SOX-like Tax rules?

It's been a while since i bolgged. I'm glad something has caught my eye which is worth blogging about.

In the UK The Finance Act 2009, awaiting its coming of age glorification was outdoored by the loving Alistair Darling. To some, yes, it is a masterpiece in these sombre economic times. However, I believe myself and CFOs who are to be affected (thank god i am not in this category) say yes with a heavy pinch, no, tablespoon full of salt and cod liver oil.

Why do I say so? Well you think these blokes had learnt a thing or two from their atlantic cousins overseas with all the havoc SOX caused when it was passed into law. They just had to do something silly, sorry, similar.

The actual rule requirements:
Senior Accounting Officers (Usually, The Finance Director) of large companies will be required to:

> Take reasonable steps to establish and monitor accounting systems within their companies that are adequate for the purposes of accurate tax reporting.

> Certify annually to HMRC(The UK Tax authority) that the accounting systems in operation are adequate for the purposes of accurate tax reporting.

> Specify the nature of any inadequacies

The new proposal called Clause 92 (It has not yet received Act status) is to ensure that accounting systems in operation within large UK tax paying groups are adequate for the purposes of accurate tax reporting. The legislation also provides that “Senior Accounting Officers” will be personally liable to fines of up to £5,000 ($7,500) for not meeting these obligations. Please do not be deceived, its not just £5,000. Each of the 3 sections above need compliance and each carries a £5,000 penalty. So it really should read, "... upto £15,000..."

To be honest, the real issue is not whether the tax return contains any inaccuracies, but whether sufficient controls were in place to enable accurate tax reporting.

Since large multinational companies (small and mid-sized companies are excluded) use their group reporting and consolidation systems to collect raw tax data, the work done by US companies in preparing for SOX will be directly relevant to preparations in the UK.

Nevertheless the whole exercise is likely to be costly. The tax authorities probably do not see the new measures as imposing any significant additional burden on companies where 'adequate accounting systems' are already in place.

The reality is (coming from US experience) that considerable additional work will need to be undertaken in relation to documentation of processes, assessment and benchmarking of risks and the adequacy of controls and the implementation of remediation plans as well as potential changes to the set up of accounting systems including general ledger code set up.

This contradicts previous HMRC positions regarding their approach to assessing the quality of taxpayers' systems as part of the risk-based approach. There was no real consultation.

The fundamental concern is that it appears to impose a significant new compliance burden on businesses, as well as presenting a potential personal exposure for the Senior Accounting Officer, while at the same time remaining silent on the hurdle of what is 'adequate' in this context.

I think we should lookout for changes to IAS 12 - Income Tax.