CBI publishes "principles" of responsible businesses' approach to tax

Out-Law News | 08 May 2013 | 9:36 am | 2 min. read

The Confederation of British Industry (CBI) has encouraged UK businesses to engage only in "reasonable tax planning" that "does not lead to an abusive result" as part of a new statement on corporate taxes.

The trade body is encouraging all companies operating in the UK to follow its seven "principles", which also emphasise the need for relationships between businesses and HM Revenue and Customs (HMRC) to be "transparent, constructive and based on mutual trust".

Professional services firm Ernst and Young has also added to the calls for greater transparency from businesses in relation to their tax affairs. A new report (52-page / 2.6MB PDF) produced by the firm's head of tax, John Dixon, said that companies should "seize the initiative" before public pressure led to "mandatory changes".

Tax expert Heather Self said that the CBI's statement was a "very welcome attempt to bring balance to the public debate on tax", which would help politicians and other commentators to be "better informed on what is a complex area".

"For example, energy companies have been criticised for supposedly low tax bills, but this criticism ignores the fact that these companies were using tax reliefs on offer from the Government to promote infrastructure project investment," she said. "Without capital expenditure tax reliefs, some infrastructure projects would never get off the ground."

"The recent corporate tax debate frequently seems to have strayed into big business-bashing. Some of these attacks on businesses demonstrate a lack of understanding of how our tax system operates and what it has been designed to achieve. There are always two sides to every argument - it's time now for businesses' voices to be heard," she said.

The CBI's statement makes it clear that UK businesses should be able to respond to "tax incentives and exemptions" as part of a responsible tax planning policy. It also recognises a need to "increase public understanding" in the tax system in order to "build public trust". It calls on businesses to "consider how best to explain more fully to the public their economic contribution and taxes paid in the UK", for example by explaining their tax management policies and the governance process that applies to their tax decisions.

"Tax is a business expense which needs to be managed like any other, and therefore businesses may respond to legitimate tax incentives and statutory alternatives offered by governments," the CBI said, setting out the basis for the new Principles. "UK businesses contribute significantly to the UK economy and pay a substantial amount of tax comprising not only corporation tax, but also National Insurance, business rates and other taxes."

The Principles also call on businesses to take decisions on tax in a "reasonable" way, consistent with "a relationship of cooperative compliance" with HMRC. Businesses should be "open and transparent" with HMRC about their tax affairs and "work collaboratively" with the authorities to come to early agreement when a dispute arises.

Businesses operating internationally should follow the terms of the UK's Double Taxation Treaties and relevant guidelines from the Organisation of Economic Cooperation and Development (OECD) when dealing with issues such as transfer pricing and taxable presence, the CBI said. They should also "engage constructively in international dialogue" on the review of global tax rules, it said.

Tax expert Heather Self said that misunderstandings in relation to tax reliefs had led to MPs, such as those on the Public Accounts Committee, criticising the use of laws they had passed.

"Where corporation tax bills are below the headline rate, it is often because businesses have made use of tax reliefs that were designed by politicians to incentivise positive behaviour, especially investment," she said. "It makes no sense for MPs to pillory companies for responding to the tax incentives created by Parliament."

The CBI has also published a document setting out 12 misunderstood concepts in relation to corporation tax. It said that it is important that “the Government's recent good work to make the UK more competitive”  is not undermined by “a misinformed debate about business and taxation”.