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Ernst & Young and the CBI lobby against country by country reporting

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The “fair tax” debate is progressing at such a pace that increased tax transparency in some form is inevitable, but multinationals need to act now to steer the debate towards a “more workable and effective long-term solution” than mandatory country by country reporting for all sectors, according to Ernst & Young.

The firm’s warning came as the Financial Times reported that John Cridland, CBI director-general, voiced concern about country by country reporting, an idea “being considered in Downing Street”.

The reform is advocated by the Tax Justice Network and the “Enough Food for Everyone IF” campaign backed by more than 100 organisations including leading charities.

Businesses should only engage in ‘reasonable’ tax planning, says CBI

“Lack of tax transparency has become firmly linked in the public’s mind with aggressive tax planning,” said John Dixon, Ernst & Young’s UK head of tax. The UK has reached a “tipping point” and companies can no longer ignore calls for greater disclosure, he said.

“With only six of the FTSE 100 companies specifically stating that they use no artificial or aggressive tax structures in their report and accounts, it’s perhaps understandable to see how this has happened … We are actively advising our clients to embrace the issue proactively, rather than waiting for legislation to be imposed.”

The firm said many companies were concerned that mandatory enforcement of “raw” country by country reporting across all sectors would add “little, if any, understanding of their tax affairs”. Published information “could potentially be commercially sensitive or misinterpreted”, it said in a report Tax transparency – Seizing the initiative, published yesterday.

Only 20% of the FTSE 100 companies describe their tax strategy in their annual report and accounts, the report said, but a recent survey suggested that 70% of tax professionals were against country by country reporting.

Dixon added: “We aren’t in favour of a one size fits all approach. The concept of tax transparency will mean different things for different organisations. Companies will need to form their own views on additional voluntary disclosure and how to get their messages across appropriately. But we are confident that the benefits of building greater trust with stakeholders will far outweigh the cost and resources needed for greater tax transparency.

“If there isn’t a step change in the level of voluntary reporting it seems likely that mandatory changes will inevitably follow. By seizing the initiative now, organisations can help shape a workable outcome and start to rebuild the public’s trust in UK business.”

Tax principles

Businesses should seek to “increase public understanding in the tax system in order to build public trust in that system”, the CBI said in a statement of seven tax principles for UK businesses, also published yesterday.

“[Businesses] should consider how best to explain more fully to the public their economic contribution and taxes paid in the UK. This could include an explanation of their policy for tax management, and the governance process which applies to tax decisions, together with some details of the amount and type of taxes paid," the CBI said.

The FT quoted Cridland as saying that while much would depend on the detail of any plan, “at the extreme, it could be lists of numbers like a computer printout that would leave you with more questions than answers”. He added: “We don’t want to put them [business] in a straitjacket.”

Responding to the CBI statement, Kevin Nicholson, head of tax at PwC, said: "Greater transparency on tax is crucial if businesses want to move the tax debate forward.”

Tax planning

UK businesses should only engage in “reasonable tax planning that is aligned with commercial and economic activity and does not lead to an abusive result”, the CBI said.