In a recent panel discussion, Stephen Shay, former U.S. Treasury deputy assistant secretary for international tax affairs, warned U.S. corporate taxpayers that they should no longer assume that their tax strategies will remain secret. He cited recent congressional hearings featuring testimony by Apple Corp. CEO Tim Cook as an example of how a company’s tax strategies could become subject to public scrutiny.
More evidence that secrecy may be a thing of the past comes from across the Atlantic: the UK Finance Act 2016 includes a requirement for large businesses to publish their Tax Strategy online. Beginning September 2016, both UK-headed groups and UK companies (including UK subsidiaries of foreign-headed multinationals) must set out their:
This Tax Strategy document must be published on the internet, in a separate document or as a self-contained part of a wider document (for example, as part of the company’s Corporate Social Responsibility Report). Companies must update and re-publish their Tax Strategy annually. Failure to publish could subject the taxpayer to penalties.
This is part of a broader international trend towards greater transparency in international tax planning matters. Another example is Action 13 of the Organisation for Economic Cooperation and Development’s Base Erosion and Profit Shifting (“BEPS”) project, which includes a requirement for country-by-country reporting of transfer pricing data. This is intended to enhance transparency for tax administrators by providing them with information to conduct high-level transfer pricing risk assessments.
The United States has not been immune to this trend. For example, the IRS has adopted BEPS Action 13 by requiring taxpayers to complete Form 8975, Country-By-Country Report (for tax years beginning on or after June 30, 2016), and attach it to their Federal income tax returns. The adoption by the IRS of Schedule UTP following promulgation of ASC 740-10 (dealing with uncertain tax positions) is another example of the move towards greater disclosure of tax positions.
Finally, advocates of corporate social responsibility or sustainability—whether private organizations or NGOs—have also identified tax as an issue that companies should publicly address. For example, one survey used to create the Dow Jones Sustainability Indices asked companies to identify:
WHAT YOU SHOULD DO
U.S. multinationals should closely monitor the published statements of their U.K.-based subsidiaries to ensure that the statement is consistent with the group’s global tax position. In addition, while the U.S. has not yet gone as far as the U.K. in requiring publication of a company’s Tax Strategy, True Partners Consulting believes that it is only a matter of time before Congress, the U.S. Treasury, and/or the IRS demand additional public disclosure in some form. Companies that fail to plan ahead may be trapped into either unwinding risky transactions or defending them publicly—neither of which is an appetizing option. This may be a situation where creating a tax strategy or tax policy document that has been thoroughly vetted within the company can save significant damage to a company’s reputation.
HOW CAN TRUE PARTNERS HELP?
True Partners Consulting’s corporate and international tax teams offer a combination of a highly experienced tax team and an approach that puts our clients’ needs first. We are prepared to work closely with clients to identify past problematic planning and to develop robust procedures for risk management and governance with respect to future tax planning and structuring.