Taxation Assessment 1: Analyzing Unilever's Tax Strategies and Ethics

This report, prepared from the perspective of a tax consultant, analyzes the tax implications for Unilever, a major consumer goods company. It begins with an introduction to the assignment's objectives and a brief overview of Unilever's business profile, highlighting its global operations and key brands. The report then delves into recent changes in tax regulations, particularly focusing on tax avoidance and the role of the General Anti-Abuse Rule (GAAR) and the Professional Conduct in Relation to Taxation (PCRT). The analysis section provides practical examples of how GAAR would apply to Unilever, considering scenarios related to capital expenditure on research and development, and the sale of land and buildings. The report also includes an action plan, recommending strategies for tax consultants to navigate the complexities of GAAR and PCRT, emphasizing the importance of ethical considerations and compliance. Finally, the report concludes by acknowledging potential limitations and areas for future improvement in the analysis of Unilever's tax strategies.

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TAXATION
ASSESSMENT 1
Table of Contents
INTRODUCTION..................................................................................................... 1
ABOUT THE COMPANY.........................................................................................1
TAX RULE CHANGE...............................................................................................2
ANALYSIS............................................................................................................... 3
ACTION PLAN.........................................................................................................5
ETHICAL ISSUES....................................................................................................6
CONCLUSION.........................................................................................................6
REFERENCES........................................................................................................ 6
INTRODUCTION
The assignment is about the application of knowledge regarding tax to a practical
situation. It requires us to assume our role, choose a company on which we are

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working, the explanation of the profile of the company and the current state of the
company on which we are working. It is not necessary to take the actual figures
about the company but we can assume the figures to explain an illustration.
Moreover, the assignment requires us to show and explain how the changes made
would affect the company chosen. Another part requires us to analyse the situation
with the help of illustrations. It requires us to draft an action plan for the future of the
company that would benefit the company overall. The consideration of professional
ethics to the action plan needs to be outlined. Finally, the report requires us to
outline the strength and weaknesses of the report or any additional information that
we could include in the report to make it more useful and to complete the analysis
successfully.
To execute the assignment, the role assumed here is the role tax consultant. The
company chosen to work upon is The Unilever. The profile and background of the
company is detailed below.
ABOUT THE COMPANY
The company chosen by me here is Unilever. Unilever is the largest and strongest
company of the United Kingdom. The company operates in a consumer goods
industry. The company was founded 86 years ago. The headquarters of the
company is also in United Kingdom. Unilever offers products such as foods,
beverages, cleaning agents and personal care products. The company owns over
more than 400 brands and its operations are carried out worldwide. Some of the top
brands of the company are WALL’S, Dove, Vaseline, Cornetto, POND’S,
TRESemme.
Unilever started in 1885. Firstly, Williams and James Lever launched a laundry soap
which was world’s first branded laundry soap. Unilever has sites of manufacturing
and distribution depots at UK. Unilever’s sale in UK is around 2 billion Euros every
year. (ANON, N.D.)
TAX RULE CHANGE
The important part of the article is about the tax avoidance. Tax avoidance is legal.
Tax avoidance is making use of the tax laws and reducing the tax liability. Tax
avoidance is simply avoiding tax legally. Most of the organisations make use of tax
avoidance to reduce their tax liability legally. But, there are many regulations issued
which relate to the concept of tax avoidance. Although tax avoidance is considered
legal, but there are some tax-laws that need to considered while planning about the
tax avoidance.
Moreover, the article given considers the document that is created by members of
the tax profession for their members that is the Professional Conduct in Relation to
Taxation. The document is divided into three parts. First part of PCRT is the
fundamental principles that are integrity, objectivity, professional competence and
due care, confidentiality and professional behaviour that should be followed by the

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tax consultants. The second part of PCRT is about tax returns and tax advice. The
third part of the PCRT is detailed guidance to deal with some specific circumstances
listed. (Mandy Pearson, Sharon Baynham, October. 2015.)
The change in tax rule affects each and every organisation of the country to which
the regulations apply. The article discusses about the debate over tax avoidance. It
states that there have been imposed new regulations on the tax advice by tax
consultants. Some of the examples given in the article about the new regulations are
GAAR (General Anti-Abuse Rule), disclosure of tax avoidance schemes and the
promoters of tax avoidance schemes regime.
The aim of including the above discussed regulations on to business is to keep a
check on what the taxpayers’ do. Another objective is to assure that the profession of
tax consultants do not bring any reputational damage to themselves as an individual
or to the client or to the profession as a whole.
Another important point discussed in the article is about the fundamental principles
that the tax consultant should undertake while advising his client. Tax consultants
play a great role in an organisation. They have to keep themselves updated with
each and every change in the tax laws in order to help their client in the best
possible way.
The important and main new regulation is GAAR. Another important and widening
scope of new regulation is disclosing tax avoidance schemes and the promoters of
tax avoidance schemes. The latest addition of the PCRT is published in May 2015.
The new regulations related to tax avoidance are on ongoing development. The
document mainly focuses on the changes made in the taxation laws and how tax
consultants should tackle different situations.
One small change in the tax rule may affect the industries or organisations widely
because if that change relates to the operations of the organisation, the organisation
would have to consider it and they will have to include that change in their tax
planning. Tax consultants have to consider the change in tax rule efficiently. For
example, there are regulations related to General Anti Abuse Rule.
The document is importantly issued in order to prevent the risk of tax avoidance. It
has been issued to build up the strategy introduced by the HMRC regarding anti-
avoidance strategy. It will also help the HMRC to deal with abusive tax avoidance.
The GAAR regulations discussed are important for the company chosen to in case
they apply to the organisation. Let’s discuss about the taxes to which GAAR apply.
1. Income Tax
2. Corporation Tax
3. Capital Gains Tax
4. Inheritance Tax
5. Petroleum Revenue Tax

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6. Stamp Duty Land Tax
7. Annual Tax on Enveloped Dwellings
GAAR applies to most of the taxes. Income tax is a tax to be paid on the income
earned. Hence, it applies to all of the taxpayers who can be individuals as well as
companies. Hence, the new tax regulations apply to the Unilever also. The last
update of GAAR was made in January 2014. (HMRC, January.2015.)
GAAR can be considered as very much important to the tax consultants as it covers
the situations which the tax payer need to keep in mind before involving into the
practise of tax avoidance.
ANALYSIS
GAAR considers the reasonableness and aim and facts of the transaction and
concludes whether the transaction entered into by the company can be covered
under the GAAR regulations or not. If in case GAAR concludes that the transaction
entered is interpreted by the taxpayer wrongly and it should be interpreted another
way, GAAR would consider and interpret the transaction that way and the tax
consequences of the transaction would defer compared to the tax consequences
made before by the tax payer.
Example 1
According to the Capital Allowance Act 2001, section 437 to section 451 of the act
permits 100% allowance to those who incur capital expenditure on research and
development activities.
If we assume that Unilever conducted research and development activity on a new
product and incurred capital expenditure of let’s assume 2,00,000. Now, according to
the act, Unilever would claim the deduction of the whole of the capital expenditure
incurred by them i.e. 200,000.
As GAAR regulation is there in tax laws, the facts and the reasonableness of the
transaction would be considered according to the GAAR norms and the conclusion
would be made as per GAAR norms. If the authorities feel that the transaction is
abusive according to the rules and only part of the expenditure qualify for deduction,
only that part of the capital expenditure would be allowed as deduction. (HMRC,
N.D.)
Example 2
Another example is about the sale o land and building to another person and
planning the transaction in a way that the disposal of the transactions fall within a
particular date to enjoy the benefit of lower capital gains tax.
Let’s assume that government announced that the rate of tax on chargeable capital
gains would be reduced from 6th April, 2016.

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Unilever confirmed with the purchaser about disposing of the land and building by
the completion date of 1st January, 2016. Unilever with the help of tax consultant
again negotiated with the purchaser to dispose of the land and building after 6th April
to have the advantage of lower capital gains tax. The land and building were given to
the purchaser for exclusive use from 1st January, 2016 and rent-free. Then after, the
sale was completed on 10th May which resulted in huge amount of capital gains and
the disposal takes place after 6th April 2016.
According to Unilever, the transaction would be liable to reduced rate of tax and
capital gains would be charged accordingly.
The GAAR would analyse the situation and reasonableness of the transaction and
reconsider it. According to GAAR analysis, the results of the transaction are in line
with the provision of the act. The disposal was delayed to a later date to have the
benefit of lower rate of capital gain. Moreover, the arrangement made was not even
with a view to exploit any shortcomings of the act and the gain made was charged to
the tax rate which was in force at the time. The arrangement dose not even indicates
any abusiveness within section 207(4) of the FA 2013.
Hence, according to the analysis of GAAR, the transaction is not abusive and it does
not need to be considered by the HMRC. (HMRC, N.D.)
Example 3
The regulations related to showing the tax avoidance strategies although are not into
the tax laws but are on ongoing developments. Now, suppose if there are new
regulations related to showing the tax avoidance schemes used by the
organisations, then every organisation would be obliged to show the strategies used
by them to avoid the tax liability.
Unilever may use the benefit of deductions available to it and plan to avoid the tax
liability according to the provisions of law. General examples of the deductions to
companies are expenses related to the operations of the companies and
depreciation and amortisation. Moreover, employee share schemes are deductible
expenses according to UK tax law. If the company plans and issue employee share
schemes to have the benefit of deduction, the company would have to show the
strategy to the HMRC.
ACTION PLAN
The action plan of the company for future to benefit the organisation overall could be
as follows.
The tax consultants of the organisation should go through the document of GAAR.
The document is divided into five parts that are part A, B, C, D and E. Part A
explains about the purpose and the status of the guidance. Part B is about how
would GAAR work and operate. Part C is specific points that need to be considered.
Part D gives few examples about how the GAAR would operate and consider the

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transaction abusive. Part E of the document is GAAR procedures. Another important
document for the benefit of the organisation to be referred by the tax consultants
could be PCRT. The schemes for avoiding the tax liability should be planned in a
way that it is considered as abusive and best help the organisation in reducing the
liability.
The deductions available to the organisations should be taken advantage of. It
should be planned in a way that fines and penalties are not attracted. The expenses
which are not allowed to be deducted while computing the tax liability should be
taken care of. The expenses incurred wholly and exclusively for the purpose of
conducting the operations of the company are allowed to be deducted. The TDS
liability should be deducted on time and returns related to the taxes should be filed
on time so that fines or penalties are not attracted. (PWC, N.D.)
This way, the tax planning can be made by the tax consultant that can help the
organisation in a best way to reduce the liability legally.
ETHICAL ISSUES
Ethics is an issue that can emerge in any field of any industry. Ethics is the standard
of behaviour by a person in different situations. The actions of a person in different
situations define the behaviour ethical. Ethics is the moral values of the person
acting towards the society. Tax is paid to the government for the benefit of the
society and for all those equipments of the society that we use. Paying tax to
government is ultimately helping the society for a good cause.
Tax avoidance is not illegal but a question can be raised here whether it is good for
the society? Is it ethical to avoid tax for the benefit of the organisation on a cost of
the society? Well, fairly avoiding tax can never considered to be ethical if looked
from the view point of the society. However, still if it is not ethical it is committed by
most of the organisations to pay reduced tax liability. The right of tax avoidance is
given to the organisations by the statute but still the use of the right can’t be
considered as legal from the ethical point of view.
Well, there is an alternative available to this biggest ethical problem of most of the
organisations. If in case, companies plan their tax avoidance strategies and pay
reduced tax liabilities, they can still do well to the society by appropriately following
the provisions of corporate social responsibility. Apart from the legal obligations of
the corporate social responsibility, they can contribute to the development of the
society. Organisations can act to reduce the pollution related issues around the
manufacturing sites of the company. Moreover, organisations can help their
employees to live better life and help their families with medical and education
related issues. Organisations can contribute to the genuine charitable institutes as
much as possible so that the benefit of deductions can also be taken and it would
also benefit the society. (IBE, April.2013.)

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CONCLUSION
Changes in tax law may affect the organisation deeply as it needs to update every
time the changes are made. GAAR is the main change adopted and there are
chances to include the disclosure of the tax avoidance strategies to the HMRC. The
GAAR and PCRT are the two important documents to be considered by the tax
consultants to execute their duties well. Apart from designing the best tax avoidance
strategies, the ethical issues should also be kept in mind so that the organisation do
not benefit at a cost of the society and the social responsibility of the organisation is
also taken care of.
REFERENCES
HMRC, January, 2015, “Tax Avoidance-General Anti-Abuse Rule”, Accessed on 5th
January, 2016, <https://www.gov.uk/government/publications/tax-avoidance-general-
anti-abuse-rules>
HMRC, N.D., “(HMRC) (GAAR) Guidance”, Accessed on 5th January, 2016,
<https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/
399271/3__HMRC_GAAR_Guidance_Part_D_with_effect_from_XX_November_201
4_chm_171214v2.pdf>
HMRC, N.D., “(HMRC) (GAAR) Guidance”, Accessed on 5th January, 2016,
<https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/
399273/4__HMRC_GAAR_Guidance_Part_E_with_effect_from_XX_November_201
4.pdf>
HMRC, N.D., “(HMRC) (GAAR) Guidance”, Accessed on 5th January, 2016,
<https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/
399270/2__HMRC_GAAR_Guidance_Parts_A-
C_with_effect_from_30_January_2015_AD_V6.pdf>
ICAEW, May, 2015, “Technical Release (PCRT)”, Accessed on 5th January, 2016,
<http://www.ion.icaew.com/ClientFiles/c1db2be4-7bd5-41f3-996a-764f237080bb/
TAXGUIDE%2001-15%20-%20PCRT.pdf>
ANON, January, 2016, “UK Tax Laws and Tax Systems”, Accessed on 5th January,
2016, <http://www.worldwide-tax.com/uk/uk_taxes_rates.asp>
IBE, April, 2013, “Business Ethics Briefing”, Accessed on 5th January, 2016,
<
https://www.ibe.org.uk/userassets/briefings/ibe_briefing_31_tax_avoidance_as_an_e
thical_issue_for_business.pdf>
PWC, N.D., “UK-Corporate Deductions”, Accessed on 5th January, 2016,
<http://taxsummaries.pwc.com/uk/taxsummaries/wwts.nsf/ID/United-Kingdom-
Corporate-Deductions>