tax risk management strategy
TAX RISK MANAGEMENT STRATEGY
Tax strategy
Page 1
Contents Donnelly Group Tax Strategy
Page 3
Donnelly Group Tax Code of Conduct
Page 8
Appendix 1
Page 15
Appendix 2
Page 18
Tax strategy
Page 2
Donnelly Group Tax strategy Donnelly Group has a tax strategy focused on the following key areas: 1. 2. 3. 4. 5. 6.
Integrity in compliance and reporting. Enhancing shareholder value. Commercial rationale. Controlling and managing risks. Being a trusted company. Having a transparent relationship with HMRC.
Tax strategy
Page 3
The environment in which the company operates is the automotive industry in the UK. The Group are currently ranked as 57th in the UK’s largest 100 automotive companies for 2016. A detailed breakdown of the company structure can be found at Appendix 2. The financial results for the year ended 31 October 2015, and comparative year to 31 October 2014 are as follows:
Turnover Gross Profit Profit before tax Retained Earnings Net assets KPIs Growth in turnover Gross profit margin Profit before tax as a percentage of turnover No of franchises held Employee numbers
2015 £ 246,708,930
2014 £ 243,158,180
25,644,437
23,240,642
948,256
863,586
564,308
439,869
17,000,180 16,247,808 2015 £ 1.50% 10.40%
2014 £ 18.80% 9.60%
0.40% 32 611
0.40% 32 582
Further information on the financial results of the company can be found on the companies published Group consolidated financial statements at Companies House.
Tax strategy
Page 4
A snapshot of the Group’s tax contributions can be found below for the period ended 31 October 2016: Total Tax liabilities Corporation Tax Deferred Tax Effective Rate of CT
£ 153,648.02 -33,127.00 14.03%
Value Added Tax Employment Taxes C&E Duty
2,254,651.97 1,395,274.00 254.70
Tax reliefs claimed Group relief surrendered/(claimed) Losses utilised R&D Tax credit Average net pay of 26 key employees Corporate Tax reconciliation Profit/(loss) before tax Adjustments Depreciation Disallowable expenses Other addbacks /deductions Capital Allowances Group relief PCTCT Tax rate Tax Liability
Tax strategy
0.00 -108,145.00 0.00
37,000.00
948,257.00 2,259,732.00 84,445.00 -807,526.00 -1,612,144.00 -61,879.00 536,545.00 20.12% 153,648.02
Page 5
1. Integrity in Compliance and Reporting We understand the value of our financial reporting to customers, investors and other stakeholders. Further information on our stakeholders can be found at Appendix 1. We work to provide enhanced, transparent and balanced disclosure in communicating our tax affairs. The group is committed to acting with integrity and transparency in all tax matters as part of our objective of being a trusted company. Our tax strategy and policy require that we fully comply with the letter and spirit of the law. We disclose on our financial statements the tax expense and full reconciliation of statutory tax rates and effective tax rates and we make timely and accurate tax returns that reflect our fiscal obligations to Government. 2. Enhancing Shareholder Value We deliver goods and services to customers at a price they are willing to pay, while providing our shareholders with returns that attract long term investment. The Group’s overall strategy and policies balance the need to maintain trust with stakeholders, while also generating a return for shareholders. 3. Commercial Rationale Minimising the Group’s tax liabilities by recognising appropriate legislative concessions and reliefs is of benefit to our customers via lower costs and to our shareholders by enhancing returns. In line with the Group’s tax strategy it seeks to make use of such appropriate reliefs and to control the Group’s tax costs. Whilst seeking to minimise tax liabilities for the benefit of customers and shareholders, the Group’s policy is not to use any aggressive tax planning or use any artificial tax avoidance schemes in line with being a trusted company. 4. Controlling and Managing Risks. We aim for certainty on the tax positions that we adopt. However, tax law can be unclear at times or subject to interpretation. On occasion, interpretation of that law may be opposed to Government’s intention. Our policy is:
Not to enter into any transactions that have as their main purpose gaining a tax advantage. Not to make any interpretations of tax law that is opposed to the spirit in which the Government intended.
To support the Group on this policy and to ensure that interpretation of the law is as it was intended, we have an internal tax specialist. As well this, we engage with a Top 4 accounting firm and legal firms where necessary for tax and legal advice. 5. Being a Trusted Company Demonstrating an understanding of where your stakeholder needs are, what issues they have and what the opportunities are, and having frequent dialogue with these stakeholders is a fundamental part of being a trusted company.
Tax strategy
Page 6
The position of a trusted company must be earned, it takes time and investment of effort and we believe that for a long number of years we as a Group have made an investment in these stakeholders. We have built a trusted relationship and our tax strategy supports this trust status through integrity and transparency at all times. 6. Having a Transparent Relationship with HMRC An important part of our tax strategy and policies and in support of the trusted company status is the maintenance and development of a strong, proactive working relationship with HM Revenue and Customs. We are transparent with HMRC and, in cases of interpretation or complexity, work with them on a real time basis to determine the amount of tax due. Tax Governance Tax is part of the finance function of our Group and it is the ultimate responsibility of the Group Finance Director and Senior Accounting Officer as well as the Group Tax and Compliance Manager to ensure the policies surrounding tax are adhered to. Ultimately the Board of Directors of the Group are responsible for its approval, implementation and delivery. The Board duly approved the above Tax Strategy at a Board of Directors meeting held at 59 Moy Road, Dungannon, Co Tyrone BT71 7DT on 25th day of January 2017. Signed on behalf of the Board ...................................................... Philip Jordan Group Finance Director
Tax strategy
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Donnelly Group Tax Code of Conduct Introduction This Code of Conduct applies to all finance and tax professionals working in Donnelly Bros (Garages) Dungannon Limited and its associated companies “the Group”. Every company within the Donnelly Group believe their obligation is to pay the correct amount of tax legally due in the UK, the Group’s sole country of operation, in accordance with rules set by the UK government. It is not believed appropriate for the details of the Group’s detailed tax affairs to appear in the public domain. However, Donnelly Group will only enter into transactions which would be fully justifiable should they become available in the public domain. Responsibilities and Professional Conduct will aim to: • Effectively manage risk by application of components of the tax risk strategy. • Observe all applicable UK laws, rules, regulations and disclosure requirements for a UK company. • Apply diligent professional care and judgment to arrive at well-reasoned conclusions. • Ensure all decisions are taken at an appropriate level and supported with documentation that evidences the facts, conclusions and risks involved. • The Group aims for certainty on tax positions it adopts, but where tax law is unclear or subject to interpretation, written advice or confirmation from appropriate tax accountants or lawyers will be sought as appropriate to ensure that our position would, more likely than not, be settled in our favour. • Where the tax treatment of an item is so uncertain and/or unquantifiable, filing positions should be subject to robust risk assessment and supported by full disclosure. • Develop and foster good working relationships with UK tax authorities (particularly the Group’s HMRC client relationship manager), government bodies and other related third parties. • Undertake all dealings with UK tax authorities, government officials, ministers and other third parties in a professional, courteous and timely manner. • Be compliant with all anti-bribery legislation, general anti abuse rules (GAAR) and Targeted Anti Abuse provisions. • Lobby and seek to influence applicable industry bodies or associations, governments and other external bodies, where applicable and appropriate, to shape future tax legislation and practice in ways that balance the Group’s interest. Commercial Rationale The commercial needs of the Group are paramount and all tax planning will be undertaken in this context. All transactions must therefore have a business purpose or commercial rationale. Due consideration will be given to the Group’s reputation, brand, and corporate and social responsibilities when considering tax initiatives, as well as the applicable legal and
Tax strategy
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fiduciary duties of directors and employees of the Group and will form part of the overall decision-making and risk assessment process. Policy on Disclosure Compliance with all relevant legal disclosure and approval requirements will be adopted and all information will be clearly presented to the tax authorities or other relevant bodies, as appropriate. Openness, honesty and transparency will be paramount in all dealings with the tax authorities and other relevant bodies. Other Policies and Procedures On all projects the required approvals and procedures will be complied with.
Tax strategy
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Tax Risk Management – General Over-riding Principle Tax risk is ideally managed by the prevention of unnecessary disputes. The avoidance of all tax disputes would suggest an overly prudent position that is not in line with one of our main objectives to enhance shareholder value. Prevention of unnecessary dispute is desired and appropriate and is best achieved from: • Strong technical positions. • Clear explanation of those positions. • Thorough documentation, particularly of facts. • Well established relationships with tax authorities particularly HMRC client relationship manager. • Strong compliance procedures ensuring accurate and complete tax returns. Assessment of any risks should take due account of: • Both short and long term considerations and risks. • The impact on corporate reputation/brand. • The impact on relationships with the UK government. • The consequence of disagreements with HMRC. • The benefit of certainty in respect of uncertain or disputed tax positions. Appetite for Risk Donnelly Group’s appetite for risk is dictated by its objective to be fully compliant, transparent and consistent in its application of all policies across the group. All finance and tax function members should act proactively to ensure and continually improve our tax risk decision making where necessary. Tax Risk Management for Interactions with the Business Within the context of the commercial needs of the Group being paramount, we will work with any potential business partner as an equal partner in providing clear, timely, relevant and business focused advice across all aspects of tax arising there from. Where alternative routes exist to achieve the same commercial results, the most tax efficient approach in compliance with all relevant laws should be recommended. To the extent necessary, we will ensure the business understands our objective of enhancing shareholder value and the risk management parameters and principles, including our appetite for risk, which govern how we will do this. We will ensure that the business understands that the finance and tax function should be involved throughout from planning to implementation to avoid failure in implementation, documentation or maintenance without corrective action. The prominence of the commercial needs will in no circumstances override compliance with all applicable UK laws. The finance and tax function will therefore provide appropriate input as part of the
Tax strategy
Page 10
approval process for business proposals to ensure a clear understanding of the tax consequences. The finance and tax function will also then ensure accurate representation in tax returns and accounts. Such business decisions and input include assessment, quantification and presentation of provisions in respect of taxes accounted for above the EBIT line of the profit and loss account. Assessment of the tax consequences should reflect whether there is a realistic opportunity for success based on the commitment to robust ongoing implementation, governance and the provision of adequate budget, expertise and resources. All such tax support will be given in the context of the finance and tax function being an enabler not a gate-keeper, willing to accept uncertainty and risk in line with our approved appetite for risk and transfer pricing strategy to unlock the potential of opportunity. Tax Risk Assessment Procedures for Decision Making The tax function must be involved in the planning, implementation and documentation for: • All business or share acquisitions and disposals. • All changes in corporate structure. • All cross-border financing arrangements where appropriate. • All significant business transactions. • All cross-border trading arrangements where appropriate. • All significant new processes affecting tax compliance. The Group Finance Director and the Board of Directors should be part of this engagement with the non-financial areas. A detailed assessment of the risk should be carried out and must be presented to the Board of Directors. Risk assessment should include, but not be limited to: • • • • • •
A full description of the issue including a clear summary statement of the facts. An assessment of the financial costs and benefits of all potential scenarios. An assessment of the non-financial costs and benefits including an assessment of the nature and amount of resources to secure the benefit. An assessment of the probability of the risk crystallising. Commentary on the likely process of dispute resolution. Recommendations.
The level of authorisation and decision making should be via the Board of Directors Tax Risk Management in the Compliance Life Cycle Compliance principles must comply with all tax regulations and disclosure requirements in the UK. Where compliance processes have been outsourced to a professional services firm, both the professional services firm and the group company using the services must equally ensure this principle is adhered to.
Tax strategy
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This requires that: • The Group should submit all returns by their due dates in line with UK tax law. • All material positions taken in the tax returns must be supportable in terms of documentation and legal interpretation. It is recommended that clear documentation of facts and circumstances be recorded at the time of any transaction. • The finance and tax function will robustly defend tax positions taken in the Group’s tax returns. • The finance and tax function will proactively pursue any tax timing benefits within the context of the tax risk strategy. • The finance and tax function should monitor changes in relevant UK tax law and practice and undertake regular training in order to assess any consequences for the Group, with the minimum aim of mitigating any adverse impact. • The finance and tax function will manage its compliance affairs to minimise the risk of any adverse consequences. • Appropriate administrative safeguards with regard to back up procedures and electronic signatures will be established and executed by each team. Tax Authority Relationships In line with the objective in the tax strategy to foster good relationships with the UK tax authorities, governments and related third parties, we will undertake all such dealings in a professional, courteous and timely manner: • The finance and tax function will pro-actively manage the relationship with the UK tax authorities with the aim of minimising the risk of challenge, dispute or damage to Donnelly Group’s credibility arising when tax matters are inadvertently incorrect. • The finance and tax function should participate where relevant in any UK tax authority formal consultation process where it is expected that the matter under consultation will have a material impact on Donnelly Group’s liability, or where a significant change in practice is being proposed that will impact the Group’s tax compliance management. • It is a policy of Donnelly Group to be proactive in all interactions with HMRC. Audit and Enquiry HMRC enquiries should be dealt with by the finance and tax function supported by professional services tax advisor where necessary. Such enquiries will be handled in a courteous, timely and professional manner in the normal course of the annual compliance cycle. Characteristics of enquiries to be taken into consideration include: • The overall liability at stake including tax and penalties. • The degree to which consistency is relevant to the Group. • The likelihood of litigation and need to adapt terms of engagement with HMRC.
Tax strategy
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• The need to adapt internal procedures and the flow information. • The likely resource requirement and options to source this requirement. • The reliance on expertise or information from other parts of the Group. • The risk of reputational damage. Tax Reporting Procedures and Provisions It is required that the Group comply with all UK laws and disclosures and act with due professional care. These requirements are never more relevant than in ensuring accuracy and completeness of the presentation of our tax position in the financial reporting of the Group. The reported financial accounts, whether at year end or interims, are expected to reflect all taxes including those accounted for above the EBIT line. This section refers only to the procedures for tax reporting of taxes below EBIT. Transparency is needed to ensure appropriate accounting and disclosure decisions for external reporting and accurate and complete briefing of the Group Tax and Compliance Manager and Group Financial Director. At each reporting event, tax charge and provisioning decisions should reflect the most up to date information to ensure that the Group will have no significant adjustments to the actual tax charge or tax returns. In meeting the above the Group Tax and Compliance Manager will issue appropriate instructions and timetable for each reporting event for completion and review of Tax Packs. All companies should: • Calculate all tax charges in accordance with the UK tax legislation. • Provide timely, complete and accurate tax packs and provision templates in accordance with instructions from the Group Tax and Compliance Manager. • Share relevant information in update calls in accordance with the reporting team agenda. • Assist the Group Tax and Compliance Manager with questions and clarifications required as part of the reporting process. • Prepare, subject to all inputs, the Group’s consolidated tax charge in accordance with all applicable governance and accounting requirements. • Ensure appropriate briefing for shareholders. • Prepare the tax section for the Board of Directors. In preparing the report the Group Tax and Compliance Manager should ensure that tax messages are: • Correct and complete. • Supported and supportable with documented positions where necessary. • Follow the principles of the UK Tax authorities.
Tax strategy
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Sharing of Best Practice At all times all members of the finance and tax function should seek to share knowledge and to seek input on any and all matters that could improve the management of tax risk and to maximise shareholder value. The finance and tax function should seek to enhance shareholder value by reflecting best practice, experience and views in: • Positions taken in tax returns. • Co-ordinating subjects for local lobbying if appropriate. • Co-ordinating knowledge of potential tax laws that are subject to consultation processes. • Relevant EC legislation, draft directives, ECJ cases and similar legislation and decisions that may affect the automotive industry. In so doing the confidentiality of financial matters is respected, but much can be learned from understanding: • Technical positions/rationale and the treatment of certain expenses or income. • Subjects of audit interest and the drivers of that interest. • Experiences of building mutual trust with HMRC. • Audit procedures, activity, status and tactics.
Tax strategy
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Appendix 1
Group Stakeholders
Company agent’s tax/ auditors
ShareHolders
General Public
Employees
Donnelly Group Franchise Manufacturers
Tax strategy
Suppliers
Stakeholders
Local Community
HMRC, FCA and other regulatory bodies
Board of Directors
Banks and Lenders
Customers Finance Brokers
Page 15
Key Objectives of the Above Stakeholder Groups •
Shareholders
Key objective of shareholders is to maximise trade, profitability and growth for the business as well as sustaining and retaining employment, being considerate to the local community, being corporately responsible and maximising shareholder wealth where feasible. •
Board of Directors
Key objective of the Board of Directors is long term sustainability and profitability of the business with the shareholders of the business being their top priority. •
Employees
Key objective of employees is sustaining long term employment, maximising salary and benefit packages, as well as performing highly and having job satisfaction. •
Banks and Lenders
Key objective of bankers and lenders is to be able to facilitate all the businesses banking and financing needs. They will be interested in the financial position of the company to ascertain any risks involved in and debt that needs serviced or any investment opportunities that may arise. •
Customers
Key objective of consumers would be having choice of products, receiving good customer service and optimising price. •
Suppliers
Key objective of suppliers is being able to maximise trade with this business to ensure maximum profit on transactions and being paid for the goods or services on a timely basis. •
Finance Brokers
Key objective of finance brokers is to trade with the company commercially to be able to provide vehicle financing for the Group’s customers. •
HMRC, FCA and Other Regulatory Bodies
Key objective for any tax body or other regulatory body will be to ensure that the business is compliant with all the rules and regulations imposed upon them by said body. •
Local Community
Key objective for the local community is to ensure local businesses bring growth and innovation to the community, to stimulate economic growth locally by providing employment opportunities and attract talent which will in turn benefit the local economy through infrastructure, schools, etc.
Tax strategy
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•
General Public
Key objective for the general public is that the business has a solid foundation of corporate social responsibility, that a policy is in place and that it is adhered to and the company are doing their upmost to have little or no negative impact on the society in which they operate. •
Franchise Manufacturers
Key objective for franchise manufacturers is that business that they operate with do their upmost to achieve the key performance indicators that are laid down for their business particularly with regard to new car registrations and customer satisfaction. •
Company Tax Agents and Auditors
The key objective of this stakeholder group will be to provide employment for their workforce and to assist their clients in making the correct economic and strategic decisions by professional advice and services they provide as well as assisting the company with their compliance so that they abide by all the regulations set out by law, by government and by HMRC.
Tax strategy
Page 17
Tax strategy
Page 1
Contents Donnelly Group Tax Strategy
Page 3
Donnelly Group Tax Code of Conduct
Page 8
Appendix 1
Page 15
Appendix 2
Page 18
Tax strategy
Page 2
Donnelly Group Tax strategy Donnelly Group has a tax strategy focused on the following key areas: 1. 2. 3. 4. 5. 6.
Integrity in compliance and reporting. Enhancing shareholder value. Commercial rationale. Controlling and managing risks. Being a trusted company. Having a transparent relationship with HMRC.
Tax strategy
Page 3
The environment in which the company operates is the automotive industry in the UK. The Group are currently ranked as 57th in the UK’s largest 100 automotive companies for 2016. A detailed breakdown of the company structure can be found at Appendix 2. The financial results for the year ended 31 October 2015, and comparative year to 31 October 2014 are as follows:
Turnover Gross Profit Profit before tax Retained Earnings Net assets KPIs Growth in turnover Gross profit margin Profit before tax as a percentage of turnover No of franchises held Employee numbers
2015 £ 246,708,930
2014 £ 243,158,180
25,644,437
23,240,642
948,256
863,586
564,308
439,869
17,000,180 16,247,808 2015 £ 1.50% 10.40%
2014 £ 18.80% 9.60%
0.40% 32 611
0.40% 32 582
Further information on the financial results of the company can be found on the companies published Group consolidated financial statements at Companies House.
Tax strategy
Page 4
A snapshot of the Group’s tax contributions can be found below for the period ended 31 October 2016: Total Tax liabilities Corporation Tax Deferred Tax Effective Rate of CT
£ 153,648.02 -33,127.00 14.03%
Value Added Tax Employment Taxes C&E Duty
2,254,651.97 1,395,274.00 254.70
Tax reliefs claimed Group relief surrendered/(claimed) Losses utilised R&D Tax credit Average net pay of 26 key employees Corporate Tax reconciliation Profit/(loss) before tax Adjustments Depreciation Disallowable expenses Other addbacks /deductions Capital Allowances Group relief PCTCT Tax rate Tax Liability
Tax strategy
0.00 -108,145.00 0.00
37,000.00
948,257.00 2,259,732.00 84,445.00 -807,526.00 -1,612,144.00 -61,879.00 536,545.00 20.12% 153,648.02
Page 5
1. Integrity in Compliance and Reporting We understand the value of our financial reporting to customers, investors and other stakeholders. Further information on our stakeholders can be found at Appendix 1. We work to provide enhanced, transparent and balanced disclosure in communicating our tax affairs. The group is committed to acting with integrity and transparency in all tax matters as part of our objective of being a trusted company. Our tax strategy and policy require that we fully comply with the letter and spirit of the law. We disclose on our financial statements the tax expense and full reconciliation of statutory tax rates and effective tax rates and we make timely and accurate tax returns that reflect our fiscal obligations to Government. 2. Enhancing Shareholder Value We deliver goods and services to customers at a price they are willing to pay, while providing our shareholders with returns that attract long term investment. The Group’s overall strategy and policies balance the need to maintain trust with stakeholders, while also generating a return for shareholders. 3. Commercial Rationale Minimising the Group’s tax liabilities by recognising appropriate legislative concessions and reliefs is of benefit to our customers via lower costs and to our shareholders by enhancing returns. In line with the Group’s tax strategy it seeks to make use of such appropriate reliefs and to control the Group’s tax costs. Whilst seeking to minimise tax liabilities for the benefit of customers and shareholders, the Group’s policy is not to use any aggressive tax planning or use any artificial tax avoidance schemes in line with being a trusted company. 4. Controlling and Managing Risks. We aim for certainty on the tax positions that we adopt. However, tax law can be unclear at times or subject to interpretation. On occasion, interpretation of that law may be opposed to Government’s intention. Our policy is:
Not to enter into any transactions that have as their main purpose gaining a tax advantage. Not to make any interpretations of tax law that is opposed to the spirit in which the Government intended.
To support the Group on this policy and to ensure that interpretation of the law is as it was intended, we have an internal tax specialist. As well this, we engage with a Top 4 accounting firm and legal firms where necessary for tax and legal advice. 5. Being a Trusted Company Demonstrating an understanding of where your stakeholder needs are, what issues they have and what the opportunities are, and having frequent dialogue with these stakeholders is a fundamental part of being a trusted company.
Tax strategy
Page 6
The position of a trusted company must be earned, it takes time and investment of effort and we believe that for a long number of years we as a Group have made an investment in these stakeholders. We have built a trusted relationship and our tax strategy supports this trust status through integrity and transparency at all times. 6. Having a Transparent Relationship with HMRC An important part of our tax strategy and policies and in support of the trusted company status is the maintenance and development of a strong, proactive working relationship with HM Revenue and Customs. We are transparent with HMRC and, in cases of interpretation or complexity, work with them on a real time basis to determine the amount of tax due. Tax Governance Tax is part of the finance function of our Group and it is the ultimate responsibility of the Group Finance Director and Senior Accounting Officer as well as the Group Tax and Compliance Manager to ensure the policies surrounding tax are adhered to. Ultimately the Board of Directors of the Group are responsible for its approval, implementation and delivery. The Board duly approved the above Tax Strategy at a Board of Directors meeting held at 59 Moy Road, Dungannon, Co Tyrone BT71 7DT on 25th day of January 2017. Signed on behalf of the Board ...................................................... Philip Jordan Group Finance Director
Tax strategy
Page 7
Donnelly Group Tax Code of Conduct Introduction This Code of Conduct applies to all finance and tax professionals working in Donnelly Bros (Garages) Dungannon Limited and its associated companies “the Group”. Every company within the Donnelly Group believe their obligation is to pay the correct amount of tax legally due in the UK, the Group’s sole country of operation, in accordance with rules set by the UK government. It is not believed appropriate for the details of the Group’s detailed tax affairs to appear in the public domain. However, Donnelly Group will only enter into transactions which would be fully justifiable should they become available in the public domain. Responsibilities and Professional Conduct will aim to: • Effectively manage risk by application of components of the tax risk strategy. • Observe all applicable UK laws, rules, regulations and disclosure requirements for a UK company. • Apply diligent professional care and judgment to arrive at well-reasoned conclusions. • Ensure all decisions are taken at an appropriate level and supported with documentation that evidences the facts, conclusions and risks involved. • The Group aims for certainty on tax positions it adopts, but where tax law is unclear or subject to interpretation, written advice or confirmation from appropriate tax accountants or lawyers will be sought as appropriate to ensure that our position would, more likely than not, be settled in our favour. • Where the tax treatment of an item is so uncertain and/or unquantifiable, filing positions should be subject to robust risk assessment and supported by full disclosure. • Develop and foster good working relationships with UK tax authorities (particularly the Group’s HMRC client relationship manager), government bodies and other related third parties. • Undertake all dealings with UK tax authorities, government officials, ministers and other third parties in a professional, courteous and timely manner. • Be compliant with all anti-bribery legislation, general anti abuse rules (GAAR) and Targeted Anti Abuse provisions. • Lobby and seek to influence applicable industry bodies or associations, governments and other external bodies, where applicable and appropriate, to shape future tax legislation and practice in ways that balance the Group’s interest. Commercial Rationale The commercial needs of the Group are paramount and all tax planning will be undertaken in this context. All transactions must therefore have a business purpose or commercial rationale. Due consideration will be given to the Group’s reputation, brand, and corporate and social responsibilities when considering tax initiatives, as well as the applicable legal and
Tax strategy
Page 8
fiduciary duties of directors and employees of the Group and will form part of the overall decision-making and risk assessment process. Policy on Disclosure Compliance with all relevant legal disclosure and approval requirements will be adopted and all information will be clearly presented to the tax authorities or other relevant bodies, as appropriate. Openness, honesty and transparency will be paramount in all dealings with the tax authorities and other relevant bodies. Other Policies and Procedures On all projects the required approvals and procedures will be complied with.
Tax strategy
Page 9
Tax Risk Management – General Over-riding Principle Tax risk is ideally managed by the prevention of unnecessary disputes. The avoidance of all tax disputes would suggest an overly prudent position that is not in line with one of our main objectives to enhance shareholder value. Prevention of unnecessary dispute is desired and appropriate and is best achieved from: • Strong technical positions. • Clear explanation of those positions. • Thorough documentation, particularly of facts. • Well established relationships with tax authorities particularly HMRC client relationship manager. • Strong compliance procedures ensuring accurate and complete tax returns. Assessment of any risks should take due account of: • Both short and long term considerations and risks. • The impact on corporate reputation/brand. • The impact on relationships with the UK government. • The consequence of disagreements with HMRC. • The benefit of certainty in respect of uncertain or disputed tax positions. Appetite for Risk Donnelly Group’s appetite for risk is dictated by its objective to be fully compliant, transparent and consistent in its application of all policies across the group. All finance and tax function members should act proactively to ensure and continually improve our tax risk decision making where necessary. Tax Risk Management for Interactions with the Business Within the context of the commercial needs of the Group being paramount, we will work with any potential business partner as an equal partner in providing clear, timely, relevant and business focused advice across all aspects of tax arising there from. Where alternative routes exist to achieve the same commercial results, the most tax efficient approach in compliance with all relevant laws should be recommended. To the extent necessary, we will ensure the business understands our objective of enhancing shareholder value and the risk management parameters and principles, including our appetite for risk, which govern how we will do this. We will ensure that the business understands that the finance and tax function should be involved throughout from planning to implementation to avoid failure in implementation, documentation or maintenance without corrective action. The prominence of the commercial needs will in no circumstances override compliance with all applicable UK laws. The finance and tax function will therefore provide appropriate input as part of the
Tax strategy
Page 10
approval process for business proposals to ensure a clear understanding of the tax consequences. The finance and tax function will also then ensure accurate representation in tax returns and accounts. Such business decisions and input include assessment, quantification and presentation of provisions in respect of taxes accounted for above the EBIT line of the profit and loss account. Assessment of the tax consequences should reflect whether there is a realistic opportunity for success based on the commitment to robust ongoing implementation, governance and the provision of adequate budget, expertise and resources. All such tax support will be given in the context of the finance and tax function being an enabler not a gate-keeper, willing to accept uncertainty and risk in line with our approved appetite for risk and transfer pricing strategy to unlock the potential of opportunity. Tax Risk Assessment Procedures for Decision Making The tax function must be involved in the planning, implementation and documentation for: • All business or share acquisitions and disposals. • All changes in corporate structure. • All cross-border financing arrangements where appropriate. • All significant business transactions. • All cross-border trading arrangements where appropriate. • All significant new processes affecting tax compliance. The Group Finance Director and the Board of Directors should be part of this engagement with the non-financial areas. A detailed assessment of the risk should be carried out and must be presented to the Board of Directors. Risk assessment should include, but not be limited to: • • • • • •
A full description of the issue including a clear summary statement of the facts. An assessment of the financial costs and benefits of all potential scenarios. An assessment of the non-financial costs and benefits including an assessment of the nature and amount of resources to secure the benefit. An assessment of the probability of the risk crystallising. Commentary on the likely process of dispute resolution. Recommendations.
The level of authorisation and decision making should be via the Board of Directors Tax Risk Management in the Compliance Life Cycle Compliance principles must comply with all tax regulations and disclosure requirements in the UK. Where compliance processes have been outsourced to a professional services firm, both the professional services firm and the group company using the services must equally ensure this principle is adhered to.
Tax strategy
Page 11
This requires that: • The Group should submit all returns by their due dates in line with UK tax law. • All material positions taken in the tax returns must be supportable in terms of documentation and legal interpretation. It is recommended that clear documentation of facts and circumstances be recorded at the time of any transaction. • The finance and tax function will robustly defend tax positions taken in the Group’s tax returns. • The finance and tax function will proactively pursue any tax timing benefits within the context of the tax risk strategy. • The finance and tax function should monitor changes in relevant UK tax law and practice and undertake regular training in order to assess any consequences for the Group, with the minimum aim of mitigating any adverse impact. • The finance and tax function will manage its compliance affairs to minimise the risk of any adverse consequences. • Appropriate administrative safeguards with regard to back up procedures and electronic signatures will be established and executed by each team. Tax Authority Relationships In line with the objective in the tax strategy to foster good relationships with the UK tax authorities, governments and related third parties, we will undertake all such dealings in a professional, courteous and timely manner: • The finance and tax function will pro-actively manage the relationship with the UK tax authorities with the aim of minimising the risk of challenge, dispute or damage to Donnelly Group’s credibility arising when tax matters are inadvertently incorrect. • The finance and tax function should participate where relevant in any UK tax authority formal consultation process where it is expected that the matter under consultation will have a material impact on Donnelly Group’s liability, or where a significant change in practice is being proposed that will impact the Group’s tax compliance management. • It is a policy of Donnelly Group to be proactive in all interactions with HMRC. Audit and Enquiry HMRC enquiries should be dealt with by the finance and tax function supported by professional services tax advisor where necessary. Such enquiries will be handled in a courteous, timely and professional manner in the normal course of the annual compliance cycle. Characteristics of enquiries to be taken into consideration include: • The overall liability at stake including tax and penalties. • The degree to which consistency is relevant to the Group. • The likelihood of litigation and need to adapt terms of engagement with HMRC.
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• The need to adapt internal procedures and the flow information. • The likely resource requirement and options to source this requirement. • The reliance on expertise or information from other parts of the Group. • The risk of reputational damage. Tax Reporting Procedures and Provisions It is required that the Group comply with all UK laws and disclosures and act with due professional care. These requirements are never more relevant than in ensuring accuracy and completeness of the presentation of our tax position in the financial reporting of the Group. The reported financial accounts, whether at year end or interims, are expected to reflect all taxes including those accounted for above the EBIT line. This section refers only to the procedures for tax reporting of taxes below EBIT. Transparency is needed to ensure appropriate accounting and disclosure decisions for external reporting and accurate and complete briefing of the Group Tax and Compliance Manager and Group Financial Director. At each reporting event, tax charge and provisioning decisions should reflect the most up to date information to ensure that the Group will have no significant adjustments to the actual tax charge or tax returns. In meeting the above the Group Tax and Compliance Manager will issue appropriate instructions and timetable for each reporting event for completion and review of Tax Packs. All companies should: • Calculate all tax charges in accordance with the UK tax legislation. • Provide timely, complete and accurate tax packs and provision templates in accordance with instructions from the Group Tax and Compliance Manager. • Share relevant information in update calls in accordance with the reporting team agenda. • Assist the Group Tax and Compliance Manager with questions and clarifications required as part of the reporting process. • Prepare, subject to all inputs, the Group’s consolidated tax charge in accordance with all applicable governance and accounting requirements. • Ensure appropriate briefing for shareholders. • Prepare the tax section for the Board of Directors. In preparing the report the Group Tax and Compliance Manager should ensure that tax messages are: • Correct and complete. • Supported and supportable with documented positions where necessary. • Follow the principles of the UK Tax authorities.
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Sharing of Best Practice At all times all members of the finance and tax function should seek to share knowledge and to seek input on any and all matters that could improve the management of tax risk and to maximise shareholder value. The finance and tax function should seek to enhance shareholder value by reflecting best practice, experience and views in: • Positions taken in tax returns. • Co-ordinating subjects for local lobbying if appropriate. • Co-ordinating knowledge of potential tax laws that are subject to consultation processes. • Relevant EC legislation, draft directives, ECJ cases and similar legislation and decisions that may affect the automotive industry. In so doing the confidentiality of financial matters is respected, but much can be learned from understanding: • Technical positions/rationale and the treatment of certain expenses or income. • Subjects of audit interest and the drivers of that interest. • Experiences of building mutual trust with HMRC. • Audit procedures, activity, status and tactics.
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Appendix 1
Group Stakeholders
Company agent’s tax/ auditors
ShareHolders
General Public
Employees
Donnelly Group Franchise Manufacturers
Tax strategy
Suppliers
Stakeholders
Local Community
HMRC, FCA and other regulatory bodies
Board of Directors
Banks and Lenders
Customers Finance Brokers
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Key Objectives of the Above Stakeholder Groups •
Shareholders
Key objective of shareholders is to maximise trade, profitability and growth for the business as well as sustaining and retaining employment, being considerate to the local community, being corporately responsible and maximising shareholder wealth where feasible. •
Board of Directors
Key objective of the Board of Directors is long term sustainability and profitability of the business with the shareholders of the business being their top priority. •
Employees
Key objective of employees is sustaining long term employment, maximising salary and benefit packages, as well as performing highly and having job satisfaction. •
Banks and Lenders
Key objective of bankers and lenders is to be able to facilitate all the businesses banking and financing needs. They will be interested in the financial position of the company to ascertain any risks involved in and debt that needs serviced or any investment opportunities that may arise. •
Customers
Key objective of consumers would be having choice of products, receiving good customer service and optimising price. •
Suppliers
Key objective of suppliers is being able to maximise trade with this business to ensure maximum profit on transactions and being paid for the goods or services on a timely basis. •
Finance Brokers
Key objective of finance brokers is to trade with the company commercially to be able to provide vehicle financing for the Group’s customers. •
HMRC, FCA and Other Regulatory Bodies
Key objective for any tax body or other regulatory body will be to ensure that the business is compliant with all the rules and regulations imposed upon them by said body. •
Local Community
Key objective for the local community is to ensure local businesses bring growth and innovation to the community, to stimulate economic growth locally by providing employment opportunities and attract talent which will in turn benefit the local economy through infrastructure, schools, etc.
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•
General Public
Key objective for the general public is that the business has a solid foundation of corporate social responsibility, that a policy is in place and that it is adhered to and the company are doing their upmost to have little or no negative impact on the society in which they operate. •
Franchise Manufacturers
Key objective for franchise manufacturers is that business that they operate with do their upmost to achieve the key performance indicators that are laid down for their business particularly with regard to new car registrations and customer satisfaction. •
Company Tax Agents and Auditors
The key objective of this stakeholder group will be to provide employment for their workforce and to assist their clients in making the correct economic and strategic decisions by professional advice and services they provide as well as assisting the company with their compliance so that they abide by all the regulations set out by law, by government and by HMRC.
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