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Company tax disclosures improving says FRC

Company tax disclosure has improved in the UK according to the Financial Reporting Council (FRC). In a new review of 33 companies’ reports and accounts the FRC found evidence of improvements in the transparency of disclosures included in strategic reports and effective tax rate reconciliations.

There has been increased scrutiny of the tax arrangements of companies – focusing on whether foreign companies such as US multi-nationals such as Google and Amazon are paying the right levels in the countries in which they operate  and on the use of so-called tax havens or countries that seemingly use corporate tax law to attract companies to headquarter themselves in their jurisdictions, such as the Republic of Ireland.

Company Tax Disclosures Improve

Company tax disclosure is improving in the UK

The UK government has been among those working within the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes. The Global Forum has just been meeting in Tbilisi, Georgia and announced that progress has been made on improving tax transparency and new countries have signed the multilateral competent authority agreement which allows for the automatic exchange of information between countries.

There is, however, scope for companies to articulate better how they account for uncertainties, the FRC believes.  The introduction of new International Financial Reporting Standard requirements in this area, expected shortly, presents an opportunity for companies to consider their approach, the regulator suggests.

Geoffrey Green, Chairman of the FRC’s Financial Reporting Review Panel and member of the Conduct Committee, said: “Companies’ tax arrangements are currently subject to considerable public interest prompting a demand for clear, concise and transparent tax reporting in annual reports and accounts.  This report shares our findings from the thematic review, including examples of good practice, against which companies are encouraged to assess and enhance their own disclosures to ensure they provide high quality information to users in their annual reports and accounts”.

Opportunities for companies to improve the usefulness of their disclosures were also identified of significant judgements and estimates relating to tax.  Good disclosures identified the specific nature of the assumption or uncertainty, quantified the carrying amount subject to uncertainty. They also provided sensitivity analysis or range of possible outcomes to provide users with a better understanding of the issue.

What do you think?