Legal & General on Tax transparency

Is your business transparent on tax?

Question collaborator: Tax Justice Network

No

At Legal & General we aim for our tax affairs to be transparent and sustainable.  We are committed to tax transparency and we have been active participants in this debate.

We make a great deal of tax information publicly available. We have met almost all the answer requirements to answer YES to this current R100 tax question. However, we have not quite met them all, thus we answer NO. This stated, it is obvious we are exhibiting an extremely high level of transparency in regards our tax policies and practices via our disclosures below, and via the links and references provided.  Where we have not currently disclosed the required information to meet every YES answer requirement, we have provided an explanation as relevant.  Despite not meeting all the YES answer requirements, we nonetheless perform well enough to be scored as EXCELLENT against the current R100 scorecard.

CSR report:

http://reports.legalandgeneralgroup.com/2014/responsibility/data-centre/paying-tax.html

Tax blog:

http://www.legalandgeneralgroup.com/media-centre/thought-leadership/taxing-times.html

Investor page:

http://investor.legalandgeneral.com/group-tax.cfm

Report & accounts:

http://reports.legalandgeneralgroup.com/2014/ara/strategic-report/acting-responsibly/tax-matters.html

CRD IV:

http://files.shareholder.com/downloads/LGEN/275840281x0x760770/69E946D9-2A5E-46CC-9D60-A29C263C2549/CRD%20IV%20submission%20document%20050614.pdf

Tax app:

http://www.legalandgeneral.com/advisercentre/campaigns/taxfacts/

Analyst pack:

http://files.shareholder.com/downloads/LGEN/96471180x0x813529/2BA075FF-85D1-4F44-A860-927A3E5BB678/press_release_for_website_and_IR_app.pdf

We have historically disclosed our tax policy in our annual Group and accounts but for 2014 we have disclosed this in the tax page of our investor relations website.  The tax page of the investor relations webpage also details how we manage our tax risk and the governance procedures. 

We also provide further information on tax risk management in our tax blog.

We disclose our material operating entities and investment vehicles in our Group accounts along with the country that they operate/incorporated.  A complete list of undertakings is annexed to the Company’s annual return which will be available from Companies House. 

Our Group website provides links to our overseas business websites and there is also information on where our segments operate on the business segment profiles

Our view is that we take a materiality approach to publishing information that we feel is appropriate, proportionate and relevant to users of the information. 

Our overseas companies were established for genuine commercial reasons to enable us to develop and expand our business.  We do not explicitly explain our use of tax havens but we publish information regarding the countries that we operate in.  In our annual Group accounts, we publish profit before tax figures by country and there is further country by country information detailed within our CSR report.  

We may publish information on certain territories in the future based on our materiality approach where we feel it would be appropriate and are currently considering whether to update our tax investor page.  

The results of all companies in the Group are consolidated in the annual Group accounts which is available on our website.

We also publish the accounts for the Legal & General Netherlands group on our Dutch website. 

The accounts of all our UK subsidiaries are publically available at Companies’ House but are not currently published on our website. 

The accounts of our Irish subsidiaries are publically available on the Companies Registration Office but are not currently published on our website. 

The accounts of our French subsidiaries are publically available on the French Companies House website. 

We shall consider publishing the accounts of all our subsidiaries in one place online.  This would require approval from the relevant Boards and ensure we do not breach any local regulatory requirements. 

a)     We explain the Group tax charge and publish information on our total profits, current and deferred tax charges in our Group accounts.  There is also more information in the analyst pack about our overseas businesses (for example 3.06 details new Insurance Business by jurisdiction)

We also provide some of this information by country in our CSR report.

We have not disclosed current and deferred tax charges by jurisdiction as we have taken a materiality approach and we felt that there was limited interest.  However, we do split the deferred tax information between UK and overseas in the Analyst pack (see 2.22).  

b)     Compared to many international groups, we have relatively few intra-group transactions.  We have not disclosed information on significant intra-group transactions but all of our intra-group transactions are on arms’ length terms and we are considering including this information on our tax investor page. 

c)     We provide a reconciliation of the Group current tax and total tax charge in the Group accounts.

We have not provided this by each country that we operate in as we have taken a materiality approach.  However, we do publish information on cash tax and taxes borne by country in the CSR report.

d)     The Group accounts provide a breakdown of the groups deferred tax assets and liabilities.  There is further information on deferred tax relating to losses in the Analyst pack given the interest in these balances. 

We have not published detailed explanations of other deferred tax amounts to include when and where they might be due and the events that might trigger it being paid because we feel that this is subjective and there are restrictions on forward looking statements.

We do not disclose information on significant disputes with the tax authorities or campaign groups as this could be detrimental for those involved.  However we do comment on our relationship with HMRC in our tax blog and how we work with campaign groups on our investor relations tax page.

We do not provide information on how many years of tax returns remain open and what the main issues that are outstanding.  We will consider if any further information could be disclosed on this.

We support country by country reporting as detailed in our annual report and accounts.  We currently voluntarily publish some country by country data already in our CSR report.  Country by country information as prescribed by CRD IV is also published on our Group website

Tax is an important and integral part of our business. We recognise that our stakeholders not only include our investors, customers and employees, but also the wider society.

It is important to us that the right amount of tax is paid at the right time in the right place. Paying tax is part of how our business contributes to society. Taxes provide public revenues for governments to meet economic and social objectives, including the creation of jobs, generating business for suppliers and building infrastructures.  We have been active in the promoting tax transparency debate and aim to build trust with our stakeholders.

We also work with the charity tax volunteers which provides free expert caring independent advice for older people.

Our tax facts app is packed with useful information, including key dates, tax tips, and calculators.

We have supported the recent debate on tax transparency and this was recognised when we were winners of the 2012 PwC Building Public Trust Awards and we were also highly commended in 2013 and 2014.

Answered at 04:49PM on 22 Friday Apr 2016

Taxation is raised by government to fund public goods such as education, health care, and law and order. These services are vital in maintaining strong and healthy societies, and in turn, healthy economies on which business depends. Since individuals and businesses prosper when society prospers, the incomes of both individuals and businesses are taxed to fund public spending. Unfortunately, governments lose many billions of pounds each year due to tax avoidance (which is legal) and evasion (which is illegal). Some methods of avoiding taxes, while technically legal, may suggest limited civic responsibility. Loss of expected tax revenue may result in governments needing to increase borrowing, reduce public spending or increase the tax burden on individuals or other business organisations. This can create forms of unfair competition benefiting tax avoiders at the expense of everyone else.

When it comes to determining how much tax a business pays, larger and especially multinational companies are usually much harder to appraise than smaller firms. This is for two reasons. Firstly, there is often no legal requirement to disclose in either group or individual company accounts how much tax they pay and where they pay it, on a country by country basis. For UK firms, under accounting rules, the tax figure they need to disclose follows the profit disclosures and is therefore a worldwide one – given the multiplicity of tax rates around the world and the fact that they are under no legal obligation to reveal where they make their profits (they simply need to reveal how much they make in total), the worldwide tax data disclosed is often inadequate as a basis for assessment. Second, multinational corporations generate profits across a number of different tax jurisdictions, potentially enabling the exploitation of favourable rules in tax havens and lower tax territories. Third, successive UK governments have changed tax policies to make the UK an attractive holding company location. As a result of tax competition, globally higher world-wide profits do not necessarily result in higher taxes.

This question is designed for UK businesses and organisations that are subject to corporation tax. Those which are not include sole traders, traditional partnerships and limited liability partnerships. The profits of such entities are taxed via their owners/partners and often personal factors (unrelated to the business) have significant impact on the resulting tax due. This question is not designed for unincorporated businesses and such entities may respond NOT APPLICABLE although they are encouraged to take the opportunity to demonstrate transparency regarding their tax affairs nonetheless.

Note – Whether a company is an SME, medium sized or large company is based on EU provisions set out in the Annex to the Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises.

Deferred tax liabilities

'Deferred tax liabilities' generally arise where tax relief is provided in advance of an accounting expense or income is accrued but not taxed until received.

Deferred tax assets

'Deferred tax assets' generally arise where a tax deduction is deferred to a period later than that in which the expense is accounted for or where a company incurs tax losses that can be utilised in future periods.

Tax haven

A 'tax haven' is a country or state which combines a low or zero rate of tax for effectively non-resident individuals and businesses, with a high degree of opacity to obstruct authorities elsewhere from challenging the arrangements. As a proxy, this question uses the Tax Justice Network’s Financial Secrecy Index. Those countries scoring higher than 60 on the index as well as Cyprus, The Netherlands and Ireland are deemed to be tax havens for the purposes of this question. It should be noted that there are a variety of legitimate business reasons for locating in these countries and territories. Respondents to this question which do use them are encouraged to take the opportunity to explain their arrangements.

Answering YES

A) Small and medium-sized businesses (SMEs) MUST

State the amount of profit generated

State the applicable tax rates

State the tax charge and the amount of tax paid and the percentages each of these represents

Explain why, should the tax charge and the cash tax paid/due be different

A) Small and medium-sized businesses (SMEs) MAY

State any philosophies, beliefs or values which influence their approach to taxation

Provide any other relevant information with reference to the answering requirements for larger businesses

B) Large and Multinational Corporations (MNCs) MUST

Explain their tax policy, how they manage their tax risks and the governance procedures put in place to ensure their company pays the right amount of tax in the right place at the right time and where responsibility for tax affairs sits

Explain where they trade and what they are called in each country in which they trade setting out all the countries where they have a subsidiary, legal entity, branch or permanent establishment, listing each at all such locations (including those that are incorporated elsewhere)

Explain their use of tax havens and low tax jurisdictions and how much profit is attributable to their use

Publish the accounts of all their subsidiaries, wherever they might be in the world or explain why this is not done for each such subsidiary

List all entities in which the company has a 25% or greater interest, including the name of the entity, the country in which it is located, its legal form and its principal activity; or explain why this is not done

B) Large and Multinational Corporations (MNCs) MAY

State any philosophies, beliefs or values which influence their approach to taxation

Explain the tax charge in their accounts by:

a) publishing information on the total sales, profits, current and deferred tax charges and tax paid for each material country in which they operate by year (i.e. countries where 5% or more of group's turnover/profits are made or where the company’s activity represents 1% or more of GDP of industry)

b) describing any significant intra-group transactions and the approaches adopted in managing compliance with transfer pricing rules

c) reconciling the current tax/cash tax and total tax charge for each major location where turnover or profits (including intra-group trading) exceeds 3% of the group total with the statutory tax rate for the location for the year

d) provide a breakdown of the group’s deferred taxation liabilities and assets together with an explanation of these amounts to include information on the following: i. how it has arisen; ii. when it might be due; iii. where it might be due; and iv. what events might trigger it being paid

e) or explain if and why a, b, c or d is not possible.

Disclose their risk rating with HMRC (this usually applies to only the 2,000 largest businesses in the UK)

Explain if and why they support the adoption of mandatory country-by-country reporting or not, and whether they would consider publishing their OECD country-by-country reporting template

Describe if and how they engage with third party tax advisers or boutique consultancies and any criteria which governs such engagements

Provide any other relevant information

Answering NO

All Businesses MUST

Explain why they do not or cannot answer YES to this question and list the business reasons, any mitigating circumstance or any other reasons that apply

All Businesses MAY

Provide any other relevant information

Answering NOT APPLICABLE

All Businesses MUST

State that they are not subject to corporation tax and explain why

All Businesses MAY

Disclose according to the guidelines for answering YES, or as close as possible, or otherwise demonstrate equivalent transparency

DON'T KNOW is not a permissible answer to this question

Version 2

This question has multiple scorecards.

Small and medium-sized enterprises (SMEs)

To receive a score of 'Excellent'

Business transparent on tax, adopting best practices and actively supporting multi-stakeholder initiatives to help encourage more effective tax regulation and practices for the modern, global economy.

e.g. explains how business aims, values or mission relate to tax practices
e.g. explains tax charge in accounts fully
e.g. provides full break down or explanation of deferred tax liabilities and assets
e.g. explains any significant unresolved disputes with tax authorities
e.g. makes clear its determination to contribute to development of better taxation rules, regulations and regimes, both domestically and internally
e.g. provides detailed explanation of tax policies
e.g. describes governance and oversight procedures

To receive a score of 'Good'

Business transparent on tax.

e.g. publishes aims, values or mission statements relating to tax practices
e.g. explains in suitable detail tax charge in accounts
e.g. provides explanation of tax policies
e.g. describes governance and oversight procedures

To receive a score of 'Okay'

Business exhibits a degree of transparency on tax.

e.g. sets out tax statement appropriate to business
e.g. provides some explanation of tax policies beyond minimum legal requirements
e.g. describes governance and oversight procedures

To receive a score of 'Poor'

Business not transparent on tax.

e.g. lack of meaningful disclosure / no disclosure beyond minimum legal requirements
e.g. no explanation for lack of disclosure
e.g. no statement of future intent

Large and Multinational Corporations (MNCs)

To receive a score of 'Excellent'

Business transparent on tax, adopting best practices and actively supporting multi-stakeholder initiatives to help encourage more effective tax regulation and practices for the modern, global economy.

e.g. explains how business aims, values or mission relate to tax practices
e.g. explains tax charge in accounts fully
e.g. explains significant intra-group transactions
e.g. provides full break down or explanation of deferred tax liabilities and assets
e.g. discloses risk rating with HMRC
e.g. states how many years of tax returns remain open
e.g. explains any significant unresolved disputes with tax authorities
e.g. makes clear its determination to contribute to development of better taxation rules, regulations and regimes, both domestically and internally
e.g. provides detailed explanation of tax policies
e.g. describes governance and oversight procedures
e.g. explains any use of tax havens
e.g. explains practices regarding country-by-country reporting
e.g. provides accounts of subsidiaries
e.g. explains tax charge in accounts fully
e.g. explains significant intra-group transactions
e.g. provides full break down or explanation of deferred tax liabilities and assets
e.g. discloses risk rating with HMRC
e.g. states how many years of tax returns remain open
e.g. explains any significant unresolved disputes with tax authorities
e.g. makes clear its determination to contribute to development of better taxation rules, regulations and regimes, both domestically and internally
e.g. provides detailed explanation of tax policies
e.g. describes governance and oversight procedures
e.g. explains any use of tax havens
e.g. explains practices regarding country-by-country reporting
e.g. provides accounts of subsidiaries

To receive a score of 'Good'

Business transparent on tax.

e.g. publishes aims, values or mission statements relating to tax practices
e.g. explains in acceptable detail tax charge in accounts
e.g. provides detailed explanation of tax policies
e.g. describes governance and oversight procedures
e.g. explains any use of tax havens
e.g. explains practices regarding country-by-country reporting
e.g. provides accounts of subsidiaries

To receive a score of 'Okay'

Business exhibits a degree of transparency on tax.

e.g. provides some explanation of tax policies beyond minimum legal requirements
e.g. describes governance and oversight procedures
e.g. explains position re use of tax havens and country-by-country reporting

To receive a score of 'Poor'

Business not transparent on tax.

e.g. lack of meaningful disclosure / no disclosure beyond minimum legal requirements
e.g. no explanation for lack of disclosure
e.g. no statement of future intent

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