The CBI’s Statement of Tax Principles was first published two years ago. We aren’t the only group to develop such a framework for businesses. But ours has stood the test of time and has been more broadly adopted than any others.
Our Living the Principles (download PDF below) document shares reflections from a range of businesses about what these principles have meant in practice for them. Misconceptions continue to pervade the tax debate, so businesses have a responsibility to explain their taxes in a way that is accessible to the public. There may be many reasons why a company pays little corporation tax in the UK. A company may have invested in a new team or new office, so paying more in other taxes such as employers’ National Insurance or business rates, but not as much in Corporation Tax, which is paid on profit. But without an explanation the worst may be assumed.
Explaining what is behind tax contributions is just one element of our Statement of Tax Principles. It is also about businesses’ relationship with HMRC. By having an open and co-operative dialogue both parties can reach agreement earlier on complex areas of taxation. This then allows HMRC to direct their scarce resources to high risk areas and lets businesses focus on investing in that new office or those new staff members.
We’ve also seen more focus on ensuring tax is aligned with where economic substance is located and value creation takes place, so that it properly reflects where the “real” business activity is. There has been a huge project, taking over 2 years, by the OECD to update and modernise the international tax rules. The outcome of this work, known as the “BEPS” or Base Erosion and Profit Shifting project will place even greater emphasis on ensuring that businesses are taxed where activity takes place. This delivers on our principles that tax planning should be aligned with commercial and economic activity that does not lead to an abusive result.
There is still more that can be done by business to make its case on tax, and indeed the government is consulting with all stakeholder groups on this, so watch this space.Download PDF