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Greater tax transparency “may not be panacea”, warns E&Y

DISCLOSING GREATER DETAIL about the tax affairs of large corporates may not deliver any greater understanding to stakeholders, a report produced by Ernst & Young has warned.

The firm claims that introducing measures such as country-by-country reporting could instead produce a potentially significant administrative burden and cause businesses to “divulge commercially sensitive information”.

Businesses, though, cannot afford to ignore the tax transparency lobby. Various activism groups are urging the government and the G20 to impose tough rules on multinationals forcing them to report separately on their financial activity for each country in which they operate, with the aim of exposing aggressive tax schemes used by multinationals.

Typically, companies use transfer pricing to drive down tax costs. The method sees multinational corporations value goods and services moving across international borders from one of the group’s corporate entities to another.

By “seizing the initiative now”, said E&Y’s managing partner for tax in UK and Ireland John Dixon in the paper’s foreword, businesses can “positively inform and influence the debate”, while failing to “at least consider greater disclosure” would raise concerns.

Last week, it was reported E&Y will face questions over its audit work with Google, after the Public Accounts Committee announced it wished to further scrutinise the search engine’s tax affairs.

The search engine’s vice president for northern and central Europe Matt Brittin previously told the committee in November that no sales are made in UK offices, and instead sales to the UK are made from Dublin.

However, Google’s corporate website claims sales teams are based in London, and advertises jobs for London-based sales staff, whose duties include “negotiating deals,” closing “strategic and revenue deals” and achieving “quarterly sales quotas”.

The Big Four also testified before the committee in January as part of a PAC investigation into how they help large companies minimise their tax liabilities, but committee chair and Labour MP Margaret Hodge now believes E&Y should be recalled to discuss its work with Google.

In his previous appearance, John Dixon said E&Y staff visited clients’ offices in order to ascertain they were conducting the activities in their UK offices that they described in statutory accounts and in statements to HM Revenue & Customs.

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