CW Energy LLP

Tax transparency measures

The draft clauses for the Finance Bill 2016 contain a number of initiatives promoting or requiring tax transparency.

1.  Publication of Tax Strategy

A key requirement is for “large” businesses to publish a tax strategy.

The draft rules follow on from a consultation last year, and will be applied to UK headed groups, or exceptionally single UK companies, with turnover of more than £200m or a group balance sheet asset total of more than £2bn, (which is the same test as applies for the senior accounting officer rules), but also to any UK companies which are either themselves, or are part of a worldwide group, that is within the scope of Country by Country Reporting requirements, i.e. global turnover of more than €750m. The obligation could therefore fall upon standalone UK incorporated companies, UK incorporated companies which head up UK or worldwide groups, or UK incorporated companies which are owned by non UK incorporated companies. These tests are applied in respect of the previous financial year.

If any of the tests are met the disclosure obligation is imposed upon the top UK incorporated company. Where however foreign groups do not hold all their UK companies through a single UK incorporated holding company there may be more than one UK incorporated company in the group that is subject to the publication obligation.

Publication must be made on the internet, presumably most conveniently on the group’s website, and must remain accessible, free of charge, for at least a year after publication, or until the next update to the strategy. As drafted the rules on publishing are not prescriptive, but it does appear that this obligation could be met by publishing one policy to cover each company/sub-group, or by each company/sub-group publishing its own policy. As the requirement is to publish the strategy “on the internet” there appears to be no reason why a UK entity which is required to publish its strategy could not procure their non UK parent to publish their strategy on the parent’s website to satisfy their obligations.

The measure will have effect for financial years beginning after the date of Royal Assent to Finance Bill 2016.
The rules will require groups or companies to publish a tax strategy in relation to UK taxation within the relevant financial year. This effectively means that a strategy does not need to be published for the first time until the end of December 2017 for December year end companies, although many groups will no doubt consider publishing earlier than this. The strategy must then be updated at regular intervals not to be less than 9 months nor more than 15 months after publication of the previous strategy.

The tax strategy must set out—

(a) the approach of the UK group/company to risk management and governance arrangements in relation to UK taxation,

(b) the attitude of the group/company towards tax planning (so far as affecting UK taxation),

(c) the level of risk in relation to UK taxation that the group/company is prepared to accept, and

(d) the approach of the group/company towards its dealings with HMRC.
A penalty is payable either for the non-publication of a tax strategy, or if the information contained within the published strategy does not meet the requirements of the legislation.  The initial penalty for failing to publish a strategy is £7,500 and a similar penalty may be levied for failing to maintain it free of charge for at least a year. There are further penalties at the rate of £7,500 per month for every month of non-compliance starting with a date 6 months from the last day on which the rules could have been complied with. There do not however appear to be any penalties for failing to adhere to the published strategy.


Whilst, like the SAO rules, there are penalties for non-compliance, in practice it would seem that once a group has formulated its tax strategy, which presumably will not change much from year to year, and published that on its website, there should not be much ongoing workload other than to make sure it still reflects current conditions. 

We would be pleased to discuss the content of any tax strategy statements that companies may be considering publishing.   

2.  Framework for Co-operative compliance and other HMRC initiatives

Separately, as part of the document which summarises the responses to the consultation document, HMRC have published their intention to adopt a Framework for Co-operative Compliance ( , to replace the proposed voluntary code of practice, which elaborates upon the way in which HMRC seeks to encourage ‘low risk’ behaviour. The intention is to bring this in with effect from April 2016.

Where the parties work within the framework HMRC undertakes to prioritise resource to address areas of genuine uncertainty, commercial urgency and absolute risk. The framework also explicitly recognises that businesses may seek to escalate unresolved issues to the relevant HMRC Deputy Director.

On the other side of the coin a number of measures are aimed at combatting aggressive behaviours.

Whilst these are apparently aimed at a narrow field of targets the measures have been widely discussed and their profile is likely to be raised with the publication of the Finance Bill.

They include:

  • Rules to permit HMRC to put businesses into a ‘Special measures’ regime. Having identified these ‘aggressive’ businesses, the regime denies them access to non-statutory clearances, potentially increases the penalties levied on them for non-compliance and permits HMRC to publicly identify them as subject to the ‘Special measures’ regime.
  • Provisions in respect of criminal and civil sanctions countering offshore avoidance by individuals, and their advisers.
  • A proposed potential penalty of 60% of the tax due in cases successfully tackled by the GAAR.

However the proposed corporate offence of failure to prevent the facilitation of fraudulent tax evasion by associated persons is due to be reconsidered in a further round of consultation before it is considered for inclusion in Finance Bill 2016.


It would seem that the Framework for Co-operative Compliance is an extension of the initiative that LBS tried to persuade oil and gas companies to sign up to a few years ago.

Given the slant is on measures that favour HMRC, companies may find some of these requirements for “co-operative compliance” unnecessarily restrictive and may prefer to live with the consequences of not adhering to the framework.

CW Energy LLP
February 2016