Tax Executives Institute (TEI) has provided practical and insightful comments in response to UK’s Large Business Compliance Consultation by HMRC, which is far-reaching. A link to TEI’s comments is provided for reference.
Keith Brockman’s key points:
- The Consultation is focused on UK HQ companies, although the proposals also apply to non-UK based multinationals (MNE’s).
- The underlying principle is unclear, especially for non-UK based MNE’s, and should be amended accordingly.
- A separate UK tax strategy is an unrealistic expectation for most MNE’s, and will provide little relevance if enacted.
- A UK Code of Practice is also unrealistic for MNE’s.
- UK taxes, paid or accrued, generally bears little relevance to the global effective tax rate and is not relevant.
- UK’s current tools of general anti-avoidance rules (GAAR), Senior Accounting Officer (SAO) tax framework, newly enacted Diverted Profits Tax, a Customer Relationship Manager (CRM) and other anti-abuse rules are already in place and would seem to remedy HMRC’s concerns.
- Special measures are subjective and not subject to a formal independent panel for review prior to execution.
- Board-level accountability may not be practical, while the SAO framework may accommodate this proposal.
- Signing, or not signing, the Code of Practice should not be a trigger for public disclosure or risk assessment.
- The Code of Practice includes determinations that transactions meet the intent of Parliament, an inherently subjective test that may be applied at will regardless of the law.
The tax transparency see-saw has now tilted to a dangerous level, in that transparency objectives no longer seem to meet the needs of tax authorities.
Information is being requested to satisfy presumed needs of the public and tax administrations, although similar efforts are not being made to have discussions with taxpayers to better understand tax risk and the relevant functions, assets and risks for which transfer pricing should be based in the relevant jurisdiction.
The UK proposal, and similar initiatives, may indeed erode the trust for which the tax authorities are seeking. It would be a novel concept to include the business community in discussions around these proposals prior to drafting, a welcome initiative that would better represent a win-win opportunity. Additionally, all audits should begin with a formal understanding of the transfer pricing practices of the MNE in that jurisdiction to focus tax queries accordingly and efficiently.
As the UK Diverted Profits Tax model has strayed from the OECD’s intent re: the BEPS Action Items, it has nonetheless been followed by other countries. This proposal may have a similar result, magnifying the concern of MNE’s and merits a detailed review by all MNE’s irrespective of UK business presence. UK’s Large Business Compliance Consultation: TEI’s comments | Strategizing Multinational Tax Risks