s Tax Responsibility Guide.
“Now what’s needed are concrete commitments, which the CBI’s statement of principles doesn’t make. Businesses need to commit to transparency of their operations in tax havens, and responsible tax behaviour in the world’s poorest countries – not just the UK,” said Lewis.
Some companies have already begun to reform their tax transparency policy. This week, Legal and General Group published country-by-country analysis of tax in its 2012 accounts.
“A first for L&G!” said Simon Burke, group tax director, over LinkedIn. “We’ve just published a high level country-by-country analysis of tax in our 2012 Accounts.”
“Is this a reasonable way of presenting tax information?” Burke went on to ask, with other tax directors responding to commend him for the “brave” move.
However, other UK tax directors are less positive about greater disclosures and new reporting requirements such as country-by-country reporting.
“We do not support a new accounting standard requiring country-by-country disclosure,” said Rick Medlock, chief financial officer at Inmarsat.
“This information is of little relevance to the vast majority of our shareholders and other stakeholders,” said Medlock, adding that the existing annual report is already “overly long” and burdensome.
Join International Tax Review’s magazine editor, Salman Shaheen, tonight at 7.30 as he chairs an IF Campaign debate with UK Exchequer Secretary David Gauke and other members of Parliament on the impact of tax avoidance on developing countries.
