Dispatch
| by Paul Gosling 06 Apr 2006 Topic: News |
|
ACCA calls for anti-corruption strategies ACCA has urged companies to place much greater emphasis on anti-corruption strategies in their sustainability reports. It made the call in announcing the results of the ACCA UK Awards for Sustainability Reporting for 2005, in which Anglo American, BT, Traidcraft, Unilever and Guardian Newspapers were all recognised. “It’s a long-standing idea that bribery and corruption are necessary evils which must be resorted to in order to compete in business in some sectors or countries,” said Rachel Jackson, ACCA’s head of social and environmental issues. “However, this must be weighed against the potentially devastating impacts on issues such as human rights and poverty. For this reason, it is imperative that organisations are honest and open about the risks of illicit behaviour within their companies in an attempt to move towards a level playing field.” Of the 82 companies submitting entries to the ACCA awards, 53 operated in markets where corruption and bribery are common. These reports were examined on behalf of ACCA by the anti-corruption campaigning group Transparency International (TI). It concluded that companies tended to be stronger on reporting policies than in implementation and performance. David Nussbaum, chief executive of Transparency International, said: “The risks to companies from corruption are growing and the effects of corruption are especially severe on transition economies. Our review has shown that reporting is improving among best practice companies - most often those at greatest risk from corruption - but for the majority of companies the issue is still handled in a low profile manner.” ACCA’s judges also called on companies to consider more thoroughly what they meant by sustainability and who sustainability reports were aimed at. Companies should evaluate the impact of their corporate social responsibility intentions on their daily operations and decision-making. The growing significance of sustainability reporting was underlined by the International Federation of Accountants (IFAC), which said that accountants should pay attention to the Global Reporting Initiative’s proposed revised Sustainability Reporting Guidelines (G3). IFAC pointed out that accountancy firms are taking an increasing role in preparing assurance reports to underpin sustainability reports. Revenue wins VAT anti-avoidance case The European Court of Justice (ECJ) has partly backed HM Revenue & Customs (HMRC) by permitting UK courts to rule against schemes designed purely to reduce VAT liability. The judgment relates to the linked cases of Halifax Bank and the University of Huddersfield and another case regarding BUPA, but has much wider implications for the use of similar schemes. The legal judgment arose from the growing use in the late 1990s of what HMRC calls “artificial VAT avoidance schemes”. All three organisations provide VAT exempt services and consequently cannot reclaim VAT on overheads and capital spending. Halifax and the University of Huddersfield set up schemes to reclaim VAT on major capital works and BUPA arranged with associate companies to provide some supplies. HMRC argued that the schemes were established purely with the objective of avoiding VAT, and were therefore abusive and failed as a matter of principle. In April last year, this view was endorsed by the ECJ’s advocate-general as the schemes failed under the European principle of abuse. The ECJ has now decided that the arrangements were for the supplies of goods and services, but it is up to the UK courts to decide whether these were abusive. Although the UK Government welcomed the decision, ACCA says it could lead to greater VAT avoidance. Chas Roy-Chowdhury, ACCA’s head of taxation, said: “These rulings are a big blow to the UK Government’s strategy to stop complex VAT planning. The ECJ has clarified that the business practice established in Halifax and the University of Huddersfield’s case did constitute supplies of goods or services within the remit of the Sixth VAT Directive - with the caveat being as long as it was not abusive. But what is highlighted in all these cases is how complicated the VAT system has become and how difficult legislation is to interpret.” ”cut tax or lose companies”, CBI warns government The UK is losing its position in international tax competitiveness, with the likely result that some companies will move abroad, the Confederation of British Industry (CBI) has warned the Government. It claims that “stealth taxes” are being introduced under the cloak of anti-avoidance measures. According to the CBI, growing government spending is crowding out business investment. It is calling for reduced public expenditure, with business tax having risen by £80bn since 1997 by CBI calculations. Analysis by the CBI concludes that government consumption rose from 18% of GDP in 1998 to almost 22% in 2005. The increase is mirrored by an almost identical fall in business investment as a share of GDP over the same period, argues the CBI. The UK has fallen from 12th to 16th in the OECD’s table of international tax comparisons between 1996 and 2004, and the CBI predicts it will fall to 19th by 2008. The US, Japan and Germany are all ahead of the UK, with the UK collecting half as much again as the US in the tax take as a proportion of GDP. CBI deputy director-general, John Cridland, warned: “Our competitiveness is seriously at risk and, as competitor economies reduce their rates of corporation tax, globally-mobile international businesses will increasingly look overseas.” But a survey of senior finance executives in the UK, conducted by KPMG, presents a different perspective. The KPMG survey concludes that while Luxembourg and, to a lesser extent, Ireland and the Netherlands have strong tax advantages, the UK’s corporate tax regime still gives it a competitive advantage over France, Germany, Spain and Belgium. The views were expressed in a survey of senior tax executives in 50 large UK-based companies, including representatives from the FTSE100, FTSE250 and large subsidiaries of foreign parent companies. Two-thirds of respondents said that a country’s tax regime is influential in decisions on where to locate operations, and over 70% said that tax issues have become more important for international business planning over the past two years. However, finance executives indicated that clarity of interpretation of tax legislation and consistency of interpretation were more important than low tax rates. But executives also warned that the UK is in danger of losing its advantages over other major European countries, with seven out of 10 believing that recent changes in the UK’s tax regime have made the UK less competitive than in previous years. Echoing a criticism made by the CBI, finance executives complained of a lack of consultation before changes in tax law were introduced. offshore financial centres agree to end VAT abuse Jersey and Guernsey have agreed to take action to end the abuse of their limited VAT-free retailing environment by leading UK retailers. The Treasury had been unhappy about the use of the Channel Islands for e-mail and mail order servicing, which was estimated to lose the Government about £80m a year in tax revenue. Tesco, Asda, Boots, Woolworths, Amazon and other retailers have been selling CDs and DVDs free of VAT, under arrangements for tax exemptions on low value sales. A new licensing system is to be adopted in Jersey requiring retailers to be actually based on the island to be able to avail themselves of the exemption. Companies will be given a year to comply with the new system. Guernsey has said that retailers will not be able to use it as an alternative VAT-free centre. But HMV, which already operates a mail dispatch warehouse on Guernsey, will not be affected by the decision. The decisions by the two islands’ governments were insufficient to satisfy the Forum of Private Business (FPB), which has campaigned against what it sees as unfair competition. FPB pointed out that retailers based in the Channel Islands - such as play.com, operating from Jersey - will continue to sell goods on-line at lower prices than UK-based retailers. FPB added that it believed that HMV was selling on-line 100,000 VAT-free CDs a week, processed through the Guernsey depot. The FPB’s Channel Isles campaign champion, Richard Allen, said: “The Treasury must realise that the Channel Isles’ VAT loophole industry is still alive and kicking. Until the loophole is closed altogether Britain’s high street shops will continue to haemorrhage money, lose jobs and ultimately go bust. The Treasury could pursue a combination of existing legislation to close this loophole.” Despite the concession from the two islands’ governments, the FPB’s campaign has now been endorsed by the Association of Independent Music (AIM) and the British Phonographic Industry. Alison Wenham, chief executive of AIM, said that some of her retailer members were likely to be forced out of business as a result of the unfair competition. IRS offers leniency to informer firms The US’ Internal Revenue Service (IRS) has written to accountancy firms and other suppliers of tax shelters advising them that it will back off from criminal prosecutions if they fully declare their knowledge of questionable use of shelters, including which clients have used them. Not all promoters of tax shelters are likely to be eligible for the leniency offer. It is thought that those firms already being investigated will not be affected. Banks, law practices and investment advisers have been contacted, as well as accountants. Leading investors have previously been directly contacted by IRS, with similar offers. It is believed that the IRS hopes to recover through the leniency offer billions of dollars of lost revenue from the illegal use of tax shelters. News of the IRS’ offer emerged on the same day that it disclosed the size of its tax gap - the difference between the amount of tax that should have been paid, and the amount actually paid on time. For the 2001 tax year, the tax gap amounted to $345bn - most of it through under-reporting of income tax liabilities. IRS commissioner Mark W Everson said: “The magnitude of the tax gap highlights the critical role of enforcement in keeping our system of tax administration healthy.” He added that the complexity of US tax law was a significant factor in causing the tax gap to be so large. Everson explained that while helping taxpayers to better understand their obligations under the existing system would improve collection rates, the underlying problem of complexity could only be resolved by fundamental tax reform and simplification. KPMG proposes tax advisers’ “code of conduct” KPMG has proposed the introduction of a code of conduct for tax advisers, taxpayers and HM Revenue & Customs to reduce the UK’s tax gap. A recent report from the Tax Justice Network, Mind the Tax Gap, estimated the tax gap stands at around £9.2bn for Corporation Tax alone. This is equivalent to about 28% of actual Corporation Tax payments. The KPMG paper, A Code of Conduct for the Tax Arena, recognises there are concerns regarding tax avoidance, the tax gap, corporate governance, the perception that the correct amount of tax is not being paid, globalisation, the mobility of capital, international tax rate competition and the complexity of the UK tax system that, together, damage the operation of the tax system in the UK. The paper suggests that mistrust between taxpayers and HMRC may contribute to compliance problems. Codes of conduct have worked elsewhere in industry and commerce to improve business behaviour, argues KPMG. It points approvingly to the voluntary code for the conduct of directors provided by the Health and Safety Executive (HSE). A business does not have to follow the detail of the HSE’s guidance, providing it complies with the spirit of it and conforms to Health and Safety Regulations. HMRC might be persuaded to sign up to a code of conduct, suggests KPMG, because its stated objectives include reducing the tax gap, improving efficiency and improving customer satisfaction, which might be assisted by a code. Taxpayers could improve profitability through signing up, thus reducing the chances of an HMRC investigation. Investors might welcome voluntary compliance as an indicator of good corporate practice. And tax advisers could demonstrate their commitment to high ethical standards. A code would be overseen, under the KPMG proposals, by a new and independent body, with members from HMRC, taxpayers and probably professional organisations, such as the Chartered Institute of Taxation. Principles included in a code might be expectations of what signatories should do and how the code would be implemented, monitored and enforced. Chas Roy-Chowdhury, ACCA’s head of taxation, gave the proposals a cautious welcome. He said that professional bodies, such as ACCA, already have stringent codes that members must comply with - “though it (a code) wouldn’t do any harm for additional guidance” - adding that taxpayers were in a “straitjacket” forcing them to behave well. “But it would be good to get HMRC more into a regulatory framework,” he suggested. in brief A man who falsely claimed to be an ACCA member stole nearly £1m from a government department. Robert Adewunmi set up a front company within days of his appointment by the UK’s Office of the Deputy Prime Minister and authorised a sequence of invoices leading to payments of £867,200 to his company. The funds were used to clear debts, buy cars, family portraits and properties in the UK and the US, and pay for his children to go to private school. He has been sentenced to four years in jail for false accounting and money laundering. Custer Battles, a US contractor working in Iraq, has been found guilty of a $3m fraud involving the issuing of fake and inflated invoices to the Iraq Coalition Provisional Authority (CPA). The civil case was brought under the Federal False Claims Act, and further court actions under the same legislation are likely against other companies. The fraud was notified by company whistleblowers, but vital evidence was provided by CPA staff who found documents left behind at meetings by Custer Battles officials detailing comparisons of actual and claimed costs of working on Iraqi projects. The company and its senior officials must now repay the fees and pay substantial fines. The UK’s National Audit Office has cast doubts on the reliability of reported progress towards the £21.5bn efficiency savings targets established by Sir Peter Gershon’s efficiency review. Gains reported to date may not have been measured accurately, and allowance should be made because of time delays in the reporting process, so claims of £4.7bn achieved savings should be regarded as provisional, says the Government’s auditor. The efficiency programme is a high risk initiative because of the diverse set of challenges attached to it, the NAO added. Warnings have been issued about a new scam that is now one of the most common sources of junk e-mails. Fraudsters claim to be offering people the opportunity to work from home as representatives of overseas companies, but the individual must use his/her own address and bank account to collect “business debts” for forwarding to the overseas business. People who fall for the con are likely to be collecting and transferring drug and other crime income and committing money laundering offences. Early Warning, specialist observers of on-line fraud, caution that those who take up the offer could go to prison. HM Revenue & Customs has admitted that it has incorrectly taxed the payment of tips to staff in the hospitality industry. HMRC had claimed that where tips were collected by the employer on behalf of staff, National Insurance should be paid on the income. HMRC has now admitted this is an incorrect interpretation of the law. According to Wilkins Kennedy, the climbdown could be worth millions of pounds to hotels and restaurants. The Severn Trent water company has been fined £42m by its industry regulator for false reporting of information regarding leakages, income and bad debts. An investigation conducted by the regulator Ofwat concluded that Severn Trent provided information that was either deliberately miscalculated or poorly supported, resulting in it being allowed to levy bills £42m higher than would otherwise have been permitted. The company will have to return this to customers through lower bills. Ofwat has advised the Serious Fraud Office of the results of its investigation. One of the UK’s largest firms of independent financial advisers is being dismembered after failing to meet the Financial Services Authority’s (FSA) capital adequacy requirements. Some companies in the Berkeley Berry Birch group, trading under names of Berry Birch & Noble and Berkeley Independent Advisers, are being sold to Tenet, with other divisions sold separately. In its accounts last year, Berkeley Berry Birch announced an operating loss of £24.5m on turnover of £67m. An investigation by the FSA into the sale of life and savings products by Berkeley Independent Advisers led to the issuing of a public censure by the FSA last December. It was only spared a fine of £425,000 because it did not have sufficient resources to pay it. A US quoted low-income mortgage lender has admitted it was guilty of a string of accounting errors, requiring restatements to the Securities and Exchange Commission and the housing regulator. Mis-statements by Fannie Mae include accounting for investment securities at the incorrect cost basis and the wrong treatment of foreclosed mortgages and debt restructurings. Fannie Mae faces allegations that it manipulated its figures to assist executives obtain bonuses. The company was established by the US Government to assist first-time buyers with home ownership. | |