The world's local bank
Tax management
Tax management policy is an area of direct interest to investors not only due to its impact on investment decisions of tax cash flows within company valuations, but also because of the broader impact of potential, wider scrutiny of the management of tax, both at a policy and at a compliance level.
Media interest in companies' tax payments has increased, sometimes through linking public service reductions to named companies' avoidance of tax. This sets the issue of tax management policy and payment in the context not just of compliance with the law, but also of commentators' interpretation of companies' social responsibilities.
HSBC is a prominent company to tax authorities for a number of reasons:
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We are one of the most profitable companies in the world.
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We have a number of significant operations in low tax jurisdictions, notably Hong Kong, Switzerland and Bermuda.
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We have a complex international network of companies which provide services to each other and share the supply of services with the Group's multinational customer base. We, therefore, have to address a wide range of transfer pricing issues.
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We act as an agent globally for the collection of taxes, the withholding of income otherwise distributable to customers, and for the reporting of customer details to authorised fiscal authorities.
Global tax principles and policy
Our current tax policy was endorsed by the CR Committee of the Board in April 2005.
We optimise the profits available for distribution to shareholders transparently and in a tax-efficient way. In so doing, HSBC does not engage in artificial transactions or create artificial structures whose sole or main purpose is to take advantage of tax. Our reputation will take precedence in all instances and at all times when assessing
whether a particular transaction or structure might be considered artificial without regard to the financial benefit of the transaction or structure.
Our aim is to provide sufficient disclosure in our Annual Report and Accounts to allow stakeholders to understand how the Group's charge to taxation and cash taxes paid have been established. In each country where HSBC operates, we will comply strictly with local tax legislation, seek to pay all taxes on a timely basis, and deal openly with local tax authorities.
To reduce the risk of materially mis-stating the Group's tax liabilities or damaging our reputation through inappropriate structuring, we:
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employ trained tax professionals whose incentive compensation is based on efficiency, not on minimising the accounting tax charge or the cash tax paid;
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adopt an open manner where judgemental positions are taken, ensuring that the tax authority is able to understand, and has the opportunity to challenge, the issue;
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make accounting estimates in conjunction with Group Finance using the template advised by the US Securities and Exchange Commission in 2004 as best practice; and
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negotiate expeditiously to settle outstanding issues on tax returns.
By adopting a portfolio approach to tax negotiations, the Group is able to propose compromise settlements which facilitate a good professional relationship with fiscal authorities. As a matter of policy, we do not use transfer pricing to shift profits or expenses to favourable tax jurisdictions.
HSBC engages with fiscal authorities openly through industry bodies and tax practitioners' working groups, and by making available country CEOs and HSBC Holdings Directors to discuss areas of tax policy. We have participated in and supported initiatives in conjunction with HM Revenue and Customs and have been a long-term supporter of the Partnership Enhancement Programme and its aim of engendering greater trust and better working relationships between the public and private sectors.
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