Our board approved tax strategy, which applies to Provident Financial plc and its subsidiaries (“PFG”) sets out our approach to tax. We seek to ensure that it is aligned with our mission, our core values and our overall strategy. We are committed to being a responsible taxpayer, being straightforward and transparent on all tax matters and acting fairly, responsibly and with integrity in all our dealings with tax authorities.
We are committed to ensuring we pay the tax we are legally required to pay in all of the territories in which we operate, we comply with all tax rules and regulations in those territories and we safeguard our reputation as a responsible taxpayer. However, we recognise we also have a responsibility to protect shareholder value by controlling and managing our tax liabilities.
Our tax strategy is aligned with HMRC’s Code of Practice on Taxation for Banks (“the Code”) which sets out the principles and behaviours expected of banking groups with regard to tax, and we have unconditionally adopted the Code.
Our tax strategy has the following key components:
I. Tax objectives
II. Tax policies
III. Tax risk management framework
Our tax strategy is supported by our tax procedures manual which sets out how the objectives and policies set out in our tax strategy are achieved, as well as setting out further details of our tax risk management framework.
Tax for these purposes, includes all taxes that we suffer or incur on our operations, as well as taxes that we collect on behalf of governments, such as employment taxes deducted from payments to employees.
I Tax objectives
Our key tax objectives are:
• To ensure the group pays the tax it is legally required to pay and complies fully with its tax obligations in all territories in which it operates.
• In a manner commensurate with the group’s appetite for risk, to minimise the group’s corporate income tax liability, as well as other irrecoverable taxes it incurs.
• To safeguard the group’s reputation as a responsible tax payer.
• Taking a zero-tolerance approach to tax evasion and the facilitation of tax evasion.
II Tax policies
Our key tax objectives are achieved through a series of tax policies which set out a number of principles, as follows:
Calculation and payment of taxes, tax returns and other tax obligations
(a) All taxes should be correctly calculated in accordance with the law, or where applicable, estimated based on latest forecasts, and paid when due.
(b) Statutory tax returns for all taxes should be filed correctly, contain accurate information and be filed on a timely basis.
(c) All other tax obligations in the territories in which the group operates should be fully complied with.
Managing and controlling tax liabilities
(a) Ordinary commercial transactions should be structured, with clear and unambiguous legislative support, so that tax liabilities are controlled and minimised.
(b) Artificial structures designed to save tax but with no commercial or economic substance or which give a result which is inconsistent with the underlying economic position will not be considered unless there is specific legislation designed to give that result and this is not contrary to the intentions of Parliament. Where there is any doubt on this, an approach should be made to HMRC to confirm the position prior to the transaction being undertaken.
(c) Tax structuring should not disrupt the business or be in conflict with operational goals.
(d) Tax structuring that might reasonably be expected to have a negative impact on the group’s reputation will not be considered.
(e) Any tax structuring which could generate material tax savings or create material tax risks requires board approval, as well as full tax, legal and accounting sign off.
Dealing with tax authorities
(a) All tax authorities should be dealt with in an open, honest and pro-active manner.
(b) HMRC should be informed of key issues affecting the group through meetings and dialogue at regular intervals.
(c) Advance tax clearance of key transactions should be obtained where tax treatment is uncertain and a tax clearance procedure is available.
(d) The group aims to discuss contentious issues with the relevant tax authorities as early as possible.
(e) Details of key transactions and contentious issues should be fully disclosed in the relevant tax return.
(f) Prior to submission of tax returns, details of key business changes and changes since the last tax return should be highlighted to HMRC.
(g) Enquiries raised by tax authorities will be dealt with on a timely basis, answered in an open way with a full response to the enquiry.
(h) Any errors or mistakes in tax returns will be fully disclosed and notified to the relevant tax authority as soon as practicable.
Mitigating and controlling tax risk
The group has a low appetite for tax risk. The group has established procedures to prevent and control tax risks by:
(a) Developing robust systems, processes and internal controls to ensure the correctness and completeness of data which needs to be captured and treated correctly in the various tax reporting and payment of taxes that the group is required to make. Such systems, processes and internal controls are documented and subject to regular review, including annual review of different aspects by the internal audit function.
(b) Setting out:
• Principles for the involvement of the in-house group tax function in transactions, business developments and day to day business operations.
• The allocation of responsibilities between group tax and the business units;
• Principles for the involvement of external advisers, including a requirement to obtain external advice where the impact on the group is material or where the in-house group tax function does not have the necessary expertise.
• Group tax organisation, responsibilities and reporting lines
These are embedded into PFG corporate policies and the documented systems, processes and internal controls underpinning the reporting and payment of taxes, and ensure that tax implications are fully considered on corporate transactions and business developments.
(c) Developing policies and procedures which support the management, mitigation and control of key tax risks.
Prevention of tax evasion and the facilitation of tax evasion
(a) The group does not tolerate any of its associates (employees, agents or suppliers) undertaking tax evasion themselves or taking action to facilitate tax evasion by another person whilst acting in that capacity. These principles are embedded into policies and reasonable preventative procedures which are reviewed, enhanced and monitored on an ongoing basis.
III Tax risk management framework
This identifies and reports on tax risk across the group. It is embedded into the group’s overall risk management framework and governance structure and operates a “3 lines of defence” model. In relation to tax risk it involves the following:
(a) The identification, evaluation and management of tax risk by the in-house group tax function working with the Chief Financial Officer and the business units.
(b) Independent review and challenge of first line actions by (a) the Cross Divisional Risk Forum, Group ExCo, Group Executive Risk Committee and the Group Risk Committee; and (b) twice yearly by the Audit Committee; and (c) the Board.
(c) Independent assurance provided through an annual review by the internal audit function of different aspects of the processes and internal controls underpinning the reporting and payment of UK taxes.
The Provident Financial Group regards its publication of this tax strategy as complying with the duty under paragraph 16(2) Schedule 19 Finance Act 2016 to publish a tax strategy for the year ended 31 December 2020.
4 December 2020