£13.8bn at risk in FTSE 100 tax disputes

FTSE 100 companies face having to pay out £13.8bn as a result of tax disputes with tax authorities globally, according to research by Thomson Reuters

Its analysis shows FTSE 100 companies set aside £2.1bn to cover the cost of these tax disputes last year, but calculates there is an additional £11.7bn at risk relating to tax disputes the FTSE 100 companies expect to win and therefore, do not require them to set money aside for.

In the past year, FTSE 100 companies were involved in a total of 677 tax disputes globally that they believe are significant enough to be disclosed to their shareholders, while 18 FTSE 100 companies reported they were involved in some form of dispute with HMRC in their latest annual reports.

Brian Peccarelli, chief operating officer, customer markets at Thomson Reuters, said: ‘Falling foul of tax laws costs the FTSE 100 billions of pounds a year.

‘This is why tax compliance has become a top risk area for boards. Some argue tax is a huge reputational issue for corporates but the cash costs, in themselves, are enormous.’

The research indicated that mounting pressure on governments to more closely scrutinise the tax affairs of corporates and take steps to reduce evasion and avoidance is part of the reason for the rise in tax disputes, while the high cost of tax litigation is partly due to the increasingly tough stance adopted by tax authorities in developed countries.

Emerging and frontier markets have also represented a tax compliance risk for FTSE 100 companies in recent years, with reports last year of disputes with authorities in Brazil, Bangladesh, Egypt, India and Russia.

Thomson Reuters said one reason is because tax policy in some emerging economies can be subject to more regular changes, which can catch multinationals out. For example, a report from the Brazilian Institute for Planning and Taxation in 2019 found that during the last 30 years, an average of 35 tax rules were changed every day in the country.

Peccarelli said: ‘FTSE 100 companies are managing tax compliance risk on several fronts – authorities in developed countries are being increasingly aggressive in pursuing companies whilst in emerging markets companies are exposed to the risk of falling foul of local laws.

‘The huge spending packages implemented in response to coronavirus means companies can expect tax authorities to be even more active, over the medium term, in reviewing their affairs as they seek to increase receipts.’

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