Populism, profit-shifting and UK pensions
The demand for corporates and wealthy individuals to adopt greater tax transparency continues to build momentum – the significance of the global reaction to it makes the recent Autumn Statement seem like chicken feed. The reforms being formulated could have a dramatic impact upon tax strategies and corporate governance generally. Whilst it will no doubt present a headache for some C-suite executives, it may make the job of a pension plan trustee easier when assessing the value and strength of the sponsoring employer, particularly where that employer is part of an international group of companies.
Recent developments in this area include:
- In November 2015 the G20 endorsed an OECD action plan to tackle BEPS (Base Erosion and Profit Shifting) by large multinationals. This is attempting to target an estimated loss to global tax revenues of US$100 to 240 billion annually. In addition to the G20, it has involved a group of 80 developing countries.
- On 12 April the European Commission proposed a directive obliging large multinationals to publicly disclose their tax and earnings in the European Union. Separately EU member states have also agreed on a directive to automatically exchange amongst authorities tax-related information on the activities of multinational companies.
- Since 30 June UK non-listed corporate entities are required to file with Companies House a record of their “Persons with Significant Control”.
- On 24 November, more than 100 jurisdictions concluded negotiations on a multilateral instrument that will implement a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises. The signing ceremony will be in June 2017.
The combined effect of these developments and other is that top executives in large companies will be under increased pressure to ensure that the tax strategies employed in relation to their corporate and personal wealth are fair and reasonable. Even if no change of approach is necessary, they may need to comply with additional red tape.
Whilst this may present a challenge to corporates, the resultant increase in financial transparency may make the job of a pension plan trustee a little easier. A key role of a defined benefit occupational pension plan trustee is to understand the ability and willingness of the sponsoring employer to make good any funding deficit. It is often hard to identify the value of the so-called “employer covenant”, particularly where the sponsoring employer is part of a wider group of companies some of which have no direct obligation to the UK pension plan.
Even if the result of these developments is just greater corporate transparency, then it will help trustees undertake an analysis of where the value sits in the group and how easily it could be moved beyond the reach of the pension plan. The outcome of this analysis may be to agree a monitoring process or some preventative measures. If the impact of the trend is more dramatic and multi-national groups become less inclined to shift profits to lower tax jurisdictions, this may mean more profits remaining in the UK and the greater availability of funds for UK pension plans. Either way, this populist trend could be a rare example of a recent development which is making the role of a pension plan trustee a little easier.