Large corporates need to consider how they can be more transparent in their tax reporting in order to illustrate the ‘bigger picture’ and prevent the tax debate turning into a witch-hunt, KPMG warned ahead of the publication of a Commons public accounts committee report on tax avoidance by some large multinationals.
The committee, which has been critical of both HMRC and senior executives from Amazon, Google and Starbucks, will publish its report on Monday, two days before George Osborne delivers his autumn statement.
Osborne asked the OECD last week to ‘work quickly to address the changes in global business practices that allow tax avoidance to occur’, and directors of John Lewis, Morrisons and Sainsbury’s have warned that the current system is giving some multinationals an unfair competitive advantage over UK-based businesses.
General anti-abuse rule
KPMG said 60% of senior tax executives responding to a recent survey were in favour of a general anti-abuse rule (GAAR) targeted against ‘highly abusive or artificial tax planning’. The government is expected to announce shortly the outcome of consultation on a proposed GAAR, but it is widely recognised that the rule is not designed to catch tax planning by multinationals using tax havens or low-tax jurisdictions to minimise their corporation tax bills.
However, KPMG said the survey revealed concern that as currently drafted the GAAR is likely to catch ‘legitimate tax planning and commercial transactions’. The vast majority of respondents wanted a clearance system, and 42% said they would pay a fee for such a system.
Jane McCormick, head of tax at KPMG in the UK, said: ‘This desire for clearances and willingness to pay for them demonstrates corporates’ desire for certainty over tax issues. The general support for the GAAR also shows business is listening to the public debate about tax and is willing to engage. But in order to inform that debate, corporates must start thinking about how they could be more transparent in their reporting to provide more information on their tax affairs.’
Tax report
McCormick added: ‘Indeed in the current debate we have seen the tendency to assume a low tax rate must imply unacceptable tax planning which is not necessarily the case. However, without transparency, it is very difficult to understand what is going on in tax.
‘We believe that corporates are going to have to embrace transparency to explain what taxes they are paying and where they are paying them. By doing so they will also illustrate how their presence contributes to the economies in which they operate whether that be by generating employment (income taxes), sales (indirect taxes), paying business rates or through corporation tax.
‘Pulling that data together is not always straightforward but forward thinking corporations, especially in the extractive industries where this has been a focus of recent activity, are already doing so. We predict that a tax report will, in time, become as much a feature of the annual report as a corporate social responsibility statement is today.
‘With improved transparency on tax, hopefully the “bigger picture” of how a business-friendly tax system can attract corporates will emerge demonstrating how the UK’s ambition to create the most competitive tax regime in the G20 can play a key role in rebuilding the economy and fuelling the recovery. The risk is that without this transparency, the current debate may turn into a “witch-hunt” deterring businesses from investing in the UK.’
Large corporates need to consider how they can be more transparent in their tax reporting in order to illustrate the ‘bigger picture’ and prevent the tax debate turning into a witch-hunt, KPMG warned ahead of the publication of a Commons public accounts committee report on tax avoidance by some large multinationals.
The committee, which has been critical of both HMRC and senior executives from Amazon, Google and Starbucks, will publish its report on Monday, two days before George Osborne delivers his autumn statement.
Osborne asked the OECD last week to ‘work quickly to address the changes in global business practices that allow tax avoidance to occur’, and directors of John Lewis, Morrisons and Sainsbury’s have warned that the current system is giving some multinationals an unfair competitive advantage over UK-based businesses.
General anti-abuse rule
KPMG said 60% of senior tax executives responding to a recent survey were in favour of a general anti-abuse rule (GAAR) targeted against ‘highly abusive or artificial tax planning’. The government is expected to announce shortly the outcome of consultation on a proposed GAAR, but it is widely recognised that the rule is not designed to catch tax planning by multinationals using tax havens or low-tax jurisdictions to minimise their corporation tax bills.
However, KPMG said the survey revealed concern that as currently drafted the GAAR is likely to catch ‘legitimate tax planning and commercial transactions’. The vast majority of respondents wanted a clearance system, and 42% said they would pay a fee for such a system.
Jane McCormick, head of tax at KPMG in the UK, said: ‘This desire for clearances and willingness to pay for them demonstrates corporates’ desire for certainty over tax issues. The general support for the GAAR also shows business is listening to the public debate about tax and is willing to engage. But in order to inform that debate, corporates must start thinking about how they could be more transparent in their reporting to provide more information on their tax affairs.’
Tax report
McCormick added: ‘Indeed in the current debate we have seen the tendency to assume a low tax rate must imply unacceptable tax planning which is not necessarily the case. However, without transparency, it is very difficult to understand what is going on in tax.
‘We believe that corporates are going to have to embrace transparency to explain what taxes they are paying and where they are paying them. By doing so they will also illustrate how their presence contributes to the economies in which they operate whether that be by generating employment (income taxes), sales (indirect taxes), paying business rates or through corporation tax.
‘Pulling that data together is not always straightforward but forward thinking corporations, especially in the extractive industries where this has been a focus of recent activity, are already doing so. We predict that a tax report will, in time, become as much a feature of the annual report as a corporate social responsibility statement is today.
‘With improved transparency on tax, hopefully the “bigger picture” of how a business-friendly tax system can attract corporates will emerge demonstrating how the UK’s ambition to create the most competitive tax regime in the G20 can play a key role in rebuilding the economy and fuelling the recovery. The risk is that without this transparency, the current debate may turn into a “witch-hunt” deterring businesses from investing in the UK.’
