TAX is one of the biggest fears for FTSE 100 companies, with businesses constantly wary of how BEPS could change international tax rules, a report from Global Counsel has revealed.
Dealing with political risk: What FTSE-100 companies say, found that tax accounts for over three quarters of fiscal risks for constituents of the FTSE 100.
The tax issue that is most frequently identified as a specific source of risk is the changes to international tax rules that could emerge from the BEPS initiative, with ten firms identifying this.
AstraZeneca is the most detailed in its assessment and notes that “changes to patent box regimes, restrictions on interest deductibility and revised transfer pricing guidelines” could all impact on the group.
Real estate company Hammerson worries that its sector “could be adversely affected by misdirected regulation designed to stabilise financial markets, such as the proposed OECD BEPS project.” BAE Systems also notes the issue, but is relatively relaxed and does not expect to be “materially impacted”.
Some companies in the extractives sector, including Fresnillo, are worried about the impact of lower commodity prices on the fiscal positions of the countries they operate in and what this means for tax policies.
How are they responding?
The report highlights that FTSE 100 companies respond to their tax fears by retaining external advisers on tax matters and monitor developments in tax policy closely.
Some note that they engage in “reasonable” tax planning around the world while some others have established statements of principle regarding the tax that they pay. GlaxoSmithKline says it seeks “to maintain open, positive relationships with governments and tax authorities worldwide”, that it monitors “government debate on tax policy in … key jurisdictions to deal proactively with any potential future changes in tax law” and that “where relevant” it is “active in providing relevant business input to tax policy makers.”
In its report, Global Counsel explained: “As tax policy has become much more politically contentious, the tax practices of large international companies has come under more scrutiny. Particular controversy surrounds whether international firms with highly valuable intellectual property are able to exploit this to shift profits to low tax jurisdictions using practices that, while legal, may be objectionable both to tax authorities and the public in many countries.
“As a consequence, many governments are collaborating through the G20 and the OECD to agree new rules on tax transparency and prevent ‘base erosion and profit shifting’. The OECD estimates that between 4% and 10% of global corporate income tax revenues are currently being lost, amounting to $100bn (£70bn) to $240bn.”