Large multi-national corporations have been in the spotlight for exploiting loopholes in double taxation agreements to minimise their exposure to tax. While legal, most developed countries and the OECD deem the planning to be aggressive and the UK government has championed the implementation of the OECD’s recommendations for tax transparency and limiting the shifting of profits into low or zero tax jurisdictions.
HMRC announced in the Summer Budget 2015 that they would consult on new measures to target large businesses that deliberately and consistently undertake aggressive tax planning. Measures will include a voluntary code of practice defining the standards that HMRC expect to businesses to meet as well as special measures for businesses that do not come up to the standard expected.
HMRC intend to introduce legislation so that large businesses will have to publish their board’s detailed tax strategy, its appetite for tax planning and its relationship with HMRC. If businesses are not transparent, HMRC will increase the reporting requirements on the company, including asking for the tax advice sought. Furthermore, the business would be publicly named as subject to these special measures and would not be able to use the defence of ’reasonable care’ if caught by the tax geared penalty regime.
The enhanced transparency for large businesses is designed to deter businesses from entering into tax planning that is deemed to be aggressive and to encourage a low-risk approach to managing tax compliance.
By requiring the entities to provide the board’s tax strategy, HMRC expect to be able to identify at an early stage those businesses that continue to adopt aggressive tax planning strategies and react accordingly. The level of tax at risk is high and in the 2015 annual report, HMRC stated that £7.3bn was recovered from 2,100 large businesses.
The introduction of a voluntary code of practice, in itself, will indicate to HMRC whether a business wishes to be transparent with HMRC.