A company’s lack of tax policy can put off
investors, incur public wrath, and even leave companies falling
foul of the law. Post-BEPS, many companies are working on
defining their corporate tax policies with accountancy firms to
ensure their plans are appropriate for the company, do not
deter prospective investors and align with public
"I think investors over the last two years, have been asking
companies to do a number of things," said Paul Monaghan, chief
executive of the Fair Tax Mark, a UK-based organisation which
certifies companies with ethical corporate tax policies. "Any
business now that doesn’t do the bare minimum of
having a policy in the public domain, is going to be receiving
black marks from investors."
The chief compliance officer of an investment group said:
"We wouldn’t touch something structured
"There are times when you will come across an asset where
the seller wants you to purchase the shares, but then you find
there are capital gains they are trying to shelter," they
elaborated. "All it does is create problems down the line."
"If we think the asset is worth pursuing, we do an asset
purchase," they told International Tax Review.
"It’s cleaner, you’re not taking on
any tax liabilities they’re trying to shelter. If
you buy the shares you’re buying all the benefits
"I would say responsible tax is one of the great moral
dilemmas of our time," said Rohinton Sidhwa, partner at
Deloitte India during the he said at International Tax
Review’s India Tax Forum on January 22.
"Like any moral dilemma, there are two views on it: whether it
is even a moral, or just a responsibility."
"In my experience, clearly tax administrators and
taxpayers are very cognizant of this issue now," he continued.
They do think a lot more before undertaking any kind of tax
"Most important of all, the bad press that a company can
potentially get, especially when it's shown that a large,
foreign, first-world multinational is depriving a small,
third-world country of their fair share of tax revenue," he
said wryly. "That really gets the headlines."
Many companies do now have a written tax policy for which
heads of the tax department are accountable, which they view as
an important part of not just their corporate social
responsibility (CSR) duties but as crucial to investment
"One of the good practices that corporates have put in is to
actually have a tax policy," said Sidhwa.
However, "you’d be surprised how many
organisations do not even have a tax policy for their group,"
he said at the same conference.
The finance director of a US real estate investment trust
(REIT) speaking to International Tax
Review separately suggested their company does not
have a clear corporate tax policy. "It depends on the projects
we’re dealing with," they said, explaining that
the tax strategy was decided "project by project".
The chief compliance officer, though, said his
company’s strategy was far more rigorous. "We do
take a very conservative view [of tax structuring in our
investments]," he said. "It’s definitely
communicated, from day one [of starting working at the company]
– you’re well aware."
Nevertheless, boards are increasingly asking their employees
and their organisations whether there is a tax policy in place,
whether it is disclosed and if the company is transparent about
it, Sidhwa said.
Even the REIT finance director admitted that investor
pressure or preference had "somewhat driven tax policy" in the
past few years.
Looking to the UK
Although the importance of a corporate tax policy is
apparent, the fact that some companies still don’t
have such a plan in place or could be undertaking unethical tax
practices has perhaps, partially, led the UK to introduce
the requirement for companies to publish their tax policies in
the 2016 Finance Act. This includes:
- The approach of the group to risk management and
governance arrangements in relation to UK taxation;
- The attitude of the group towards tax planning (so far as
affecting UK taxation);
- The level of risk in relation to UK taxation that the
group is prepared to accept; and
- The approach of the group towards its dealings with UK
revenue authority HMRC.
The legislation also identifies as 'good
practices’ ideas such as alignment of tax with CSR
initiatives, board involvement in tax, comments on transfer
pricing and adherence to tax transparency initiatives.
This was a key aim for Marie Pearse, group taxation senior
manager at FTSE 250 utility group Pennon, when it published its
"We want to do the right thing in terms of our tax affairs
and be transparent in doing so," she told ITR.
"That’s why our strategy tries to bring tax to
life as it affects our business and what this means for our
customers. We also want to highlight how much we really
contribute to wider society across all taxes not just focusing
on corporation tax as is routinely reported in the media."
BDO estimates around 2,000 companies have to comply with the
UK’s tax policy rules, which applies to all
multinational groups with an annual global consolidated
turnover greater than €750 million ($860 million) that are
also subject to country-by-country reporting (CbCR)
requirements. However, not all companies fully comply.
"What we found is that within the FTSE50 the legislation had
been quite poorly implemented," said Monaghan. "Some would
treat it as a tick-box or a bare minimum."
"We don’t have a website," said the REIT
finance director, adding that he simply files the policy with
Companies House, the UK registrar of companies.
Nevertheless, the obligation to publish a tax strategy has
made many companies think about what their overall policy on
tax is, and has opened the door to more public discussion.
"We also took what I believe is a unique approach in that we
asked customers for feedback on tax and big business and
specifically what they expect us as a business to do," said
Pearse. "Customer feedback was sought through a number of focus
groups and a customer survey."
It’s not out of the question that other
countries will follow suit, too, given the apparent failure of
EU attempts to bring in public CbCR and the speed with which
common law countries like Australia mimicked the
UK’s diverted profits tax.
"The UK is the first country in the world with this
requirement, and that’s a good thing," said
Monaghan. "It’s created a baseline standard."
"I think some of the more developed countries will pick up
on this but quite possibly not until they have resolved the
issues on the BEPS agenda and challenging areas such as digital
tax," Pearse said.
The tax transparency conversation often focuses on
initiatives like CbCR, automatic exchange of information,
publication of tax rulings and similar, data-focused
initiatives. However, more legislation like the
UK’s rules that asks companies to put into words
how they deal with tax can prove just as revealing.
Complying with such legislation also provides companies an
opportunity to look inwards at their overall tax strategy, as
well as boosting their profile among investors or connecting