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Plans for new 'special measures' for tax-avoiding companies

Thursday, 23 July, 2015

HMRC plans measures for tax-avoiding companies

The government has published plans for new tax compliance powers aimed at large companies, including measures to deter 'tax avoidance or aggressive tax planning'.

They include a 'special measures' regime to tackle large businesses that persistently undertake aggressive tax planning, or do not cooperate fully with HM Revenue & Customs. These special measures will produce what HMRC calls 'negative consequences', including:

  • increased reporting and disclosure requirements, for example by allowing HMRC to demand documents as a matter of course instead of having to serve notice for each individual document, or requiring businesses to disclose third-party tax advice it has received that is not protected by legal professional privilege;
  • refusing to provide the business with non-statutory clearances or informal opinions on the level of risk attached to proposed transactions;
  • naming the company publicly as being subject to special measures; and
  • removal of the 'reasonable care' defence, allowing HMRC to impose penalties on the basis that the company's behaviour was careless or deliberate.

Businesses 'will be given a period of 12 months in which to demonstrate a significant improvement in behaviours' or risks entry into special measures. However, those who do go into the regime will stay in for at least two years.

All large businesses would also have a legal duty to publish their tax strategies. According to accountants Ernst & Young, many businesses already have a tax strategy document, but it is not intended for publication. Just over half of FTSE-100 companies publish their tax policies.

'Forcing companies to publish their tax strategies is consistent with HMRC's existing focus on large businesses' tax risk and control frameworks', commented E&Y. 'It also adds an additional layer of transparency coming on top of country-by-country reporting requirements that most companies will not only need to disclose to tax authorities, but which may eventually be made public as well.'

HMRC also intends to publish a voluntary Code of Practice on Taxation for Large Business, which 'sets out the behaviours which HMRC expects from its large business customers'. The government claims the proposed measures are 'designed to drive further behavioural change in the large business population, embedding best practice in tax compliance in the population as a whole […]'.

'It is clear that attitudes to aggressive tax planning are changing', commented Treasury Financial Secretary David Gauke. '[…] the public, investors and stakeholders now expect higher standards of tax compliance and more transparency from large businesses about the way they approach taxation.'

Comments can be submitted until 14 October. The resulting legislative changes will be implemented in the Finance Bill 2016.

Sources