HRMC - Improving Large Business Tax Compliance

HMRC has issued consultation documents proposing requirements to publish a “tax strategy,”, voluntary Code of Practice corporate tax processes and creation of a “special measures” regime. Comments are due by 14 October 2015 for each Consultation document.

These proposals follow closely upon the heels of the ATO issuance of Best Practice methodologies addressing a taxpayer’s tax risk.

Executive brief
Public availability of a company’s tax strategy (financial penalty for non-disclosure) including:
Tax internal governance arrangements
Risk management approach
Tax planning attitude and tax risk appetite, including affirmation that it aims to satisfy the spirit, as well as the letter of the law
Attitude to relationship with HMRC
Target UK effective tax rate (if applicable), and what measures are being taken to achieve it
Voluntary Code of Practice, including affirmations that:
Tax planning is consistent with the economic consequences
Transactions provide a tax result that is in accordance with the intentions of Parliament: “HMRC will consider a purposive construction of the legislation, and will also consider whether Parliament can realistically have intended to give the proposed result in circumstances that are very different from those that prevailed at the time”
Transparent relationship is maintained with HMRC
Tax obligations are met
Early dialogues for engagement with HMRC to discuss tax planning, strategy, risk, significant transactions and full disclosure of areas providing significant uncertainty
Objective evidence is provided to HMRC that decisions with tax implications have been approved by a senior decision maker

Special Measures for companies entering into aggressive tax planning / failing to transparently engage withHMRC, including:
Providing all documentation (including third party tax advice) related to tax
Refusal to provide non-statutory clearances
Public naming
Automatic 100% tax penalties
Observations in the Documents:
Attitudes to tax avoidance and aggressive tax planning have altered significantly, including political interest
Intention is to create Best Practices
The Government is awaiting the EU Tax Transparency Package consultation (advocating public disclosure of country-by-country reporting), and will consider its findings carefully
Proposal is separate from the current SAO regime, as well as the OECD’s country-by-country reporting guidelines
A company could be required to state in their tax strategy whether they are a signatory to the Voluntary Code of Practice
Non-publication of a tax strategy will be a consideration of HMRC’s tax risk reviews
Evidence of “governance in action” to be provided
Voluntary Code of Practice is aimed at tax planning that crosses over into tax avoidance
The company should reasonably believe that transactions give a tax result which is not contrary to Parliament’s intentions
Special measures will remain for a minimum of 2 years

HRMC - Improving Large Business Tax Compliance HRMC - Improving Large Business Tax Compliance