The International Financial Reporting Standards Foundation, parent entity of the mighty International Accounting Standard Board, made a £460,000 (Rs 4.07 crore) provision last year for a potential tax settlement with Britain’s HM Revenue and Customs, in a case that could prove highly embarrassing for the standards-setting body.

In its Annual Report published earlier this month, the IFRS Foundation pointed to a £460,000 provision made for a tax settlement with the HMRC following a review begun by the UK tax authority of “all records for inward bound expatriate staff and general compliance with employment tax, i.e., income tax and national insurance obligations”.

Discussions are on though the Foundation has made, at HMRC’s request, a £24,000 (Rs. 21.25 lakh) ‘no liability, no prejudice’ payment, pending final demand. The Foundation is not elaborating.

Business Line understands the HMRC has been examining the work patterns of the Foundation’s employees, and its interpretations of regulations (including the UK’s agreements with other jurisdictions where the body has employees).Business Line believes that one issue that was under examination has been closed in the Foundation’s favour since the year-end, while another continues to be examined.

‘ EMBARRASSING’

“It could be about people who are considered by the HMRC to be subject to Pay as You Earn taxation,” speculates Mr Richard Murphy, director of UK-based Tax Research and an anti-tax avoidance campaigner. “It could be about a dispute over the taxation of benefits in kind, things considered a business expense but taxable according to HMRC.”

However, one thing Mr Murphy is certain of is the irony of the situation. “…Whatever else is said, the dispute is profoundly embarrassing for …the people who are meant to set the rules and are staffed by people who are terribly familiar with the Big Four accountancy firms, and have got all the access to all the advice that one might need.”

He argues that the fact the Foundation had put the amount down as an estimated liability, rather than a remote contingent liability “signified that they see it as a reasonable risk that they will have to pay.”

SYSTEMIC ISSUES

“To me this is indicative of their attitude towards risk and their role as a regulator…someone who has to be so careful has been so careless not to ensure they had covered every risk..”

As for HMRC, it has faced criticisms over the way it has negotiated tax settlements with some of Britain’s largest companies. Last year, the House of Commons’ Public Accounts Committee expressed its “serious concerns” about “systemic issues” about the Department’s settlement process where governance arrangements were “bypassed or overlooked until it was too late.”

While the National Audit Office recently described as “reasonable” the deals reached with five firms, including Vodafone and Goldman Sachs, it was critical of other aspects of the process, including exemption of specialists from final decisions. (The Hindu)