Targeted Review of Corporation Tax

The targeted review will:

• Give confidence in the approach taken by companies to project tax in their Business Plans at PR14. • Improve understanding of water companies’ individual tax positions and the actual impact of recent changes compared to business plan projections at PR14. • Consider and evaluate options available to funding tax at the 2019 price review PR19. • Consider further options to improve transparency in reporting of the corporation tax charge for the regulated business.

Scope

• Building on analysis already performed by Ofwat on available information for all 18 companies regarding the differences between actual and allowed corporation tax at PR09 for all companies, consider and evaluate options for funding tax at PR19. This should include assessing risk sharing mechanisms. • Detailed review meetings with a small number of specific companies (possibly 6) that are either outliers (when looking at actual compared to allowed) or otherwise considered significant when considering ratio of customers’ bill compared to tax allowed. Consider the impact of recent changes/agreements and the extent to which these were taken into account at PR14.

Key Tasks

In order to meet the business objectives, the project will involve the Provider performing the following tasks:

• Further analysis on available information regarding the differences between actual and allowed corporation tax at PR09 – including an assessment of the key drivers of any differences. • Consider and evaluate options to funding tax at PR19, that deliver the best outcomes for customers, incentivising companies to minimise their tax bill and provide good quality estimates of tax charges in their business plans. This will include an assessment of both risk and reward from both company and customer perspective. • Propose and evaluate options for improving transparency of reporting of corporation tax for the regulated business. • Attending and leading meetings with a small number of chosen companies to improve understanding. We would expect the Provider to lead these meetings with a member of the Ofwat team attending. Number of companies proposed as 6 with a pricing option submitted for increasing or reducing the number. • Discussions and short debrief with the Ofwat team following each company meeting. • Input into pre-meeting briefing/information pack as necessary. • Regular weekly discussions with the Ofwat team regarding the project, next steps and highlighting any areas of concern. • A weekly email to the project manager for the remainder of the project.