Decisive action needed on tax disclosure

IF ONE THING IS GLEANED by practitioners and businesses from the last week’s pontificating over tax disclosure, it should be that a clear, decisive course of action is needed as soon as possible.

A report from Ernst & Young (E&Y) on tax transparency was quickly followed by a set of guidelines from the CBI advising companies how to stay on the ‘straight and narrow’ in their tax strategy. 

While some may question the motives of E&Y’s calls for moratorium on imposing new tax transparency rules, there are salient points to be drawn from their paper – while the CBI – fronted by director-general John Cridland (pictured) – has also made similar recommendations.

It seems, though, that many have accepted that the tax climate has shifted towards greater tax transparency, with a greater need for firms and businesses to be up-front – and, indeed, abundantly clear – about their tax spend in each country they operate in, and the reasons for that spend.

The public’s appetite for tax ‘justice’ has seen greater scrutiny than ever fall on the tax affairs of large corporates following the Starbucks, Amazon and Google scandals. That, says E&Y, should drive companies to “positively inform and influence the debate”, lest inaction raises concerns.

The CBI is less interested in public image, and instead promotes co-operation with HM Revenue & Customs. In a 14-point Statement of Principles, the confederation outlined its doctrine for tax companies’ tax policy and regaining public trust.

Chief among its points was that co-operation and working collaboratively between business and tax authority is key to a functioning tax system.

As far as experts and practitioners are concerned, the moves are a welcome attempt to dampen down hyperbole that has emanated from quarters of the mainstream media and pressure groups.

In particular, some have highlighted that companies criticised for their low bills were simply utilising tax reliefs offered by the government, as was the case recently with nPower.

For those advisers, though, it simply makes no sense for MPs and the public to pillory companies for responding to the tax incentives created by parliament.

Some, though, have questioned the motives of E&Y’s report, suggesting it is more concerned with perception than transparency.

While practitioners largely seem to recognise the Big Four firm’s position, there are those who see their stance as one borne out of concern that greater disclosure would open it and others up to further scrutiny and criticism, especially around the issue of avoidance.

Whether enshrined in statute, or simply in practice, the shift toward being more open with corporate tax affairs appears to be in full swing. It is on whose terms, though, that now becomes the point of interest, and while it is yet to be determined, those in the know seem to be leaning toward a voluntary shift by business.

For practices and business, it’s just a case of getting there first before they’re forced to.

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