Finn L. Meyer, KPMG: What Constitutes Responsible Corporate Tax Behaviour

What constitutes responsiblecorporate tax behaviour andhow can companies workresponsibly with tax?How to work responsiblywith taxConference on Tax and Corporate Responsibility21 June 2012

Tax Governance: Why?The impact of getting it wrong can be dramatic! GlaxoSmithKline Holdings, IRS Reach Largest-Ever $3.4 Billion IRS Accepts Settlement Offer in Tax Settlement Largest Transfer Pricing Dispute The tax avoidance story as a morality tale China Weaves a Tax Net over Offshore SPVs Big four banks in $1.7bn NZ tax settlement HP’s offices in Moscow raided as part of investigation into tax evasion © 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 1 member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Business Week: Google Kilde: Business Week© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 2member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

GE: Better share all the restG.E. is so good at avoiding taxes that some people considerits tax department to be the best in the world, even betterthan any law firms.One common strategy is maximizing the amount of profitthat is officially earned in countries with low tax rates.Source: Wall Street Journal, February 3, 2011© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 4member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

International Herald Tribune Kilde: International Herald Tribune "G.E.s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the worlds best tax law firm. Indeed, the companys slogan "Imagination at Work" fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress." "Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees. At a tax symposium in 2007, a G.E. tax official said the departments "mission statement" consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and "looking to exploit opportunities to reduce tax".© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 5member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

A tax code that works for the wily (nice ships)Carnival Corp. Would not have much of a business without help from variousbranches of the U.S. government.The U.S. Coast Guard keeps the seas safe for Canivals cruise ships.Customs officers make it possible for Carnival cruises to travel to othercountries.State and local governments have built roads and bridges leading to portswhere Carnivals ships dock.Carnivals biggest government benefit of all may be the price it pays for many ofthose services.Over the last five years, the company has paid total corporate taxes -U.S., state, local and foreign - equal to only 1.1 percent of its cumulative $ 11,3billion in profit.Source: Wall Street Journal, February 3, 2011© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 6member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax dodgersKilde: The Economist, April 30th - May 6th 2011 © 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 7 member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax dodgersKilde: The Economist, April 30th - May 6th 2011 © 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 8 member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Kilde: The Sunday times 11.09.11 © 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 9 member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Top Companies who gave their bosses more than the firms paid in taxKilde: The Sunday times 11.09.11 © 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 10 member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Vodafone shops blockaded in tax protestAlso happened to Boots© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent BBC 30. oktober 2010 11member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

The secret of IKEAs successBut the firms ownership structure is opaque. Critics grumble that its set-up minimises tax and disclosure, handsomely rewards the Kamprad family and makes IKEA immune to a takeover. The parent for IKEA Group, which controls 284 stores in 26 countries, is Ingka Holding, a private Dutch-registered company. Ingka Holding, in turn, belongs entirely to Stichting Ingka Foundation, a Dutch-registered, tax- exempt, non-profit-making entity, which was given Mr Kamprads IKEA shares in 1982. Kilde: The Economist February 26th 2011© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 12member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

The secret of IKEAs success After the airing of the polemical documentary on Swedish TV, Mr Kamprad retorted that "tax efficiency" was a natural part of the companys low-cost culture. Yet such diligent efforts to reduce the firms tax burden sit uncomfortably with IKEAs socially conscious image. Mr Ohlsson is trying to defuse criticism of IKEAs opacity by providing more information on its finances. Last year the firm published detailed figures on sales, profits, assets and liabilities for the first time ever. Kilde: The Economist February 26th 2011© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 13member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax Governance: Why?Also an interesting topic in Danish media© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 14member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Samfundet kræver oplysning og transparens Business.dk 12. oktober 2010 Dr.dk 11. oktober 2010© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 15member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Et år senere …….. Kilde: Børsen den 25. marts 2011© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 16member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Latest trendsGlobally/OECD:  Double taxation  Model Tax Convention in respect of avoidance of double taxation  Transfer pricing guidelines  Aggressive tax planning (02/2010 "Tackling aggressive tax planning through improved transparency and disclosure") country by country  "Country-by-country reporting" for multinational (listed) companies (OECD)  Extractive Industries Transparency Initiative (EITI)  IFRS: IAS 12 discussion paperEU:  "A Transparent and Cooperative International Tax Environment" (06/2010)  "Country-by-country reporting" (exposure draft 10/2010)  Disclosures in the financial statements (particularly extractive companies and the financial sector) (IFRS 6) by country:  Revenue (intra-group and extra-group)  Number of employees  Profit/loss before tax (sub-consolidation?)  Paid taxes (or otherwise paid to the State)  Other disclosures of the relation between the company and the host nation  Other© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 17member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Latest trendsUSA  "Country-by-country reporting" for listed companies in raw material extraction (key figures)  Disclosures of "uncertain tax positions" (UTP) in the financial statements, Sept. 24, 2010"Only businesses with $100 million or morein Assets are required to report uncertaintax positions reflected in their financialstatement income tax reserves."UK  Senior Accounting officer regulation© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 18member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax comes out of the box: New UK legislation© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 19member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax GovernanceTax comes out of the box: SAO personally responsibleUK legislation making the Senior Accounting Officer (the SAO - usually the CFO or finance director) of any large company: "personally responsible for certifying that the tax systems in their organisation are fit for purpose".The SAO must certify that:■ policies and■ procedures for managing tax compliance in each qualifying company for which they have responsibility■ are adequate and managed by appropiate people.If this is not the case, the SAO needs to show that action is being taken to rectify any problems.© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 20member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax GovernanceTax compliance is a board responsibility"Tax authorities are using these regulations to reinforce the view that:■ Tax compliance is a Board responsibility,■ not just a matter for the tax department". "They are making tax processes a finance matter. Tax and finance people have to work together under Board supervision to ensure that liabilities are:  calculated and  reported correctly".© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 21member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax GovernanceTax in the boardroom: evidence of a risk-based, methodical analysis of the taxissues within an organisationHMRC is looking for evidence of a risk-based, methodical analysis of the tax issues within an organisation, focusing on:■ identifying what risks exist,■ whether appropiate action is being taken to deal with them, and■ whether this process has been carried out to a level of materiality that is relevant to the size of the tax stream under consideration.© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 22member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax Governance SAO certification - problems"In practice problems tend to arise with taxes■ on employment,■ VAT,■ environmental taxes,■ stamp duty, and■ transfer pricing,where much of the information leading to the final tax calculation is being provided by people who are not tax specialists.Tax in these areas is complex and it is easy to make a mistake".Board-approved plan"Getting endorsement from the Board is possibly the most important part of the whole procedure".© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 23member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax Governance"Dirty" better than "clean"Senior finance executives concluded that in order to demonstrate clearly that they and their Boards have done a thorough job assessing their tax arrangements, they would choose not to submit a clean certificate.© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 24member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax GovernanceBoard responsibilitiesTo satisfy yourself that your company:■ has a robust tax risk management system, and■ is meeting its obligations under the SAO legislation,you might want to consider whether you have seen:■ The Board being engaged with discussions on tax■ An SAO1) plan endorsed by the Board■ Board agreement on level of tax risk it is prepared to accept■ Details of what your companys tax risks are, and where they lay1) Senior Accounting Officer© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 25member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Anbefalinger for god selskabsledelse - Risikostyring8 Identifikation af risici 8.1.1. Det anbefales, at det centrale ledelsesorgan mindst én gang årligt identificerer de væsentligste forretningsmæssige risici, der er  forbundet med realiseringen af selskabets strategi og overordnede mål samt  risici i forbindelse med regnskabsaflæggelsen 8.1.2. Det anbefales, at direktionen løbende rapporterer til det øverste ledelsesorgan om  udviklingen inden for de væsentlige risikoområder og  overholdelsen af evt. vedtagne politikker, rammer m.v. med henblik på, at det øverste ledelsesorgan kan følge udviklingen og træffe de nødvendige beslutninger.Kommentar:Rapporteringen til det øverste ledelsesorgan kan bl.a. omfatte tiltag og handlingsplaner, som kanacceptere, eliminere, øge, reducere eller dele disse risici.Hvor væsentligt bør der rapporteres til den øverste ledelse (Anbefaling 8.1.2) om: udviklingen inden for :  skat inkl. "compliance", væsentlige, aktuelle eller potentielle skatterisici og/eller skattesager overholdelse af evt. vedtagne politikker, rammer m.v., herunder  Tax Governance Charter/skattepolitik/-strategi m.v.© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 26member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Revisionsudvalg skal overvåge, om virksomhedens interne kontrolsystem, eventuelle interne revision og risiko-styringssystemer fungerer effektivt (RL 31, stk. 2, nr. 2) Organisationsstruktur ■ Intern kontrol-setup Bestyrelsesgodkendte retningslinjer m.v. ■ Code of Conduct/Code of Ethics /CSR ■ Risikostyring (COSO) ■ Forretningsgange og intern kontrol (minimumskrav) (f.eks. the 4-eye-principle m.v.) (COSO) ■ Krav til autorisation, godkendelse, attestation m.v. ■ Finans-/treasurypolitik – It-strategi / it-sikkerhedspolitik – Skattestrategi /skattepolitik /Tax Governance ■ Intern revision ? (refererer til revisionsudvalg) ■ Whistleblower-politik ? ■ Andre politikker Direktionsgodkendte retningslinjer m.v. ■ Regnskabs- og rapporteringsmanualer ■ Risikostyring (metode/proces) (COSO) ■ Forretningsgange og intern kontrol (minimumskrav) (4-eye-principle) (COSO) ■ Krav til autorisation, godkendelse, attestation m.v. ■ Controlling (refererer til direktionen)© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 27member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax Governance og samfundsansvar - CSR Redegørelse for samfundsansvar (ÅRL 99a) (Dansk lovgivning i 2009) I lovpligtig redegørelse oplyses: – Politikker – Hvordan politikker omsættes til handling – Vurdering af, hvad der er opnået, samt forventninger – Har selskabet ikke politikker for samfundsansvar, skal det blot oplyses i ledelsesberetningen Komitéen for god selskabsledelse – Anbefaler at vedtage politikker for samfundsansvar (2.2.1.) ■ Herved omfattes selskaberne af ÅRL 99a ■ Ikke yderligere oplysningskrav© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 28member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Income tax - IAS 12The Accounting Standards Board (ASB) and European financialReporting Advisory Group (EFRAG) have published adiscussion paper on the financial reporting of income tax underIAS 12 "Income taxes" and how it could be improved.Proposals include,1. Possible changes to the reconciliation of tax expense2. Revisions to the requirements in resepect of uncertain tax positions3. Whether deferred tax should be discountedThe paper also discusses alternative approaches that could form the basis for a new standard to replace IAS 12.The paper is open for comment until 29 June 2012© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 29member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax GovernanceCSR (Corporate Social Responsibility)Increased focus on CSR (and tax) globally requires that special attention must begiven to tax issues and governance also in relation to CSR.Important questions: How is tax included in the enterprises CSR strategies and reporting? Standards? Documentation of the enterprises reporting? Connection:  CSR reporting and  Financial statements© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 30member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax GovernanceCompliance with laws and regulations, tax planning, etc.Policy/guidelines for: Compliance with laws and regulations Tax planning, "tax optimisation", etc., including general framework Requests for "binding replies", etc., from tax authorities Use of tax consultants, etc., and/or tax opinions Collaboration with authorities Replies to tax inquiries Treatment of tax cases© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 31member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax GovernanceOrganisational procedures, tax department, etc. Management embedding of tax (e.g. in the Executive Board) Organisational position of those responsible for tax, a possible tax department and its management in the group and in the groups subsidiaries How are qualified professionals attracted, retained and developed (upskilled) at different levels in the group? When, to whom and how are tax and tax risks reported in the company/group, including to the Executive Board, Board of Directors/Audit Committee?Tax department Must a tax department be established? To whom will the tax department be responsible? How will the tax department be managed and staffed (tax qualifications)? What will a possible tax department be responsible for and involved in?  Day-to-day operations/transactions/structuring The function of the tax department in relation to subsidiaries and their tax position?© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 32member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax GovernanceIncome tax return and financial reporting Income tax return, etc.  Preparation  Quality control  Submission/filing  Transfer pricing documentation (defence file) in relation to intra-group transactions and other relevant documentation Financial reporting (financial statements, interim reports, etc.)  Reporting  Compliance  Tax risks, etc. (uncertain tax positions)  Summary, including valuation of deferred tax, etc. (tax risks)© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 33member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax GovernanceFinancial reporting/IFRS/IAS 12 How and on what basis are the following items recognised in the financial statements?  Tax (current and paid)  Deferred tax  Deferred tax assets, including valuation allowance, basis  Provision for tax risks, including interest and/or fines, etc.?  Documentation of accounting estimates regarding deferred tax assets, tax risks, outcome of tax cases, etc.  Compliance in relation to IFRS? Prepared for:  Country-by-country reporting, etc.  Uncertain tax positions, etc. (UTP)© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 34member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Tax Governance - Conclusion Increased focus on tax Openness and transparency, CSR and good citizenship Involvement of those charged with governance Tax must comply with the general principles of corporate governance:  Good corporate governance and  Good tax governance are gaining ground!OECD Principles of Corporate Governance VI. The Responsibilities of the Board: "Another important board responsibility is to oversee systems designed to ensure that the corporation obeys applicable laws, including TAX, competition, labour, environmental, equal opportunity, health and safety laws."© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent 35member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Denne præsentation indeholder alene en generel gennemgang af etemne, som KPMG efter aftale kan yde nærmere rådgivning om. Selvomfejl og mangler i præsentationen er forsøgt undgået, kan KPMG ikkepåtage sig noget ansvar for dispositioner, som foretages uden voresforudgående rådgivning.© 2012 KPMG Statsautoriseret Revisionspartnerselskab, a Danishlimited liability company and a member firm of the KPMG network ofindependent member firms affiliated with KPMG InternationalCooperative (KPMG International), a Swiss entity. All rights reserved.The KPMG name, logo and ‘cutting through complexity’ are registeredtrademarks or trademarks of KPMG International Cooperative (KPMGInternational).

Finn L. Meyer, KPMG: What Constitutes Responsible Corporate Tax Behaviour

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Finn L. Meyer, KPMG: What Constitutes Responsible Corporate Tax Behaviour Presentation Transcript