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Greater transparency in corporation tax needs to be provided quickly, say MPs

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Greater transparency over companies’ tax affairs needs to be provided quickly and reporting should be mandatory, the Commons public accounts committee said last week in its report on the role of the large accountancy firms. But MPs appear to have accepted the case against mandatory country-by-country reporting of turnover, profit and taxes, which is advocated by the Tax Justice Network and the “Enough Food for Everyone IF” campaign backed by more than 100 organisations including the Church of England.

The prime minister said last month that EU leaders should also consider how country by country reporting of tax paid could be ‘further encouraged on a voluntary basis’.

The PAC noted that Deloitte had cited FTSE 100 companies’ concerns about costs, complexity and commercial confidentiality. KPMG told MPs that even a trained tax professional would not necessarily be able to understand the tax position from such data alone.

“For example, a company might be paying no tax in a country because it is making significant investment and getting tax relief on those investments,” the PAC said.

Both Deloitte and KPMG believed there was a better way of explaining companies’ tax positions, the PAC noted, adding that “whatever form it takes, which transparency needs to be provided quickly and … reporting should be mandatory”.

The PAC said: “The four firms all agreed that greater openness and transparency are key to restoring people’s trust in the fairness of the tax system, but there is no consensus on how this might be achieved.

“Ernst & Young told us that it did not believe that this could be achieved by requiring companies to file their tax returns alongside their financial accounts, as tax returns are too long and complex to offer transparency. It told us that the information needs to be condensed. It favoured greater information in companies’ statutory accounts, consistent with an existing trend towards greater transparency and would welcome such an approach.”

The government had told the PAC: “HMRC will continue to work in partnership with HM Treasury to ensure strong standards are developed and maintained through relevant international fora such as the OECD.”

HMRC and the Treasury should push for an international commitment to improve transparency, the PAC concluded, developing “specific proposals to improve the quality and credibility of public information about companies’ tax affairs”.

Responding to the PAC report, KPMG agreed that greater transparency over companies’ tax affairs would be “beneficial”. The firm warned last December that large corporates needed to consider how they can be more transparent in their tax reporting in order to illustrate the “bigger picture”. Jane McCormick, head of tax at KPMG in the UK, said: “The risk is that without this transparency, the current debate may turn into a ‘witch-hunt’ deterring businesses from investing in the UK.”

John Dixon, UK managing partner for tax at Ernst & Young, said: “The UK tax system is not broken, but we absolutely do need to rebuild the confidence of the public that the tax system is operating as parliament intended. Greater transparency is fundamental to creating that confidence, as is the simplification of the UK tax code, which everyone agrees has become extremely complex.

“Greater voluntary disclosure by companies is something we have long supported … This includes the provision of more information regarding an organisation’s tax profile in order to give better quality insights for all stakeholders.

“UK corporation tax is only one of the taxes paid by companies. Consideration of the contribution of multinationals to the UK needs to include non-tax factors, such as additional employment and economic growth through substantial investment, as well as the other taxes and levies that are paid.”