07 11 2016

UK Firms' Tax Disclosures Improving, Says FRC

The Financial Reporting Council in the UK has welcomed improvements in the transparency of tax disclosures by the UK's largest companies, but said there is room for companies to better articulate how they account for tax uncertainties.

The findings are contained in a report released by the FRC on October 31, 2016, Corporate Reporting Thematic Review: Tax Disclosures, following a review of the tax disclosure practices of 33 FTSE 350 companies.

The report found, for example, that where tax was identified as a principal risk and uncertainty, some companies expanded their description of the risk to include changes to local and international tax laws arising from the OECD's base erosion and profit shifting project.

The FRC also found examples of disclosures where companies focused on material tax matters where detailed information was likely to be important to investors. These included: discussion of important tax issues arising in the year and the tax impact of exceptional or non-recurring items; identification of major tax risks faced by the company; and explanations of the reassessment of prior year tax estimates where these were significant – for example, changes in assumptions or resolution of open tax inquiries.

The FRC found that generally companies have improved how they estimate the effective tax rate that their operations are subject to.

Geoffrey Green, Chairman of the FRC's Financial Reporting Review Panel, commented: "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."