Finn L. Meyer, KPMG: What Constitutes Responsible Corporate Tax Behaviour

What constitutes responsible corporate tax behaviour and how can companies work responsibly with tax?

How to work responsibly with tax

Conference on Tax and Corporate Responsibility

21 June 2012

2© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Taxman hits Motorola with big bill

HP’s offices in Moscow raided as part of investigation into tax evasion

Australia Serves TPG With

$628 Million Tax Bill

Big four banks in $1.7bn NZ tax settlement

Tax Governance: Why?

The impact of getting it wrong can be dramatic!

The tax avoidance story as a morality tale

IRS Accepts Settlement Offer in Largest Transfer Pricing Dispute

Canada Revenue Agency applies a

magnifying glass to financial services

transactions and institutions China Weaves a Tax Net over Offshore SPVs

Merck to Pay $2.3B in IRS Dispute

GlaxoSmithKline Holdings, IRS Reach Largest-Ever $3.4 Billion Tax Settlement

AstraZeneca agrees to pay

£505m to settle 15-year tax

battle


Business Week: Google

Kilde: Business Week


GE: Better share all the rest

G.E. is so good at avoiding taxes that some people consider its tax department to be the best in the world, even better than any law firm's.

One common strategy is maximizing the amount of profit that is officially earned in countries with low tax rates.

Source: Wall Street Journal, February 3, 2011


International Herald Tribune

Kilde: International Herald Tribune

"G.E.'s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world's best tax law firm. Indeed, the company's slogan "Imagination at Work" fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress."

"Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees.At a tax symposium in 2007, a G.E. tax official said the department's "mission statement" consisted of 19 rules and urged employees to divide theirtime evenly between ensuring compliance with the law and "looking to exploit opportunities to reduce tax".


A tax code that works for the wily (nice ships)

Carnival Corp. Would not have much of a business without help from various branches of the U.S. government.

The U.S. Coast Guard keeps the seas safe for Canival's cruise ships.

Customs officers make it possible for Carnival cruises to travel to other countries.

State and local governments have built roads and bridges leading to ports where Carnival's ships dock.

Carnival's biggest government benefit of all may be the price it pays for many of those services.

Over the last five years, the company has paid total corporate taxes - U.S., state, local and foreign - equal to only 1.1 percent of its cumulative $ 11,3 billion in profit.

Source: Wall Street Journal, February 3, 2011


Tax dodgers

Kilde: The Economist, April 30th - May 6th 2011


Tax dodgers

Kilde: The Economist, April 30th - May 6th 2011


Kilde: The Sunday times 11.09.11


Top Companies who gave their bosses more than the firms paid in tax

Kilde: The Sunday times 11.09.11


Vodafone shops blockaded in tax protestAlso happened to Boots

BBC 30. oktober 2010


The secret of IKEA's success

But the firm's ownership structure is opaque.

Critics grumble that its set-up minimises tax and disclosure, handsomely rewards the Kamprad family and makes IKEA immune to a takeover.

The parent for IKEA Group, which controls 284 stores in 26 countries, is Ingka Holding, a private Dutch-registered company. Ingka Holding, in turn, belongs entirely to Stichting

Ingka Foundation, a Dutch-registered, tax-exempt, non-profit-making entity, which was given Mr Kamprad's IKEA shares in 1982.

Kilde: The Economist February 26th 2011


The secret of IKEA's success

After the airing of the polemical documentary on Swedish TV, Mr Kamprad retorted that

"tax efficiency" was a natural part of the company's low-cost culture.

Yet such diligent efforts to reduce the firm's tax burden sit uncomfortably with IKEA's socially conscious image.

Mr Ohlsson is trying to defuse criticism of IKEA's opacity by providing more information on its finances.

Last year the firm published detailed figures on sales, profits, assets and liabilities for the first time ever.

Kilde: The Economist February 26th 2011


Tax Governance: Why?Also an interesting topic in Danish media


Samfundet kræver oplysning og transparens

Business.dk 12. oktober 2010

Dr.dk 11. oktober 2010


Et år senere ……..

Kilde: Børsen den 25. marts 2011


Latest trends

Globally/OECD: Double taxation

Model Tax Convention in respect of avoidance of double taxation

Transfer pricing guidelines

Aggressive tax planning (02/2010 "Tackling aggressive tax planning through improved transparency and disclosure")country by country

"Country-by-country reporting" for multinational (listed) companies (OECD)

Extractive Industries Transparency Initiative (EITI)

IFRS: IAS 12 discussion paper

EU: "A Transparent and Cooperative International Tax Environment" (06/2010)

"Country-by-country reporting" (exposure draft 10/2010)

Disclosures in the financial statements (particularly extractive companies

and the financial sector) (IFRS 6) by country:

Revenue (intra-group and extra-group)

Number of employees

Profit/loss before tax (sub-consolidation?)

Paid taxes (or otherwise paid to the State)

Other disclosures of the relation between the company and the host nation

Other


Latest trends

USA

"Country-by-country reporting" for listed companies in raw material extraction (key figures)

Disclosures of "uncertain tax positions" (UTP) in the financial statements, Sept. 24, 2010

"Only businesses with $100 million or more

in Assets are required to report uncertain

tax positions reflected in their financial

statement income tax reserves."

UK

Senior Accounting officer regulation


Tax comes out of the box: New UK legislation


UK legislation making the Senior Accounting Officer (the SAO -usually the CFO or finance director) of any large company:

"personally responsible for certifying that the tax systems in their organisation are fit for purpose".

The SAO must certify that:

■ policies and

■ procedures for managing tax compliance in each qualifying company for which they have responsibility

■ are adequate and managed by appropiate people.

If this is not the case, the SAO needs to show that action is being taken to rectify any problems.

Tax GovernanceTax comes out of the box: SAO personally responsible


Tax GovernanceTax compliance is a board responsibility

"Tax authorities are using these regulations to reinforce the view that:

■ Tax compliance is a Board responsibility,

■ not just a matter for the tax department".

"They are making tax processes a finance matter.

Tax and finance people have to work together under Board supervision to ensure that liabilities are:

calculated and

reported

correctly".


Tax GovernanceTax in the boardroom: evidence of a risk-based, methodical analysis of the tax issues within an organisation

HMRC is looking for evidence of a risk-based, methodical analysis of the tax issues within an organisation, focusing on:

■ identifying what risks exist,

■ whether appropiate action is being taken to deal with them, and

■ whether this process has been carried out to a level of materiality that is relevant to the size of the tax stream under consideration.


Tax GovernanceSAO certification - problems

"In practice problems tend to arise with taxes

■ on employment,

■ VAT,

■ environmental taxes,

■ stamp duty, and

■ transfer pricing,

where much of the information leading to the final tax calculation is being provided by people who are not tax specialists.

Tax in these areas is complex and it is easy to make a mistake".

Board-approved plan

"Getting endorsement from the Board is possibly the most important part of the whole procedure".


Tax Governance"Dirty" better than "clean"

Senior finance executives concluded that in order to demonstrate clearly that they and their Boards have done a thorough job assessing their tax arrangements, they would choose not to submit a clean certificate.


Tax GovernanceBoard responsibilities

To satisfy yourself that your company:

■ has a robust tax risk management system, and

■ is meeting its obligations under the SAO legislation,

you might want to consider whether you have seen:

■ The Board being engaged with discussions on tax

■ An SAO1) plan endorsed by the Board

■ Board agreement on level of tax risk it is prepared to accept

■ Details of what your company's tax risks are, and where they lay

1) Senior Accounting Officer


Anbefalinger for god selskabsledelse - Risikostyring

8 Identifikation af risici

8.1.1. Det anbefales, at det centrale ledelsesorgan mindst én gang årligt identificerer de væsentligste forretningsmæssige risici, der er

forbundet med realiseringen af selskabets strategi og overordnede mål samt

risici i forbindelse med regnskabsaflæggelsen

8.1.2. Det anbefales, at direktionen løbende rapporterer til det øverste ledelsesorgan om

udviklingen inden for de væsentlige risikoområder og

overholdelsen af evt. vedtagne politikker, rammer m.v.

med henblik på, at det øverste ledelsesorgan kan følge udviklingen og træffe de nødvendige beslutninger.

Kommentar: Rapporteringen til det øverste ledelsesorgan kan bl.a. omfatte tiltag og handlingsplaner, som kan acceptere, eliminere, øge, reducere eller dele disse risici.

Hvor væsentligt bør der rapporteres til den øverste ledelse (Anbefaling 8.1.2) om:

udviklingen inden for :

skat inkl. "compliance", væsentlige, aktuelle eller potentielle skatterisici og/eller skattesager

overholdelse af evt. vedtagne politikker, rammer m.v., herunder

Tax Governance Charter/skattepolitik/-strategi m.v.


Revisionsudvalg skal overvåge, om virksomhedens interne kontrolsystem, eventuelle interne revision og risiko-styringssystemer fungerer effektivt (RL § 31, stk. 2, nr. 2)

Organisationsstruktur

■ Intern kontrol-setup

Bestyrelsesgodkendte retningslinjer m.v.■ Code of Conduct/Code of Ethics /CSR

■ Risikostyring (COSO)

■ Forretningsgange og intern kontrol (minimumskrav)

(f.eks. the 4-eye-principle m.v.) (COSO)

■ Krav til autorisation, godkendelse, attestation m.v.

■ Finans-/treasurypolitik

– It-strategi / it-sikkerhedspolitik

– Skattestrategi /skattepolitik /Tax Governance

■ Intern revision ? (refererer til revisionsudvalg)

■ Whistleblower-politik ?

■ Andre politikker

Direktionsgodkendte retningslinjer m.v.■ Regnskabs- og rapporteringsmanualer

■ Risikostyring (metode/proces) (COSO)

■ Forretningsgange og intern kontrol (minimumskrav)

(4-eye-principle) (COSO)

■ Krav til autorisation, godkendelse, attestation m.v.

■ Controlling (refererer til direktionen)


Tax Governance og samfundsansvar - CSR

Redegørelse for samfundsansvar (ÅRL § 99a) (Dansk lovgivning i 2009) I lovpligtig redegørelse oplyses:

– Politikker

– Hvordan politikker omsættes til handling

– Vurdering af, hvad der er opnået, samt forventninger

– Har selskabet ikke politikker for samfundsansvar, skal det blot oplyses i ledelsesberetningen

Komitéen for god selskabsledelse

– Anbefaler at vedtage politikker for samfundsansvar (2.2.1.)

■ Herved omfattes selskaberne af ÅRL § 99a

■ Ikke yderligere oplysningskrav


Income tax - IAS 12

The Accounting Standards Board (ASB) and European financial Reporting Advisory Group (EFRAG) have published a discussion paper on the financial reporting of income tax under IAS 12 "Income taxes" and how it could be improved.

Proposals include,

1. Possible changes to the reconciliation of tax expense

2. Revisions to the requirements in resepect of uncertain tax positions

3. Whether deferred tax should be discounted

The paper also discusses alternative approaches that could form the basis for a new standard to replace IAS 12.

The paper is open for comment until 29 June 2012


Tax Governance CSR (Corporate Social Responsibility)

Increased focus on CSR (and tax) globally requires that special attention must be given to tax issues and governance also in relation to CSR.

Important questions:

How is tax included in the enterprise's CSR strategies and reporting?

Standards?

Documentation of the enterprise's reporting?

Connection:

CSR reporting and

Financial statements


Tax GovernanceCompliance with laws and regulations, tax planning, etc.

Policy/guidelines for: Compliance with laws and regulations

Tax planning, "tax optimisation", etc., including general framework

Requests for "binding replies", etc., from tax authorities

Use of tax consultants, etc., and/or tax opinions

Collaboration with authorities

Replies to tax inquiries

Treatment of tax cases


Tax GovernanceOrganisational procedures, tax department, etc.

Management embedding of tax (e.g. in the Executive Board)

Organisational position of those responsible for tax, a possible tax department and its management in the group and in the group's subsidiaries

How are qualified professionals attracted, retained and developed (upskilled) at different levels in the group?

When, to whom and how are tax and tax risks reported in the company/group, including to the Executive Board, Board of Directors/Audit Committee?

Tax department

Must a tax department be established?

To whom will the tax department be responsible?

How will the tax department be managed and staffed (tax qualifications)?

What will a possible tax department be responsible for and involved in?

Day-to-day operations/transactions/structuring

The function of the tax department in relation to subsidiaries and their tax position?


Tax GovernanceIncome tax return and financial reporting

Income tax return, etc.

Preparation

Quality control

Submission/filing

Transfer pricing documentation (defence file) in relation to intra-group transactions and other relevant documentation

Financial reporting (financial statements, interim reports, etc.)

Reporting

Compliance

Tax risks, etc. (uncertain tax positions)

Summary, including valuation of deferred tax, etc. (tax risks)


Tax GovernanceFinancial reporting/IFRS/IAS 12

How and on what basis are the following items recognised in the financial statements?

Tax (current and paid)

Deferred tax

Deferred tax assets, including valuation allowance, basis

Provision for tax risks, including interest and/or fines, etc.?

Documentation of accounting estimates regarding deferred tax assets, tax risks, outcome of tax cases, etc.

Compliance in relation to IFRS?

Prepared for:

Country-by-country reporting, etc.

Uncertain tax positions, etc. (UTP)


Tax Governance - Conclusion

Increased focus on tax

Openness and transparency, CSR and good citizenship

Involvement of those charged with governance

Tax must comply with the general principles of corporate governance:

Good corporate governance and

Good tax governance

are gaining ground!

OECD Principles of Corporate Governance VI. The Responsibilities of the Board:

"Another important board responsibility is to oversee systems designed to ensure that the

corporation obeys applicable laws, including TAX, competition, labour, environmental,

equal opportunity, health and safety laws."

Denne præsentation indeholder alene en generel gennemgang af et emne, som KPMG efter aftale kan yde nærmere rådgivning om. Selvom fejl og mangler i præsentationen er forsøgt undgået, kan KPMG ikke påtage sig noget ansvar for dispositioner, som foretages uden vores forudgående rådgivning.

© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).

Economy & Finance

Finn L. Meyer, KPMG: What Constitutes Responsible Corporate Tax Behaviour