14 October 2016
Global Tax Alert
UK requires
certain businesses
to publish UK tax
strategy
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Executive summary
The UK Finance Act 2016 contains legislation requiring certain businesses
to publish their UK tax strategy on the internet. This requirement applies for
periods commencing after the date of Royal Assent to the Finance Act, i.e.,
15 September 2016.
Any multinational group with a turnover in excess of €750m and at least one
UK subsidiary or a UK permanent establishment (PE) will be required to publish
its UK tax strategy. There is no de minimis level in respect of the UK operations.
The tax strategy must be published publically online by the end of the first
accounting period the rules apply to and there are penalties for non-compliance.
The rules within Finance Act 2016 also give the UK Treasury the power
to require the inclusion of a country-by country report in the tax strategy.
However, this power has not been exercised and it is expected that the UK
Treasury will only act if multilateral agreement is reached on public disclosure
of such reports.
The legislation imposes a financial penalty for non-compliance, and businesses
will need to consider the potential reputational impact associated with noncompliance.
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Global Tax Alert
Detailed discussion
Which businesses does this legislation impact?
The rules concerning the entities in scope are lengthy, but
in broad terms the following entities are likely to have a
requirement to publish a tax strategy:
•UK sub-groups of and subsidiaries/PEs of multinational
groups with €750m global turnover (i.e., those that fall
within the country-by-country reporting (CbCR) requirement
•UK headed groups, some specific UK sub-groups and
standalone UK entities (including companies and
partnerships) with at least either £200m turnover or
£2bn assets
A key point to note is that there is no de minimis level for
the UK entities which are part of a €750m turnover group.
A UK company, sub-group or PE which is part of such a
multinational group has the obligation to publish a strategy,
even if the level of activity in the UK is minimal.
What should the tax strategy contain?
The legislation stipulates that the business’s published tax
strategy must cover the following points:
•Approach to risk management and governance
arrangements in relation to UK taxation
•Attitude of the business towards tax planning (so far as
affecting UK taxation)
•Level of risk in relation to UK taxation that the business is
prepared to accept
•Approach of the business towards its dealings with HM
Revenue & Customs (HMRC)
When does the tax strategy first have to be
published?
As noted above, the first period covered by the rules will be
the first accounting period beginning after 15 September
2016 (the date of Royal Assent). Affected businesses
will have to publish their strategy by the end of the first
accounting period, although the document will need to detail
the strategy that has been in place throughout the period.
How should this be published?
The tax strategy must be published on the internet. After
its first publication, the strategy must be published for the
period covered by the business’s annual report or accounts,
before the end of each current financial year and within
certain designated time limits.
Requirement to publish CbCR data
The legislation contains a provision allowing HM Treasury to
bring forward regulations requiring CbCR qualifying groups
to include a country-by-country report in their published
group tax strategy. These regulations, if introduced, will
align with the existing UK regulations for CbCR but would
effectively extend those regulations as they would require
public disclosure which is not envisaged by the current
CbCR model.
The Government has said that it is committed to public
CbCR but believes that the power should be used to deliver a
“comprehensive and effective model [of public CbCR]....that
is agreed on a multilateral basis.” Finance Act 2016 does
not set out a timeframe or detailed rules for public CbCR. It
remains uncertain what level of multilateral agreement will
be required for the Government to consider implementing
this provision in future.
Questions businesses are addressing
The tax strategy requirement will mean that the governance
and risk management of businesses will be publicly available,
as well as available for HMRC to compare against what is
actually happening in practice. Some of the questions that
businesses are addressing in preparing their strategy are
as follows:
•Which entities in the group come within the legislation and
when?
•Which stakeholders need to be involved in developing the
tax strategy (e.g., Board, marketing, tax function)?
•Should a global or country-specific strategy be produced
(HMRC permits a global strategy if it covers the UK
requirements and governs the approach to UK taxation)?
•How will the strategy be used in practice in the business
and what controls will be put in place to ensure adherence
to the statements?
•Should additional contextual information be added to the
strategy over and above the legislative requirements, for
example the total tax contribution?
•Does the strategy sit well with other requirements which
concern tax transparency and governance, for example
CbCR/Transfer Pricing master and local files/Senior
Accounting Officer certification?
Global Tax Alert
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United Kingdom), London
• John Georgiou
• Vy Vamadevan
+44 20 7951 2831
+44 20 7951 5567
Ernst & Young LLP (United Kingdom), Birmingham
• Paul Dennis
+44 121 535 2611
Ernst & Young LLP, UK Tax Desk Leader, New York
• James A. Taylor
+1 212 773 5256
[email protected]
[email protected]
[email protected]
[email protected]
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