Deloitte analysis: Nearly 60% of FTSE 100 companies have already disclosed their tax strategy
4 December 2017
- Legislation on tax strategies comes into effect in the New Year
- Deloitte’s annual review of tax disclosures finds positive developments in tax reporting among FTSE 100
Over half of all FTSE 100 companies (59%) have already published a tax strategy as part of their Annual Report, according to analysis published by Deloitte today. The firm’s fourth Annual Review of FTSE 100 tax disclosures, which looks at tax transparency trends in the largest companies’ annual reports, found that out of the 94 companies with a year-end of 31 December 2016 or later, 59% (55 companies) have disclosed some form of tax strategy statement.
Of those strategies that were published 64% (35 companies) made a stand-alone statement while 36% (20 companies) included the strategy in their annual report. The majority of businesses disclosing their tax strategy made a global statement (75%), reflecting the scale of their organisations. While 55% of businesses emphasised the tax contribution they made and provided headline values, most (84%) steered clear of providing detailed country-by-country analysis. Moreover, tax strategies were typically concise - half of them (28) were summarised in less than a page, while only nine companies wrote more than four pages.
The Government introduced a package of measures in September 2016 requiring many large businesses and partnerships to publish a UK tax strategy by the end of their next financial year, which is 31 December 2017 for those with a calendar year-end.
Mark Kennedy, partner in Deloitte’s tax management consulting group, said:
“All FTSE 100 businesses can expect to be in the scope of the legislation, and as of November nearly 60% had already published their strategy. Other companies are likely to try and gain visibility on trends, conventions and the public response to those trends before making their strategy public.
“While it is not yet a legal requirement for all companies to have disclosed their tax strategy, we are already seeing a lot of interest from HMRC as to the nature of these statements and how the principles expressed in them are embedded within the organisation.”
Positive developments in reporting following FRC thematic review
Deloitte’s analysis also looked at the way companies are responding to the Financial Reporting Council (FRC)’s thematic review of tax disclosures. The FRC published a thematic review on tax disclosures in late 2016, encouraging companies to use it as a basis to assess and enhance their own disclosures. Deloitte’s review shows that many groups have responded positively to the FRC’s comments.
For example, the FRC was clear that the Effective Tax Rate (ETR) reconciliation and supporting narrative should enable users of the accounts to understand the relationship between the tax expense and accounting profit, and the significant factors that could affect that relationship in the future.
Alexandra Warren, tax reporting specialist partner, said:
“Having looked at tax reconciliations of FTSE 100 companies in scope we found a greater degree of disaggregation and more meaningful explanations of adjusting items. Companies were also clear about factors which could have a future ETR impact, with many groups citing factors such as the OECD’s Base Erosion and Profits Shifting project, US tax reform and potential EU State Aid challenge.”
The FRC also explained that companies needed to consider carefully whether they have significant judgements and estimation uncertainties relating to tax and then ensure the nature of these risks and the framework to assess associated provision was appropriately disclosed.
Alexandra Warren added:
“We found improvement in the way tax risk provisions for groups that had identified tax as a key area of judgement or estimation uncertainty were disclosed. In many cases they explained both the process by which tax risk provisions are quantified, the nature of the uncertainty and quantification of the uncertain tax risk provision.”
Mark Kennedy concluded:
“It’s important that businesses are able to prove that they operate in line with the standards and behaviours set out in their public statement. Making these statements and operating to them should go a long way to giving the public confidence that the companies they work for, buy from and invest in, are operating in line with acceptable standards.
“Communications on tax from large businesses should meet the regulatory requirements and broader stakeholder needs, with key risks and uncertainties clearly disclosed.
“However, regulators also need to create a coherent standard for the tax disclosures of large businesses that can be understood readily by companies.”
Notes to editors
- This is the 4th edition of the Deloitte Annual Review of FTSE 100 tax disclosures, reflecting how companies are improving the clarity of their tax communications and the new requirement to publish a UK tax strategy
- A full copy of the report can be found here
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