FTSE 100 Companies Flag Impacts of OECD Global Tax Policy Reform

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By Ben Stupples

FTSE 100 companies are signaling knock-on effects of the OECD’s tax policy reform for global businesses, underlining how much the international tax landscape has shifted for large corporations.

Drugmaker GlaxoSmithKline Plc, credit-reporting businesses Experian Plc, and catering company Compass Group Plc have all flagged the impact of the reforms in the past year, according to a review of the largest U.K.-listed companies’ regulatory filings and conference calls by Bloomberg Tax.

Launched in 2013, the Organization for Economic Cooperation and Development’s project to combat base erosion and profit shifting has aimed to curb abusive cross-border tax planning from global businesses. According to OECD estimates, these companies avoid taxes totalling as much as $240 billion.

“BEPS has been a success in how it’s increased tax compliance for businesses,” Andrew Silverman, a New York-based Bloomberg Intelligence tax policy analyst, said June 18. “Companies now have to give up so much more information, which can be used in audits and litigation. That’s really the legacy of BEPS.”

Dispute Time-span

Commenting on the effects of BEPS, Experian and GlaxoSmithKline have highlighted the timeframe of companies’ tax disputes with governments after the launch of the OECD’s 15-action project.

“Tax authorities continue to adopt longer and more formal processes to agree significant outstanding matters,” Nottingham, England-based Experian said in its latest annual report , filed June 15. In some cases, the authorities “are challenging or overturning previously agreed positions.”

Simon Dingemans, chief financial officer of GlaxoSmithKline, similarly said in a July 2017 earnings call that the company has observed more disputes with tax authorities “in a post-BEPS world.”

The Brentford, England-based company will aim to resolve any challenges in “a balanced way,” he added. But they will quite often require provisions in anticipation of quite long periods of dispute.”

BEPS Effect on Rates

Unlike Experian and GlaxoSmithKline, Compass Group has cited the effect of BEPS on its tax rate.

In a Nov. 21 earnings call, Compass Group Finance Director Johnny Thompson said BEPS-related laws had pushed up the Chertsey, England-based company’s 2017 tax rate by 1 percent.

Compass Group’s 2017 annual report, published Dec. 18, adds that the U.K.'s introduction of limits to inter-company financing structures last year could raise the company’s tax rate by 1 percent in 2018.

This new legislation derives from the BEPS project’s Action 4 , aiming to prevent multinationals from building up debt and subsequent interest payments to reduce their taxable income. Overall, enforcing global tax reports has been the BEPS policy that governments have adopted most widely, providing unprecedented transparency of multinationals’ data for each country in which they operate.

“For tax people, BEPS was huge—all that everyone was talking about when it came out,” Silverman said. “Since then, though, it’s faded slightly, partly due to the focus on Brexit and U.S. tax reform.”

Tax ‘More Onerous’

While they haven’t focused on the BEPS project, other companies listed on the U.K.’s benchmark stock index have commented on changes in the international tax landscape for multinationals.

In its 2017 annual report, filed March 2, Switzerland-based mining conglomerate Glencore Plc said it faced “increased scrutiny” from governments over “perceived aggressive tax structuring.”

On the same day, London-based packaging and paper group Mondi Plc made similar comments.

For multinationals, the “international tax environment is becoming more onerous, requiring increasing transparency and reporting and in-depth scrutiny,” Mondi said in its latest full-year results .

Talking More on Tax

Amid this changing environment, FTSE 100 companies are talking more about international tax.

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.

“Tax is complex and hard for the public to understand, but you’re seeing multinational companies explain issues like their transfer pricing,” Janet Kerr, senior tax analyst at PwC, previously told Bloomberg Tax. “Over time, doing so will go towards helping people understand tax and the debate around it.”

To contact the reporter on this story: Ben Stupples in London at bstupples@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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