Corporate Tax Strategy Strategy

When the Finance Bill 2016 passes through Parliament later this year, it will contain a requirement for large UK companies to publish an annual statement explaining their tax strategy. The irony will not be lost on tax professionals who have been seeking a tax strategy from the Government for as long as they can remember. Putting that aside, what is the rationale for such a requirement – what are the government hoping to achieve?

It is suggested that requiring companies to outline their tax strategy will keep tax on the Board agenda and, more importantly, drive more moral behaviour of companies towards corporate responsibility. This seems sensible at face value but when you consider things further it could easily turn into expensive game of ‘buzzword bingo’ in a company’s financial statements. All companies will state they wish to have ‘open and constructive relationships with authorities’ and ‘work with regulators to resolve issues’ which is somewhat vapid as no-one will state they have destructive relationships or wish that issues remain unresolved. The requirement to get everyone to prepare a tax strategy including the corporation’s attitudes to certain aspects of taxation may end up hiding true attitudes. At present, leading companies already publish detailed strategies whilst others make little or no comment. This highlights the organisations that genuinely are concerned with their social contract whereas mandatory disclosure by all companies may cloud such distinction.

There has been a recent trend towards trying to shame corporations who Parliament feel are not behaving in a way that Parliament likes. This is a poor substitute for good legislation and the requirement for corporations to publish tax strategies is arguably another way of Parliament putting the emphasis for ‘acceptable’ behaviour onto corporations to be judged in the court of public opinion. However, in order to be useful the reports must be read and interrogated by objective organisations who can challenge the understanding and interpretation of the contents. Whilst sympathizing with the challenges facing governments in a world of global corporations, I personally doubt this will make any tangible difference to any given company’s attitude towards tax avoidance.

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