UK In Danger Of Introducing Sarbanes Oxley 'By The Backdoor'

by Robin Pilgrim, LawAndTax-News.com, London

30 April 2009

Britain is in danger of introducing US Sarbanes-Oxley style legislation 'by the backdoor' which would severely damage the country's competitiveness and further encourage companies to emigrate, according to an international law firm.

Commenting on Budget Note 62 'Accountability of Senior Accounting Officers', Michael Wistow, head of tax at Berwin Leighton Paisner, said: "We have reservations about the potential implications of this; with real concerns it could, however unintentionally, create a back-door Sarbanes-Oxley act for business."

"While it is intended to ensure companies pay an extra GBP140m of tax in the next four years, in reality it is likely to cause tax to distort commercial decisions."

"It is an extraordinary retrograde step which shows little sign of learning the lessons of Sarbanes-Oxley."

Note 62 announces a measure to establish a statutory requirement for senior accounting officers of major corporates to certify personally that adequate controls to prepare accurate tax computations are in place.

The Sarbanes-Oxley Act, (otherwise known as Section 404) was passed by the US Congress in 2002 in response to a slew of fraudulent corporate collapses. Its primary purpose was the improvement of transparency for public companies, but the legislation has proved controversial and has been frequently attacked for saddling public companies with overly burdensome reporting requirements.

Budget Note 62, entitled Corporate Transparency: Personal Tax Accountability of Senior Accounting Officers of Large Companies, seeks to ensure that the accounting systems in operation within large companies liable to UK taxes and duties are adequate for the purposes of accurate tax reporting. It affects large companies, large groups of companies, and their senior accounting officers.

According to the Budget Note, legislation will be introduced in Finance Bill 2009 to require:

• senior accounting officers of such companies to take reasonable steps to establish and monitor accounting systems within their companies that are adequate for the purposes of accurate tax reporting;
• senior accounting officers of such companies to:
  • certify annually that the accounting systems in operation are adequate for the purposes of accurate tax reporting; or
  • specify the nature of any inadequacies and confirm that those inadequacies have been notified to the company auditors; and
• such companies to notify HM Revenue and Customs of the identity of the senior accounting officer.

These new obligations will be supported by penalties chargeable respectively on the senior accounting officer personally and on the company for a "careless or deliberate failure" to fulfil the above obligations, and for the giving of a "carelessly or deliberately" incorrect certificate or notification.

Although there is a statutory requirement for companies to make accurate returns in relation to tax and other duties, there is currently no requirement to ensure that internal accounting systems are "adequate" for this task.

However, the Treasury argues that these requirements "will impose no significant additional burden" on affected companies or their officers because they will already have adequate accounting systems in place.

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