Fair Tax Mark campaign to congratulate Tesco?

I thought that the Fair Tax Mark campaign’s press release on Tesco was a very quick response to Tesco releasing their 2013 annual report last week.

It turns out I was wrong. The Fair Tax Mark press release was actually out of date when they published it. They forgot to state which years they were referring to in their press release or link to their supporting analysis. It was only by cross-referencing to their analysis that I realised.

Anyway, Tesco now deserve at least 3 points for their tax rate score (the maximum possible under that category without adopting country-by-country reporting) because they’ve closed their weighted difference to within 3% of that expected by the FTMRNG:

Tesco 2013 FTM

With one year’s results Tesco have managed to improve their tax rate score from the minimum possible to the maximum available.

However, if you work out an actual average current rate for the period, you’ll realise that Tesco are actually still quite far beneath the “expected rate” over the period. It’s not the 8.3% that FTM state in their press release, it’s more like 6%.

But, this is exactly the sort of swing in score that the researchers wanted to enable where companies behaviour improves.

It may not be everything that the Fair Tax Mark campaign have on their shopping list to get from the supermarket giant, but I imagine the Fair Tax Mark campaign will want to show some goodwill and congratulate Tesco for their dramatic improvement.

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About Ben Saunders

I'm a Chartered Tax Adviser and a freelance writer. This is my personal blog about, well, mainly taxation. I might put other stuff in. Who knows.
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6 Responses to Fair Tax Mark campaign to congratulate Tesco?

  1. You are right Ben – we are pleased to note Tesco’s improvement. It is welcome.

    And when we do the 2013 results we will no doubt give the full credit that is due – correctly noting – as you do – that current performance is what matters most

    Regards

    Richard
    The Fair Tax Mark

  2. graeme says:

    But what was done to achieve this “creditable” score? What was their “virtuous” behaviour?

    • The main contributing factor is that Tesco incurred about £1.3bn of expenditure that wasn’t allowable for tax purposes.

      That’d include things like multi-million pound fines for dairy price fixing and the like….

      I can’t see straight away, but there are some big adjustments which won’t necessarily follow through for tax purposes. I’ll have a bit of a look later on.

  3. Erm, probably just being a bit thick, but why does FTM compare the *Group* current tax charge to the *Group* consolidated profits-before-tax to determine whether the effective *Group* rate is close to the UK statutory corporation tax rate?

    If foreign profits are taxed at greater than the UK statutory rate, it will unfairly flatter the FTM score. If foreign profits are taxed at lower than the UK statutory rate, it will unfairly harm the FTM score. And the consolidated profit contains all sorts of gains and losses that are artefacts of the consolidation process; they’re nothing to do with tax avoidance at all.

    There are all sorts of good, non-avoidance reasons why the UK profits don’t get taxed at the UK statutory rate. But there are even more good reasons why the consolidated group profits don’t get taxed at the UK rate.

    • It’s because Richard’s fair tax gap method is basically his corporate tax gap calculations focused on a single company.

      That’s the method which the IFS suggested were rather wayward:

      Attempts have been made to quantify the effect of profit shifting by considering the difference between the amount of tax paid as declared on firms’ accounts and an estimate of the tax due. Such measures tend to make assumptions about how much taxable profit was made in the UK and how much tax ‘should’ have been paid, and do not directly account for the deliberate elements in the structure of the tax system that mean that tax liabilities can be reduced (such as capital allowances, the R&D tax credit and loss carryforwards) or the genuine commercial reasons why tax may be paid in other jurisdictions. As such, while estimates have suggested much larger tax gaps for the UK’s largest companies than those implied by the HMRC analysis, they are likely overstated (possibly by a wide margin).

      http://www.ifs.org.uk/budgets/gb2013/GB2013_Ch10.pdf (page 3)

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