Moving forward through the tax avoidance debate
The public debate on tax avoidance is leading to tangible changes. Companies are taking practical steps to address the challenges this brings.
Moving the debate forward
The management of the UK tax system, as part of the globalised economy, and the contribution of large corporations to the UK Exchequer, is the subject of significant debate. Given the wider economic conditions, we expect the debate to continue and for it to lead to some real changes both in terms of regulation and taxpayer behaviour. We have started to see some of these changes already and others will undoubtedly follow.
Practical steps for companies
In response to these conditions there are a number of activities that companies may wish to consider undertaking at either at board level or across the organisation. We believe companies need a responsible approach to tax management which delivers sustainable outcomes in an uncertain environment. This requires a review of their current strategy and policy, should they both exist; making necessary changes to align their current arrangements with the updated preferred strategy and policy; and providing greater reassurance and communication to others in relation to their tax affairs:
Step 1 – Reviewing strategy and policy
Companies are assessing what the changing environment means for their business and reviewing their strategic approach to tax and the associated policy framework to ensure it remains fit for purpose. This may mean avoiding short-term gains that could expose the group to longer-term damage, and typically involves:
- Reviewing the current tax profile, including legacy structures;
- Defining the organisation’s appetite for tax risk within a formal policy framework – informed by an analysis of its stakeholders and their needs (e.g. investors, customers etc); and
- Developing a strategic plan which meets the future needs of the business within this policy framework.
- Identifying potential exposures from legacy activities
Step 2 – An integrated approach to tax transparency
The information that businesses share about their taxes is being examined by a growing range of interested parties. Some companies have responded by explaining their tax position more fully in their financial reporting or other communications. At the same time, regulators are looking to require at least some companies to report more tax information. What should you be doing now to be ready and able to describe your organisation’s tax position?
This step involves:
Understanding your stakeholders – identifying the key internal and external stakeholders: who they are, what they want and how best to deliver it
Making and explaining your case: designing and delivering an integrated approach to tax communication which satisfies the breadth of stakeholders and allows the business to manage the public disclosure of its tax management approach as efficiently as possible.
Gathering the information which is required to drive these communications: understanding the people, processes and systems required and how they should work together to provide robust, high quality financial and tax information.
Step 3 – Making changes
As the strategic goals and operations of a business change over time, so should the tax strategies adopted to support them. In developing these strategies, a close eye needs to be kept on the regulatory environment to ensure that the business not only achieves its commercial aims, but also meets its compliance obligations.
Step three covers how businesses can:
- Critically assess the actual or potential impact of changes in the environment to provide a ‘risk-adjusted’ base case, i.e. the likely outcomes of the tax strategy if no changes are made;
- Review the options and, armed with this assessment and an understanding of any future business plans, determine whether alternative strategies may result in better future tax outcomes; and
- Implement and regularly review the chosen strategies which may involve adjustments to the people, processes and systems of the business, both within finance functions and beyond.
Download the guidance papers below:
- Transparency developments in 2015
- Governance in brief: the Global Tax Reset and the reporting of tax in annual accounts
- Transparency developments in 2014
- Making changes
- An integrated approach to tax transparency
- Major changes in international tax reform and transparency
- How to build a sustainable tax strategy
- Deloitte’s Tax Advisory Principles
- A briefing for non-executive directors