By Daniel Hunter
UK business needs to seize the initiative and respond to the public’s call for greater tax disclosure, says Ernst & Young’s UK head of tax.
Commenting on Ernst & Young’s new tax transparency report, which showed that one in five of the FTSE 100 describe their tax strategy in their annual report and accounts, John Dixon says the debate over fair taxation has increased the appetite for information about how much tax companies pay to the UK Exchequer and in other countries. There is now a growing divide between companies’ legal reporting obligations and the public’s and political expectations.
“Lack of tax transparency has become firmly linked in the public’s mind with aggressive tax planning,” says Dixon. “And, with only six of the FTSE 100 specifically stating that they use no artificial or aggressive tax structures in their report and accounts, it’s perhaps understandable to see how this has happened.”
“It’s clear to us that the UK has reached a tipping point and organisations can no longer ignore the calls for greater disclosure. Greater transparency provides an opportunity for companies to tell their stakeholders, from their customers, to politicians and shareholders, about their tax policies and their contribution to the economies in which they operate. We are actively advising our clients to embrace the issue proactively, rather than waiting for legislation to be imposed."
Country by country reporting of tax payments has already been adopted by the extractive industries and, with support from the EU, is also set to become a requirement for banking entities.
However, many organisations are concerned that mandatory enforcement of raw country by country reporting requirements across all sectors would add little, if any, understanding of their tax affairs and could create an administrative burden, whilst also publishing information that could potentially be commercially sensitive or misinterpreted.
For example, a recent Ernst & Young survey in the UK, where over half of the respondents were heads of tax, revealed that 70% of tax professionals were against country by country reporting.
“We aren’t in favour of a one size fits all approach”, says Dixon. “The concept of tax transparency will mean different things for different organisations. Companies will need to form their own views on additional voluntary disclosure and how to get their messages across appropriately. But we are confident that the benefits of building greater trust with stakeholders will far outweigh the cost and resources needed for greater tax transparency."
“If there isn’t a step change in the level of voluntary reporting it seems likely that mandatory changes will inevitably follow. By seizing the initiative now, organisations can help shape a workable outcome and start to rebuild the public’s trust in UK business,” concludes Dixon.
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