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LAPFF Publishes Tax Risk Profiles of FTSE 100: Results not reassuring
The questionnaire results suggest substantial room for improvement in reporting tax risk, particularly in relation to country-by-country reporting on tax..
London 14.00 (BST) The Local Authority Pension Fund Forum today publishes assessments of responses from FTSE 100 companies on tax risk policies.
The Forum surveyed the FTSE 100 with a qualitative questionnaire on what policies and structures the UK’s largest companies have in place to respond to investor concerns about tax risk. The Forum survey focussed on two issues: one was specific tax risks that corporate behaviour exposes investors to, and the second was tax governance.
Richard Murphy, author of the Report said “LAPFF were concerned that questions on tax need to be asked of the FTSE 100 or they will say investors are not interested. Asking these questions demonstrates, despite the limited range of responses supplied, that there is significant risk for investors inherent in the complacent acceptance of existing reporting standards and behaviour.”
Cllr Kieran Quinn, Chair of LAPFF and also the Greater Manchester Pension Fund said, “The Forum survey based on Richard Murphy’s questionnaire has given us real insight into the challenges and opportunities related to corporate tax payment. Companies now face the requirement of greater transparency in their tax disclosures and the opportunity to engage with their investors to demonstrate why they continue to require the use of tax havens. With increased investor scrutiny we very much hope that more and more companies will reject the use of tax havens and move to a level playing field on country by country reporting and disclosure.”
The survey found that from those respondents who provided limited answers to detailed questions, few gave any real assurance that they had procedures in place to properly assess tax risk: only a small minority of the companies were able to say that they had effective arrangements in place for this purpose.
However among those few, there were some who showed real enlightenment and engagement. What was apparent was that some companies have already perceived the need for change in this area and that investor pressure to ensure that this becomes a major focus of governance concern has been worth pursuing.
Specific tax risks have been the subject of more attention over the last few years than ever before. Companies such as Google, Starbucks, Amazon and Apple have been the subject of a great deal of publicity for failing to pay their perceived fair share of taxes, and that has in turn resulted in significant political attention and understanding of the issues involved. As a result, action is being taken on the issue by the Organisation for Economic Cooperation and Development on behalf of the G7 and G20. The resulting recommendations on how to address this matter were published under the title of tackling Base Erosion and Profits Sharing (BEPS) in 2015.
The LAPFF survey has set out specific questions on issues such as transfer mispricing, the shifting of profit through artificial debt arrangements and the abuse of tax agreements with what are considered to be tax haven tax authorities. To put these in context, Starbucks was accused of the first and third of these, the Luxleaks disclosures concentrated on the second issue and have been linked to many major companies, and the abuse of agreements with tax authorities has been the issue most recently associated with Apple. These issues are not isolated: they are relatively commonplace and are now attracting the attention of tax and market authorities. This survey has sought to find out about the impact for shareholders amongst the FTSE 100.
At the same time the Forum also surveyed the group of companies on attitudes to tax governance. In some cases, the Forum’s questions sought information e.g. on the tax risks that the Companies surveyed think that they face. In other questions it sought to establish whether Boards are now taking tax issues seriously. Perhaps most pertinent – given that many commentators now think it the most important outcome of the BEPS process – is the fact that we have sought to understand companies’ attitudes towards ‘country-by-country reporting’.
The survey has concluded that overall the results have not been reassuring.