Sustainable business topics | |

Ethical taxation - short version - do not publish

Ethical taxation increasingly features on the business agenda across all sectors, driven in part by the recent legislative focus on anti-tax avoidance measures and increasing public scrutiny, but also by a desire from within businesses to “do the right thing” on taxation matters.

There has been a raft of new anti-avoidance and tax compliance legislation within a relatively short period of time, including a range of new reporting regimes. HMRC is backing up this legislation with a marked increase in investigations, and we expect this trend to continue. There is only one direction of travel when it comes to ensuring businesses "pay their fair share”, especially given the large black hole in the public finances caused by the COVID crisis. Businesses should make sure that they are up to date on the latest measures.

The Budget 2020 also addressed environmental taxes, with headline-grabbing measures such as a new tax on plastic packaging from April 2022. The UK Government committed in June 2019 to bring net UK carbon emissions down to "net zero" by 2050; by its own admission at the time, one of the most ambitious targets in the world. The Government's stated strategy is to create "high-skill, high-wage, low-carbon jobs", and tax policy will play a key role in seeking to influence the momentous behavioural change required of both businesses and consumers to meet this ambition. All businesses will need to consider the impact of the significant and far-reaching fiscal changes expected in this area.

Legal and regulatory overview

The UK tax legislative framework now contains a significant number of anti-avoidance regimes. In addition to targeted anti-avoidance measures such as the new off payroll working rules (postponed until 2021) there are wide-ranging provisions including the GAAR (general anti-abuse rule), extensive disclosure regimes including DOTAS, FATCA/CRS and DAC 6, and other tax compliance measures such as the requirement for large companies to publish a Tax Strategy, the senior accounting officer rules, HMRC's co-operative compliance framework and the code of practice on taxation for banks. And in 2017, the Government introduced a new corporate criminal offence of failing to prevent the facilitation of tax evasion.

On the horizon, in addition to the off-payroll working rules, the Government is also seeking to impose a requirement on large businesses to notify HMRC of any uncertain tax positions taken by the business, i.e. those which HMRC would be likely to challenge. Tax professionals should also be aware of the current consultation looking at raising standards in the tax advice market.

Risks

An increasing number of regimes require information to be reported directly to HMRC and also, in some cases, to investors, investee companies, or financial institutions. Businesses must determine which transactions are reportable and how best to respond to requests for information. Failure to meet these reporting obligations carries the risk of reputational damage as a result of action taken by HMRC and increased press scrutiny.

The Government is increasing the number of HMRC compliance officers, so a corresponding increase in the number of enquiries into the compliance of businesses is to be expected. For example, HMRC has indicated that it is currently investigating a number of businesses under the corporate criminal offence of failure to prevent the facilitation of tax evasion.

Opportunities

Some compliance regimes require businesses to take proactive steps to set out their approach towards tax avoidance, which enables them to highlight their sustainable credentials. Options to engage with HMRC at an early stage, including via customer compliance managers, can enable businesses to develop a more productive relationship with HMRC.
Developing a business-wide policy on taxation, ensuring a consistent approach from the ‘top down’, careful monitoring of compliance with all relevant reporting regimes and including appropriate provisions in contracts to allocate risk and responsibility in relation to tax matters all indicate best practice in this area. Where external advisors are taking the lead on compliance with reporting requirements, on transactions, for example, it is important to ensure advisers are coordinating with each other and adopting a consistent approach.

Businesses should consider the following key areas:
- Maintaining an up to date risk assessment and appropriate policies and procedures to give the best possible defence to the corporate criminal offence and providing relevant training to all employees on tax compliance issues, at a level appropriate to their role and level of responsibility;
- Reviewing (alongside advisers) historic transactions to ensure compliance with reporting requirements under DAC 6, a new regime requiring businesses to disclose certain cross-border arrangements which have occurred since 25 June 2018; and
- Developing business plans and making contractual commitments in a way which factors in ethical tax trends, such as the potential impact of new green taxes on business models and sustainable growth strategies.
Our Tax team provides support to corporates, investors, asset managers, funds and pension schemes on a wide range of ethical tax matters, both in respect of specific transactions and also as part of a wider package of support to individual businesses. This work includes:
- Market knowledge – we can provide insight on the latest market practice in this sensitive and ever-changing area, and support and advice on general tax compliance and HMRC’s latest thinking and consultations. We work with our clients at a strategic level in this area to help them develop a ‘top down’ approach to tax ethics.
- Advice – we provide tailored advice on applicable tax regimes and reporting requirements, for example, helping to formulate bespoke policies in relation to the corporate criminal offence of failure to prevent facilitation of tax evasion. We also advise on the allocation of risk and responsibility for tax compliance between parties and stakeholders in commercial transactions.
- Training – we offer training to clients across their organisations (at all levels) to understand the ‘top down’ approach to tax ethics, and the key regimes to be aware of.
- Policies – we can advise you on the content and strategic focus of your tax policy, taking account of current considerations and the likely shape of longer term tax regulation.
- Enquiries – we can advise you during all stages of an HMRC enquiry, from advising on responses to initial requests for information (including balancing data protection and other legal obligations), to drafting responses to HMRC correspondence.

Advising listed companies on setting up and operating hardship funds for their employees.
Advising listed companies on the waiver of salary/bonus/directors’ fees in lieu of charitable donations.
Advising an international organisation operating in the environment sector on certain tax matters on a pro bono basis.

Advising a range of different clients including FTSE 100 companies on their policies and procedures to provide the best possible defence to any allegation of a failure to prevent the facilitation of tax evasion.
Assisting several large businesses with the publication of their tax strategies.
Pro bono work with the Chancery Lane Project on the tax side – the aim being to use legal solutions (through contractual and legislative drafting) to promote a greener tax system.