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Improving Large Business Tax Compliance

The UK Government has proposed new measures to improve compliance by large corporate taxpayers in the UK.

A main objective is to deter large businesses from structuring transactions to get a tax result that is contrary to the intentions of Parliament (defined as "aggressive tax planning"). The new proposals are threefold and each could impact on reputation.

  • First, it is proposed that a large business is required to publish its tax strategy in relation to UK tax annually. This would cover a business's attitude to tax risk, its appetite for tax planning (eg approach to aggressive tax planning) and its approach to its relationship with the UK tax authority. The business may also be asked to publish whether it has a target effective tax rate, what this is and what measures the business is taking to reach it. In a move to put tax strategy firmly on the Board's agenda, a named member of the Executive Board will be responsible for owning and signing off the tax strategy.
  • The second proposal is to introduce a new voluntary Code of Practice on Taxation for Large Business which, if signed, would involve agreeing not to structure transactions to give a tax result that is inconsistent with the underlying economic consequences (generally) and not to undertake aggressive tax planning. Further commitments relate to governance and an open relationship with the UK tax authority. It is "voluntary", but, if (as is mooted) there is a requirement for a business to say whether it has signed the code in its published tax strategy, public pressure may play a role in encouraging some companies to sign up. One difficulty is that the UK tax authority will not clear transactions under the code, so there would be some uncertainty after signing up. Banks are already subject to the Code of Practice on Taxation of Banks, so they will not be expected to sign up to this code as well.
  • A third proposal is to introduce "special measures" for those large businesses that persist with aggressive tax planning and/or show a lack of transparency and cooperation with the UK tax authority, whether or not they sign up to the code. This is to be targeted at those showing the most persistent and high risk behaviour. The regime will give a business a number of chances to correct its behaviour and avoid sanctions. However, if behaviour does not change and sanctions are applied, they include being named publicly as being subject to special measures. It is not clear to what extent the new proposals will apply to UK branches of non-UK companies.
Legal and Regulatory Risk Note
United Kingdom