Tax transparency

Is your business transparent on tax?

Question collaborator: Tax Justice Network

GOOD Answers

No GOOD answers have been published for this question.

POOR Answers

No POOR answers have been published for this question.

Taxation is raised by government to fund public goods such as education, health care, and law and order. These services are vital in maintaining strong and healthy societies, and in turn, healthy economies on which business depends. Since individuals and businesses prosper when society prospers, the incomes of both individuals and businesses are taxed to fund public spending. Unfortunately, governments lose many billions of pounds each year due to tax avoidance (which is legal) and evasion (which is illegal). Some methods of avoiding taxes, while technically legal, may suggest limited civic responsibility. Loss of expected tax revenue may result in governments needing to increase borrowing, reduce public spending or increase the tax burden on individuals or other business organisations. This can create forms of unfair competition benefiting tax avoiders at the expense of everyone else.

When it comes to determining how much tax a business pays, larger and especially multinational companies are usually much harder to appraise than smaller firms. This is for two reasons. Firstly, there is often no legal requirement to disclose in either group or individual company accounts how much tax they pay and where they pay it, on a country by country basis. For UK firms, under accounting rules, the tax figure they need to disclose follows the profit disclosures and is therefore a worldwide one – given the multiplicity of tax rates around the world and the fact that they are under no legal obligation to reveal where they make their profits (they simply need to reveal how much they make in total), the worldwide tax data disclosed is often inadequate as a basis for assessment. Second, multinational corporations generate profits across a number of different tax jurisdictions, potentially enabling the exploitation of favourable rules in tax havens and lower tax territories. Third, successive UK governments have changed tax policies to make the UK an attractive holding company location. As a result of tax competition, globally higher world-wide profits do not necessarily result in higher taxes.

This question is designed for UK businesses and organisations that are subject to corporation tax. Those which are not include sole traders, traditional partnerships and limited liability partnerships. The profits of such entities are taxed via their owners/partners and often personal factors (unrelated to the business) have significant impact on the resulting tax due. This question is not designed for unincorporated businesses and such entities may respond NOT APPLICABLE although they are encouraged to take the opportunity to demonstrate transparency regarding their tax affairs nonetheless.

In answering this question, respondent businesses may publish information to supplement the text of any written answer by, for example, referencing other documents and inserting hyperlinks - so long as they are specific, relevant and manageable additions.

All disclosures made in answering this question should be available in the country of the respondent company’s headquarters. All country-relevant disclosures should also be available in each of the relevant local countries and their appropriate languages.

Note – Whether a company is an SME, medium sized or large company is based on EU provisions set out in the Annex to the Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises.

Deferred tax liabilities

'Deferred tax liabilities' generally arise where tax relief is provided in advance of an accounting expense or income is accrued but not taxed until received.

Deferred tax assets

'Deferred tax assets' generally arise where a tax deduction is deferred to a period later than that in which the expense is accounted for or where a company incurs tax losses that can be utilised in future periods.

Tax haven

A 'tax haven' is a country or state which combines a low or zero rate of tax for effectively non-resident individuals and businesses, with a high degree of opacity to obstruct authorities elsewhere from challenging the arrangements. As a proxy, this question uses the Tax Justice Network’s Financial Secrecy Index. Those countries scoring higher than 60 on the index as well as Cyprus, The Netherlands and Ireland are deemed to be tax havens for the purposes of this question. It should be noted that there are a variety of legitimate business reasons for locating in these countries and territories. Respondents to this question which do use them are encouraged to take the opportunity to explain their arrangements.

Answering YES

A) Small and medium-sized businesses (SMEs) MUST

State the amount of profit generated

State the applicable tax rates

State the tax charge and the amount of tax paid and the percentages each of these represents

Explain why, should the tax charge and the cash tax paid/due be different

A) Small and medium-sized businesses (SMEs) MAY

State any philosophies, beliefs or values which influence their approach to taxation

Provide any other relevant information with reference to the answering requirements for larger businesses

B) Large and Multinational Corporations (MNCs) MUST

Explain their tax policy, how they manage their tax risks and the governance procedures put in place to ensure their company pays the right amount of tax in the right place at the right time and where responsibility for tax affairs sits

Explain where they trade and what they are called in each country in which they trade setting out all the countries where they have a subsidiary, legal entity, branch or permanent establishment, listing each at all such locations (including those that are incorporated elsewhere)

Explain their use of tax havens and low tax jurisdictions and how much profit is attributable to their use

Publish the accounts of all their subsidiaries, wherever they might be in the world or explain why this is not done for each such subsidiary

List all entities in which the company has a 25% or greater interest, including the name of the entity, the country in which it is located, its legal form and its principal activity; or explain why this is not done

B) Large and Multinational Corporations (MNCs) MAY

State any philosophies, beliefs or values which influence their approach to taxation

Explain the tax charge in their accounts by:

a) publishing information on the total sales, profits, current and deferred tax charges and tax paid for each material country in which they operate by year (i.e. countries where 5% or more of group's turnover/profits are made or where the company’s activity represents 1% or more of GDP of industry)

b) describing any significant intra-group transactions and the approaches adopted in managing compliance with transfer pricing rules

c) reconciling the current tax/cash tax and total tax charge for each major location where turnover or profits (including intra-group trading) exceeds 3% of the group total with the statutory tax rate for the location for the year

d) provide a breakdown of the group’s deferred taxation liabilities and assets together with an explanation of these amounts to include information on the following: i. how it has arisen; ii. when it might be due; iii. where it might be due; and iv. what events might trigger it being paid

e) or explain if and why a, b, c or d is not possible.

Disclose their risk rating with HMRC (this usually applies to only the 2,000 largest businesses in the UK)

Explain if and why they support the adoption of mandatory country-by-country reporting or not, and whether they would consider publishing their OECD country-by-country reporting template

Describe if and how they engage with third party tax advisers or boutique consultancies and any criteria which governs such engagements

Provide any other relevant information

Answering NO

All Businesses MUST

Explain why they do not or cannot answer YES to this question

All Businesses MAY

Provide any other relevant information

Answering NOT APPLICABLE

All Businesses MUST

State that they are not subject to corporation tax and explain why

All Businesses MAY

Disclose according to the guidelines for answering YES, or as close as possible, or otherwise demonstrate equivalent transparency

DON'T KNOW is not a permissible answer to this question

Version 4

To receive a score of 'Excellent'

Business transparent on tax, adopting best practices and actively supporting multi-stakeholder initiatives to help encourage more effective tax regulation and practices for the modern, global economy

Examples of policy and practice which may support the EXCELLENT statement:

  1. Explains how business aims, values or mission relate to tax practices
  2. Makes clear its determination to contribute to development of better taxation rules, regulations and regimes, both domestically and internally
  3. Provides detailed explanation of tax policies
  4. Fully describes governance and oversight procedures
  5. Fully explains tax charge in accounts
  6. Explains significant intra-group transactions
  7. Provides full break down or explanation of deferred tax liabilities and assets
  8. Explains any use of tax havens / secrecy jurisdictions
  9. Fully explains practices regarding country-by-country reporting
  10. Provides full details of all subsidiaries wherever they are located
  11. Discloses risk rating with HMRC
  12. States how many years of tax returns remain open
  13. Explains any significant unresolved disputes with tax authorities
  14. Awarded the Fair Tax Mark
  15. Discloses its tax accounting to trusted third parties such as NGOs and/or other ‘critical friends’
  16. Lists independent third parties it consults with re tax transparency
  17. Discloses which organisations (e.g. other companies, government, regulators) it has sought to influence towards supporting more tax transparency
  18. Describes how it adopts a leadership position on tax transparency
  19. Discloses total tax payments to government – including all taxes and other payments such as royalties, infrastructure development, etc
To receive a score of 'Good'

Business transparent on tax

Examples of policy and practice which may support the GOOD statement:

  1. Publishes aims, values or mission statements relating to tax practices
  2. Explains in acceptable detail tax charge in accounts
  3. Provides good explanation of tax policies
  4. Provides detailed description of governance and oversight procedures
  5. Provides some explanation of use of tax havens / secrecy jurisdictions
  6. Provides some explanation of its efforts to report on tax country-by-country
  7. Provides useful data on subsidiaries
  8. Clear indication that it recognises tax as a responsibility issue
  9. Meets criteria to carry Fair Tax Mark
  10. Consults with independent third parties re tax transparency
  11. Adopts a leadership position on tax transparency
  12. Provides some information regarding total tax payments to government – including all taxes and other payments such as royalties, infrastructure development, etc
To receive a score of 'Okay'

Business exhibits a degree of transparency on tax

Examples of policy and practice which may support the OKAY statement:

  1. Provides some explanation of tax policies beyond minimum legal requirements
  2. Provides some explanation of governance and oversight procedures
  3. Provides some explanation and/or business position re use of tax havens / secrecy jurisdictions and country-by-country reporting
  4. Recognises tax as a responsibility issue
To receive a score of 'Poor'

Business not transparent on tax

Examples of policy and practice which may support the POOR statement:

  1. Lack of meaningful disclosure
  2. No explanation of lack of disclosure
  3. No statement of future intent