UK companies must disclose their tax risks
UK companies with listings in the US will soon be required to disclose all risky tax schemes in their corporate filings under a US standard that comes into effect in December
The FIN 48 standard requires all companies
that file US GAAP accounts to disclose any uncertain tax positions in their
financial statements and quantify the financial risk from them. Experts believe
that UK regulators could adopt similar rules for British companies.
The standard is very prescriptive and will force businesses to publish the
penalties or interest charges that could arise from a tax scheme, as well as the
tax charge itself.
FIN 48 will cast a spotlight on the tax planning of leading FTSE 100
companies such as AstraZeneca and BP. But all UK groups could eventually face
similar scrutiny, as the International Accounting Standards Board is looking at
introducing an IFRS equivalent to FIN 48, according to Ken Wild of Deloitte.
Ross Wilkinson, director of corporate tax at Chiltern, said that the
additional disclosure required under FIN 48 would have a significant effect on
the way shareholders, banks and revenue authorities viewed a company’s tax
affairs.
‘An actual financial number will now be appearing in accounts,’ he said.
‘Banks and shareholders will be able to use it to assess a company’s tax risks,
and HM Revenue & Customs will have a window into the tax affairs of
companies.’
Under FIN 48, which is mandatory from 16 December, businesses must assess all
their tax schemes and apply complex mathematical analysis to decide whether tax
liabilities could arise from them. Schemes likely to incur a liability will have
to be valued and published in a company’s accounts.
Richard Murphy, director of Tax Research Limited, said the standard would
protect investors and ensure companies were correctly valued.
He said that GlaxoSmithKline’s $3.4bn (£1.8bn) settlement with the US
Internal Revenue Service, and Vodafone’s tax issues, demonstrated how important
it was for companies to disclose uncertain tax positions.
‘Companies have been taking tax risks that shareholders don’t know about, and
have been incorrectly valued as a result,’ Murphy said. ‘There are substantial
future cashflows at risk and shareholders need to know about it.’