Tax transparency to whom and for what purpose?
Introduction 1
Today s presenters Janet Kerr - Ray Farnan 3
Agenda Trends in tax transparency Extracts Stakeholder interest in tax UK tax authority developments Tax transparency Introduction 1 2 3 4 5 6 7 8 Living your tax policy Q&A 4
Tax transparency 2
Is tax transparency important for mining companies? Current Issues: - Government / Tax Authority pressure - Narrow tax base - Reliance on mining taxes - NGO pressure - Lack of trust - Public CbCR? Can transparency help? - Lack of transparency can destroy trust - Contribution is broader than tax e.g. employment, suppliers - Some mining companies are leading in the tax transparency area - Wide range of stakeholders - Not the solution there s no silver bullet 6
Stakeholder interest in tax 3
Stakeholder interest in tax... Institutional investors Norges Bank Investment Management: boards should adopt appropriate and prudent tax policies, and companies should be transparent about where they generate economic value. Feb 2017 8
Stakeholder interest in tax... Analysts Tax Authorities The B Team Limited detail means that analysis is often very simplistic Australia: Tax Transparency Code and Justified Trust Analyst wish list: Narrative on tax risks Tax rate reconciliation Geographic tax rate information Allianz, Natura, Maersk, Repsol, Safaricom, Unilever, Vodafone, BHP, Shell 9
Question 1 Greater tax transparency from miners is needed to help inform the debate over the contribution in taxes A Strongly agree B Agree C Disagree D Strongly disagree 10
Trends in tax transparency 4
Transparency in the FTSE 100 for 2017 year ends [7 miners] Approach to tax 95 2017 +29 98 2017 Tax governance 66 2016 +32 66 2016 Transfer Pricing Tax Havens 24 Risk framework 2017 33 2017 25 2017 71 [5 miners] [3 miners] [4 miners] 12
Tax transparency in the mining sector The grey bars represent the percentage of FTSE 100 companies making disclosures in that area. The pink bars represent the percentage of FTSE100 mining companies (7 companies) making disclosures in that area. Approach to tax 95% 100% Tax governance 98% 100% Cash tax reconciliation 24% 43% Total Tax Contribution 37% 57% Geographic reporting 31% 86% FTSE 100 Mining 13
Published standalone tax reports 14 companies in the FTSE 100 published a standalone tax report, 3 mining companies 14
Extracts 5
Some transparency regimes affecting the mining sector Name Region Content Extractives Industry Transparency Initiative Global Payments to governments EU Accounting Directive EU Extractive Sector Transparency Measures Act Canada BEPS action point 13** OECD Payments to governments EU proposals for public country by country reporting*** EU & economic data Transparency Code* Australia Frameworks for tax B Team Global disclosures * Voluntary **Disclosure to tax authorities ***Proposal 16
Question 2 How many business taxes are there in Australia? A Less than 40 B Between 40 and 60 C More than 60 D 17
Total Tax Contribution - number of taxes paid by country 18
Total Tax Contribution 46 Source: Anglo American tax and economic contribution report 19
Tax as part of the broader contribution Source: Rio Tinto taxes paid in 2017 20
Tax and the business model Source: BHP Economic Contribution Report 2017 21
Transparency to whom and for what purpose - a strategic response 1. Transparency to whom and for what purpose? 2. What are you required to disclose? 3. What do you want to disclose? 4. How could you/should you supplement mandatory disclosures with voluntary disclosure? 5. Is this what you do in practice? 22
UK tax authority developments 6
OECD & UK Cooperative Compliance and Business Risk Review Concept builds on the work undertaken at OECD level: Openness and relationship behaviours (e.g. in real time). Governance behaviours (e.g. responsibility, business structure, location). Tax planning behaviours (e.g. underlying economic consequences, intentions of Parliament). Concept of a tax control framework (Strategy, Applied, Resourced, Document, Testing, Assurance). Whether it is SAO, KYC, the Business Risk Review or any other compliance activity, it is increasingly important for companies to be able to demonstrate how their governance and controls operate. SAO what does good look like one pager 24
UK Tax strategy The requirements on a public website covering 4 areas Global v UK and Internal v External stakeholder interaction and consistency Future proof CBCR / business change Strategies published under the new rules 36% inbound and 10% outbound include reference to transfer pricing! 27% inbound and 67% outbound tax strategies are written from a global perspective 55% inbound and 63% outbound mention a responsibility to pay tax where profits arise 68% inbound and 81% outbound are aligned to other external business strategy 100% inbound and 98% outbound go into additional detail on internal tax governance 25
Corporate criminal offences facilitation tax evasion Where an organisation with a UK nexus fails to prevent its associated person from criminally facilitating a UK tax fraud or provided there is dual criminality, a Non-UK tax fraud Where an overseas corporation (with no UK nexus) fails to prevent its associated person from criminally facilitating a UK tax fraud In scope for a UK organisation? In scope for a non-uk organisation? UK Tax Fraud Overseas Tax Fraud If the tax evasion and facilitation are criminal offences in that jurisdiction Dual criminality AND the organisation carries on a business in the UK/Associated Person is present in UK at time of facilitation 26
Living your tax policy 7
Question 3 Do you have a strategy and vision in your organisation for how tax will be managed in 3 years time? A Yes B No C Actually we have a 5 year vision 28
Current state vs vision What others are doing Current state assessment / baseline Clarity on tax compliance burden, taxes paid and collected. Clarity on key processes, people and technology used to manage tax. Vision for 3 years time Process decisions: insource v outsource, SSC v localised. People technical v leadership v project management. Technology in bitesize elements: - ERP - ETL - Compliance software - Analytics - Workflow 29
Question 4 Do you have a formal tax governance and risk policy (ideally aligned to your organisations risk framework)? A Yes B No C What is a tax governance and risk policy? 30
Tax governance and risk What others are doing Monitoring tax governance and strategy implementation: Define what tax risk means to the organisation Risk appetite Ownership and governance Risk identification Control activities Information/communication/reporting Monitoring Define KPIs to ensure successful 31
Question 5 Do you formally monitor key tax controls to ensure they are designed effectively and operate effectively to ensure successful implementation of your strategy? A Yes B No C Does preparing a master file and local file count? 32
Tax risk and control What others are doing At a Business Unit or issues level, identify key tax risks and associated mitigating controls. 1 Initiation 2 Understand 3 Evaluate Key Activities Identify key tax stakeholders Review existing documentation Key outputs Project scope Areas for review and walkthrough Conduct tax interviews to assess existing control design Walkthrough as is processes (or system configurations) Update tax risk and control documentation Perform some operating effectiveness review Identify control gaps Identify opportunities for improvement: systems, automation, removal of duplication Report Develop ongoing internal monitoring programme 33
Question 6 Have you documented an impact assessment to understand how you are effected by CCO and documented a risk assessment? 1 We have done an impact assessment only 2 We have done a risk assessment and documented it 3 We have done neither 4) We have done both. 34
Key activities to be undertaken Phase 1 - Impact Assessment Step 1 Understanding the potential scope of the offences on your business based on products, services and delivery channels and your tax risk appetite. This will build on the experience and knowledge we already have from working with you. Reviewing a selection of your existing policies and procedures. Engaging with key stakeholders in your business to ensure top level commitment to compliance and gather information about perceived risks as part of a workshop / webex conference call. Phase 2 Risk Assessment Designing a proportionate risk assessment methodology Understanding the qualitative and quantitative data inputs to the risk assessment. Assessing the inherent likelihood and potential impact of risks across your business. Reviewing existing financial crime controls (e.g. fraud, ABC, AML) to build on the activities you have already completed. Conducting walkthroughs of key controls and mapping these to the identified risks and consideration of whether these are proportionate to the risks you are facing. Identifying areas where controls need to be enhanced or additional controls are required. Beyond Assessment Longer term considerations will include: Enhancements to ongoing monitoring activities. Updates to policies and procedures. Upskilling staff and carrying out a comprehensive training programme. Alignment of facilitation of tax evasion risk assessment with broader financial crime risk assessments. Ongoing project governance and project management 35
Practical steps on the road to publishing Have you documented an impact assessment to understand how you are effected by CCO and documented a risk assessment? Do you have a vision in your organisation for how tax will be managed in 3 years time? Practical next steps Do you formally monitor key tax controls to ensure they are designed effectively and operate effectively to ensure successful implementation of your strategy? Do you have a formal tax governance and risk policy (ideally aligned to your organisations risk framework)? 36
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