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By Ben Stupples
FTSE 100 companies are talking more about their international tax affairs in conference calls with investors and analysts, underlining the growing importance of the issue for global businesses.
The frequency of analysts, shareholders, or executives of companies listed on the U.K.’s benchmark index citing key global tax issues in conference calls soared from one instance in 2013 to 23 last year, according to data compiled by Bloomberg Tax. In that period, FTSE 100 company executives cited international tax issues on average almost five times more often than investors or analysts.
“In the past few years, we’ve seen a quite a significant uptick for the level of interest in tax from analysts,” Andrew Packman, partner at global accounting firm PwC, told Bloomberg Tax June 7.
International tax has become a topic of focus for governments and multinationals worldwide in the past five years, largely due to the OECD’s project to curb avoidance among global businesses. Over the same period, lawmakers have targeted the tax affairs of multinationals, with the European Union’s executive arm investigating U.S. businesses like Amazon.com Inc. and Apple Inc.
“Partly, that higher interest is because there’s now more tax information out there for multinational companies,” Janet Kerr, a senior tax analyst at PwC, told Bloomberg Tax June 7.
The increase of FTSE 100 companies discussing their international tax affairs in conference calls aligns with the U.K.’s changing environment around tax transparency for global businesses.
Large businesses active in the U.K. had to publish a local tax strategy for their 2017 financial year. The aim of the legislation, introduced in the U.K.’s 2016 Finance Act, was to “get tax into the boardroom” of multinational businesses, a senior government official said in November 2017.
Transparency formed a key part of an Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting project, launched in 2013, to re-write tax policy for multinationals.
Making companies file global tax reports on their activity has been the project’s most widely adopted policy. In 2016, the U.K. became the first country to legislate for public tax reporting.
In addition, the OECD’s BEPS project includes measures that focus on how multinationals set the pricing of their intra-group transactions, known as transfer pricing. For its research on FTSE 100 companies, Bloomberg Tax searched the terms “BEPS,” “base erosion,” and “transfer pricing.”
“There has been a significant increase in transfer pricing reporting requirements as BEPS measures are enacted across the globe,” global accounting firm EY said in a post on the issue.
Ken Almand, partner at U.K. accounting firm Moore Stephens, described transfer pricing in a May 22 post as “the most important international tax issue” for businesses of all sizes. CQ
Some FTSE 100 companies have highlighted the impact of the BEPS project in their conference calls.
In “a post-BEPS world, we are seeing much more activity from tax authorities and challenges and disputes, which ultimately we will seek to resolve in an appropriate way and a balanced way,” Simon Dingemans, chief financial officer of drug-maker GlaxoSmithKline Plc, said in a July 2017 earnings call. “But they will quite often require provisions in anticipation of quite long periods of dispute.”
Compass Group Plc, meanwhile, the world’s largest catering company, cited in a November 2017 earnings call a 1 percent rise its annual corporate tax rate due to changes from the BEPS project.
While FTSE 100 companies are discussing tax matters more in their interactions with shareholders and analysts, the businesses are also disclosing more about the issue through corporate filings.
In fact, 41 FTSE 100 companies went beyond tax transparency reporting requirements during 2017, according to a June 8 report from PwC. The extra information includes comments on reputational issues, and the connection between tax and a company’s business model, the report said.
“Tax is complex and hard for the public to understand, but you’re seeing multinational companies explain issues like their transfer pricing,” PwC’s Kerr previously told Bloomberg Tax. “Over time, doing so will go towards helping people understand tax and the debate around it.”
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