High risk tax schemes set to be exposed

The International Accounting Standards Board is working on a draft standard that will give HM Revenue & Customs an insight into what companies see as their riskiest and most aggressive tax planning schemes, and how much is at stake.

The exposure draft is part of the standard setter’s revision of its standard for income tax, IAS 12, and is due for release before the summer.

The IASB has been working closely with its US counterpart ­ the Financial Accounting Standards Board ­ which already has the hard-hitting FIN 48 tax standard in place. Sources said key elements of the US standard will be included in the draft.

FIN 48 requires US-listed companies to publish any uncertain tax positions in their accounts and make public information what was previously only available in tax returns .

Figures familiar with the matter said the IASB might not adopt the rules wholesale. ‘The requirements of FIN 48 will be in the melting pot,’ said Deloitte partner Ken Wild.
Citi Investment Research analyst Kenneth Lee said he expected ‘a form of FIN 48’ to emerge.

The move will force companies both to declare tax issues so far hidden; as well as disclosing earlier those problems that companies already declare.

Vodafone revealed in 2005 that it was facing £5bn worth of imminent tax liabilities after disputes with different authorities, while GSK had to declare its huge transfer pricing settlement with the IRS. Barclays is thought to have settled a transfer pricing enquiry with HMRC with a bill of as much as £300m, but the details only emerged in accounts filed as part of its Irish subsidiary. All such cases would be likely to be covered under the plans.

‘The tax number is very important for corporate valuation and a FIN 48 style standard will enhance corporate accountability and understanding of tax risks,’ said tax campaigner Richard Murphy.

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