The challenges to building a trusting relationship: The changing landscape of tax risk management

Accounting

Speaker:Ann Hansford / Pat Billingham, University of Exeter / Tax Partner at EY (Until 2012) and formerly HM Inspector of Taxes
Date: Wednesday 29 January 2014
Time: 14:00
Location: Pearson Teaching Room, Building One

Further details

Abstract

This paper considers the current relationship between large international companies based in the UK and HM Revenue and Customs (HMRC).  The coalition government since the 2010 election have been eager to present the UK as ‘open for business’ which includes providing a competitive tax environment where UK companies and those moving to the UK can flourish.  In the period since the election the issues around the ethics of tax planning schemes have been of major public concern.  The well publicised hearings before the Public Accounts Committee (PAC) have ensured that Board members, customers, regulators and shareholders now expect to be provided with more detail of company tax policies than was previously required. As a result companies have had to review their tax risk management strategies within a very different conceptual framework. 

This research study looks in detail at how this changing climate has impacted on the relationship between large corporates and HMRC and in particular whether this has resulted in changes to the ‘trust’ relationship. A qualitative methodology has been adopted and this paper presents the outcome of twelve in depth semi structured interviews with Heads of Tax of UK based companies, including FTSE 100 and global corporations.  These interviews lasted between 1 and 1.5 hours.  

 

The findings indicate that building and maintaining a trusting relationship in these very dynamic times depends on the level of trust developed over many years.  A risk averse company that engaged in few, if any, tax schemes over the last 15 years had seen very little change in the trust relationship.  This is in contrast to other companies interviewed where changes were being made to their tax risk management strategies in order to address this new environment.  The concern that activity may have an adverse impact on the company’s reputation has resulted in companies taking a pragmatic approach and making changes.  These can be summarised as the need to consider beyond the tax law, so called ‘law plus’, presentational issues to ensure that the company provides clear and unambiguous information together with reassignment of members of staff within the tax group to ensure a full and defendable audit trail.  Less tax staff are engaged in tax planning and have been reassigned to front line business operations teams to ensure tax issues are involved at the start, and throughout, every major company transaction.

 

During the interviews issues relating to the approach taken by tax authorities in different jurisdictions were discussed.  The paper contrast the impact on the level of trust between large multinationals and tax officials in Australia, USA, UK and other developed Western economies with that in the emerging BRIC countries and Eastern Europe.