Big UK companies halve provisions for disputed tax bills

The amount big companies set aside to cover disputed tax bills has more than halved over the past three years to £1.7bn this year, reports the Financial Times.

Even though businesses fear more disputes as tax authorities become increasingly tough, they are showing reluctance to be drawn into conflicts that could cause reputational damage, said Thomson Reuters, the data business that compiled the research from an analysis of FTSE 100 corporate reports.

“There has been political, media and public pressure on governments to investigate corporations that are considered not to be paying the right level of tax . . . No business wants to be made an example of, or to find itself explaining a costly settlement,” said Raichel Hopkinson, head of the Practical Law Dispute Resolution Service at Thomson Reuters.

Pharmaceutical companies made by far the biggest provisions for tax disputes and litigation in 2015, setting aside £1.46bn. The provisions were heavily concentrated in the sector because it is more prone to complex and costly “transfer pricing” disputes concerning the division of taxable profits between countries.

AstraZeneca, the pharmaceutical company, estimated its worldwide exposure to transfer pricing audits at US$595m (£382m) at the end of 2014, up by US$72m over the year. In its annual report, it told shareholders that the issues were often complex and could take many years to resolve. “The international tax environment presents increasingly challenging dynamics for the resolution of transfer pricing disputes,” it said.

FTSE 100 company reports also revealed that more businesses are providing details about their tax strategies and general approach to taxation.

By this May, 56 FTSE 100 companies had disclosed information about their approach to taxation, compared with less than a third two years ago, according to a PwC study.

The government recently announced proposals to force large businesses to publish details of their relationships with national tax authorities and their approach to tax planning.

In a consultation published in July, it said it intended to introduce a voluntary code of practice on taxation for big businesses. It said this would enable quicker resolution of significant tax issues and reduce the potential for disputes and litigation.

The scope for future disputes will depend in large part on the implementation of measures agreed as part of an avoidance crackdown launched by the G20 group of leading governments.

If governments break ranks and introduce unilateral measures, multinationals fear they will be exposed to double taxation causing more disputes.

The figures for provisions fluctuate from year to year as some disputes are settled and others emerge.