Tax Technology Forum - 29th April 2009 at the IoD - Review

The first Tax Technology Forum, hosted by Talentpool Selection, was held at the Institute of Directors on Wednesday evening this week.

Following initial welcome drinks and opportunity for networking / reacquainting with ex-colleagues, the event got straight into the discussion on current issues and challenges faced in tax technology, and what we could expect in the future.

There was a panel of six experts, highly experienced in the field of tax technology and accounting systems, answering questions and queries from a room of 35 tax and/or tax technology professionals.

The panel was:

Andrew Wrentmore – ONESource Tax Provision, Thomson Reuters

Alan James – European Director, Vertex Global Tax Solutions

Graham Tilbury – Independent Tax Technology Consultant

Michael Camburn – Managing Director, Ryan & Company

Ilana Rinkoff – Director of Tax Risk Management Network

Gareth Scanlon – EMEIA Tax Performance Advisory Group, Ernst & Young


Questions raised included:

• My organisation is about to embark on a major finance transformation. We are looking to implement a standardised ERP system with a view to achieving tax automation. What have other companies done on this? We are looking for creative / visionary ideas which are currently being employed in the market.

• Under proposals introduced in the Budget, the Senior Accounting Officer will now be personally accountable for certifying that they have adequate accounting systems in place to ensure the accuracy of their tax computations or face penalties of up to £5,000 plus loss of reputation and Company fines:
- What is meant by 'accounting systems' – would this naturally include the tax technology/IT system?

• What type / size of organisation benefit most from employing an indirect tax solution?

• What are the expectations / predictions for the future in terms of how tax / VAT / PAYE technology will look? Are companies looking to automate tax to the extent they will be operating with a ‘touch of a button’ solution?

• I work in tax with a UK group. From a risk management perspective, what do you advise re filing of our documents / correspondence. What e-filing systems are available?

Quite thorough and well thought out answers were given from a combination of the panel experts. The Senior Accounting Officer personally accountable question was heavily debated, with some conflicting views on what we could expect from HMRC on this. This questions could have potentially filled the whole hour of discussion, rather than the 20 mins it was granted. This really does sound like it will be a major minefield for FDs / CFOs of large companies when the rules kick in, and it was likened to the whole Sarbanes-Oxley regime that came in a few years ago.

The question about the future outlook of tax technology and could we see a 'push of a button' solution was healthily debated between the panelists and the attendees, with the general consensus that this is slightly in the realms of Sci-fi rather than practical realism, and that international businesses are so complex than human input can not yet be replaced by clever machines.

Initial feedback from the event has been very positive:

"Thank you Simon for organizing the event, the event also clearly marked that even with the technology today and virtual communication, people like to discuss and share information verbally and face to face, thanks from Holland"

"A great evening Simon. Many thanks for organizing the event. I made a number of new friends and reconnected with some old ones too. Budget Note 62 seemed a big topic, and one that didn't fit into the time our session allowed, so I'm expecting to see plenty of debate here over the coming days once the Draft Finance Bill has been published and digested."

"Thanks for the opportunity to present; it was very worthwhile from my perspective and actually I have had quite some interest from people looking to “link-in” on LinkedIn which is great testament to such a networking event."

FDs / CFOs - are your tax controls adequate?

The Government announced a number of measures in this week's budget to ensure that businesses and individuals pay the right amount of tax and reduce the opportunity for evasion, avoidance or non-compliance. The clauses which I suspect will be mostly of interest to readers of this blog are:

- it will legislate for the publication by HMRC of the names of both corporate
and individual taxpayers who incur a penalty because they have deliberately
understated more than £25,000 of tax;

- it will establish a statutory requirement for senior accounting officers of major corporates to certify personally that adequate controls to prepare accurate tax computations are in place;

- HMRC will require those who have incurred a penalty for deliberate
understatement of over £5,000 of tax to provide more information about
their tax affairs for up to five years to ensure they have proper systems to be
able to make a correct tax return; and

- HMRC will shortly issue a draft code of practice on taxation for the banking
sector, along with a consultation document.


This will be quite a significant issue for in-house tax functions, and clearly means that the FD / CFO of a business has a personal motivation for shining a torch over the systems and controls that are in place to ensure that the tax computations process is solid, thereby delivering accurate CT returns to HMRC.

This may lead to companies upgrading and investing in better tax technology solutions to put in place greater automation over the tax computations process, thereby increasing accuracy and reducing risk of error through possible out-of-date spreadsheet methods.

This new budget development will certainly be a topic debated at Talentpool's forthcoming Tax Technology discussion evening, to be held at the IoD on 29th April.

WPP confirms tax led relocation to Ireland

Source: AccountancyAge.com

WPP, the world's second-biggest advertising and marketing group, has confirmed it plans to move its official headquarters from Britain to Ireland because of punitive changes to the British tax regime.

A WPP spokesman told Reuters on Sunday the advertising giant was likely to issue a stock exchange announcement this week on its plans to change domicile.

The decision to move offshore will be a huge blow for the Treasury, particularly as Martin Sorrell, WPP chief executive, has acted as an ambassador for British business.

WPP, who paid ₤204m in UK taxes last year and conducts almost 90% of its business outside Britain, estimates the tax regime changes would add tens of millions to its British tax bill.

SG comment: This is quite a big deal for the Treasury as WPP do have such a high profile reputation in global marketing and advertising, and was worthy of a mention by David Cameron in his Conservative party conference speech today.

Tesco faces new tax questions - but why?

Source: AccountancyAge.com

Tesco is facing new allegations that it set up complex structures to avoid corporation tax.

The magazine Private Eye last week published claims that Tesco had set up a financing arm in the Swiss canton of Zug.

The arm helps finance the supermarket's international business. Tax is paid on the interest on the loans it provides at a lower rate in Zug than it would be in the UK, saving Tesco £16m, the magazine said.

Tesco was quoted saying: 'This partnership is used to fund our overseas business. It is common practice for global businesses operating in other markets to fund development in similar ways. We have an open relationship with HMRC and discuss our tax arrangements and planning with them on an ongoing basis. We believe this structure is compliant with the government's controlled foreign companies legislation.'

Tesco is suing The Guardian over reports in that paper that it had avoided up to £1bn in corporation tax through a Cayman Islands structure.

SG comment: I think it very unwise for high profile publications to make allegations about Tesco's tax position. Let's look at the facts - Tesco is a multi-billion and now very international business - because of this, it employs some very bright in-house tax professionals to devise overseas structures that will mitigate the group's tax liability, all of which has to be agreed with UK HMRC. Everyone's a winner - the UK is a winner for having a fantastic and entrepreneurial employer. At the end of the day, Tesco is a commercial enterprise that will look to increase shareholder value, it is not set up to donate corporate tax to the UK treasury. The UK treasury should be thinking of ways to simplify the UK tax rules for companies, thereby stopping them from considering relocating their tax residency elsewhere. I think the Guardian are now paying the price for trying (and failing) to understand Tesco's tax position.

Vodafone Head of Tax views on tax avoidance

Source: AccountancyAge.com

Following my profile of Joel Walters, Group Head of Tax of Vodafone, on this blog back in December 2007, he has recently made some interesting comments regarding tax avoidance. He feels that tax agencies can become too obsessed with the issue.

In an interview with the Chartered Institute of Taxation and The Association of Taxation Technician's journal Tax Adviser, Joel Walters said: 'There is a danger, I think, that multi-national corporations in particular are perceived as avoiding tax in respect of how they structure their operations, and the first thing I'd say is that tax avoidance, defined as not paying the amount of tax the law requires, is actually very rare.'

He added that it was also 'very rare' for tax to drive the business decisions of multi-nationals.

The big numbers involved in tax mean a perception is created that there are big problems. 'That creates an illusion that there are significant numbers of issues. Then I'm concerned to some extent that once this perception begins to permeate the taxing agency, what tends to happen is that the focus comes on enforcing the tax loss in response to what, I think, is largely overestimated tax avoidance, and all the effort goes on enforcement in those areas.'

Vodafone has been at the centre of some of the biggest tax issues in terms of value in recent years. It is involved in a £2bn dispute with HM Revenue & Customs over a Luxembourg subsidiary created to facilitate the Mannesman merger in 2000, and faces a separate action in India too.

Tax issues are about integrity, Walters said: 'A corporation, and individual tax people, must feel that they are comfortable with the actions they have taken and the way they have gone about doing their business.'

WPP take view on UK tax system issue

Source: www.tax-news.com

As if Chancellor of the Exchequer Alistair Darling didn't have enough on his plate with the ongoing credit crunch, it has emerged that yet another FTSE100 firm is considering switching its corporate HQ abroad in protest at the UK's increasingly burdensome corporate tax regime.

Sir Martin Sorrel, head of WPP - the world's second largest advertising firm - told the BBC on Monday that if the Treasury introduced proposed rules to tax dividends earned by companies overseas in the UK, it could tip the balance in favour of relocating the firm's tax residence to a jurisdiction which does not tax such income, with Ireland likely to be top of the list.

"If the measures as is are introduced, ratified, confirmed and implemented, we will be taking a very serious look at the advantages and disadvantages [of moving its tax domicile and headquarters]," Sorrel was quoted as saying.

Sorrel's comments come hot on the heels of decisions by Shire Pharmaceuticals and United Business Media to set up holding companies in Jersey and relocate their corporate HQs to Ireland to cut their UK tax bills.

He went on to point out that WPP already pays a significant sum in tax to the Treasury each year - about GBP200mn (USD394mn) - and the proposed new rules could add tens of millions of pounds to the company's annual tax bill in the UK.

"We are talking about very very significant sums of money," he noted.

UBM follows Shire's tax move to Ireland

Various tax news websites are reporting today that United Business Media (UBM) is doing the same as Shire Pharmaceuticals, incorporating in Jersey and being tax resident in Ireland, with a FTSE listing. Although some camps are calling this blatant tax avoidance, I don't blame them if it is not clear how foreign profits are taxed in the UK, particularly if 85% of your profits are outside the UK. I don't think UBM will be the last FTSE group to announce this type of restructure.

Click here for the full announcement.

Shire Holding relocation - more tax insight

Further to my article last week about Shire changing its residency to Ireland from the UK, an article from www.tax-news.com sheds a little more light on the tax background to the decision. The article also mentions that c.200 companies have relocated their HQ in the last 10 years, which seems a lot more than I thought. I suspect that this number includes US parent groups that have moved their European HQ from the UK to somewhere in Europe, and not purely UK listed groups.

To read the full article, click here

FTSE 100 Shire relocates to Ireland for tax purposes

Source: AccountancyAge.com

The Confederation of British Industry has raised concerns about the UK's anti-competitive tax regime after Shire announced it would relocate to Ireland where tax rules are more favourable for business.

Richard Lambert, CBI Director-General, said: 'We are particularly worried that an uncompetitive corporate tax system is spoiling the UK's attractiveness as a place to do business, and that other internationally-mobile firms will follow Shire's path.'

FTSE 100-listed Shire, the third-largest pharmaceutical firm in the UK, is set to pay significantly less tax by becoming a tax resident in Ireland.

The company re-assured market concerns over the change of residency, saying the change would not affect Shire's UK operations or workforce. But this will mean a loss of income for the Treasury, the Telegraph reported.

A company statement said: 'Shire has concluded that its business and its shareholders would be better served by having an international holding company with a group structure that is designed to help protect the group's taxation position, and better facilitate the group's financial management.'

SG comment: I can't think of any other FTSE listed group to announce this sort of change of residency for tax purposes, it will be interesting to see if any other UK groups follow suit.

BP settles tax in Alaska

Source: Financial Times

BP has agreed to pay Alaska $379m (£191m) to settle a dispute over its corporate income tax liabilities for 2000-02, the US state's governor announced late on New Year's Eve.

Sarah Palin said BP, Europe's second largest oil company, had agreed on December 31 to pay the money. The funds would be deposited in the constitutional budget reserve, the state's main savings account.

The terms and conditions of the dispute and agreement must be kept confidential by law, she added. "I am very pleased with this settlement and appreciate BP's willingness to work with the state of Alaska and come to a fair resolution."

BP confirmed the details of the settlement and said it was glad the matter was resolved.

The payment, on behalf of the BP Exploration (Alaska) subsidiary, is the latest blow to BP which is still under investigation by state officials for last year's oil spill in Prudhoe Bay for which the company has already paid $20m in fines.

Just before Christmas, Ms Palin signed into law a proposed tax increase on the oil industry, boosting the rate from 22.5 per cent to 25 per cent of the net value of oil.

The increase, which is expected to raise the industry's tax bill by $1.5bn next year, led BP to say it was reviewing its investment plans in Alaska.

Doug Suttles, president of BP Exploration (Alaska), said he was disappointed by the tax hike. "This will impact our business plans in 2008."

On December 26, an Alaska superior court judge ruled that BP, ExxonMobil and other oil companies could have their leases for Point Thomson, a gas and condensate field, revoked by the state because they had taken too long to develop it.

The ruling was welcomed by Ms Palin.

Government caving in over CGT proposals

Source: Accountancy Age

Prime minister Gordon Brown and chancellor Alistair Darling are reportedly about to bow to fierce opposition from employer groups against proposed changes of the capital gains tax (CGT) with an offer to revive retirement tax relief for small business owners, possibly for amounts up to ₤100,000.

The turnaround comes one day after the chancellor met with the heads of yet another employer group, EEF, representing engineering manufacturers, who argued the proposed changes to the CGT would be damaging for enterprises by rewarding investment in non-business assets and sent ‘a negative signal at a time when the investment climate, especially for small firms, is set to become more difficult’.

Business owners, who are about to retire and who would be particularly hard hit by the proposed CGT changes, are likely to receive a tax exemption, possibly on the first £100,000 they make, from the sale of their business.

The Treasury is said to still be working out the level, but government sources have told The Daily Telegraph the threshold would run into ‘tens of thousands’ and could be close to a £100,000 limit. Under the old retirement relief fund, which was phased out when new CGT levels were introduced by Labour in 1998, the first £250,000 of a capital gain was tax free, but anything after that was taxed at 40%.


SG comment: I am sensing this whole thing has been such a bad start for Darling as Chancellor, with such a major revolt from UK business. I am wondering how much opinion he actually surveyed from small/medium sized business before these proposals, or perhaps he can't do that, which would be strange? I am also very comforted that UK business can have a major influence on government decisions, which is a relief.

Pre-Budget Report - Business / Corporation Taxes - Impact on Big Business

Putting my very rusty tax technical hat back on, I thought I would quickly review the main changes from Alistair Darling's pre-budget report that will affect businesses:

Capital Allowances - fire safety expenditure / biofuel plants / Plant & Machinery disposal to a non resident

Corporate Tax: disguised interest

Corporate Tax: foreign exchange matching rules

Holiday pay - NIC exemption to be withdrawn

Exemptions for Investment Managers

Landfill Tax

Leasing of Plant & Machinery

Life tax measures

Measuring Tax Losses

Tax simplification for UK/EU VAT rules, anti-avoidance legislation and corporate tax rules for related companies

Spreading of tax relief for pension contributions

Tax treatment of financial derivatives


Whilst I can try to get a grasp of what each of the above measures are trying to do, it is rather beyond me to be able to say whether businesses are better or worse off as a result of the proposed changes. Taking off my tax technical hat and putting on my slightly cynical political hat, I would imagine that the net result is that more business / corporate tax will be paid. Pensioners and second home-owners will benefit as a result of individuals tax changes, which could be nice for votes, but complex corporate tax rules may help to balance the books, whilst at the same time snatching a quite a lot more tax from private equity owners.

For more detailed analysis of the above proposals, you may want to look at:

www.ukbudget.com produced by Deloitte

Views from industry tax professionals on this most welcome