Tax Strategy Statement: Principal UK Entities

Principal Financial Group, Inc. (“Principal” or “PFG”) has built a reputation on the fundamental values of Customer Focus, Employee Empowerment, Financial Strength, and Operational Excellence. These values are underpinned by integrity, which is the foundation of all operations. The tax strategy is built on these values as Principal strives to be tax compliant and effectively deliver the management of taxation in a way to help business partners achieve their financial goals.

This tax strategy covers all of Principal’s UK operations and complies fully with the letter and spirit of UK tax law1. These values and attitudes towards tax apply to all our operations around the world.

Operational excellence is ensured through an effective tax control framework (Tax Governance & Risk management)

The tax operations of Principal are continuously improved through use of technology, data, and agile processes. PFG is able to manage tax risk appropriately by utilising robust risk management protocols. Generally, tax positions are not taken unless there is a likelihood of sustainability under scrutiny of governing tax authorities. The EVP & CFO, supported by other members of Principal’s senior leadership, approves and defines the risk appetite, subject to review and sign-off by the Audit Committee of and/or the PFG Board.  This sets the parameters for the management of tax risk in connection with business based decisions and transactions. Further, this enables successful mitigation of adverse tax risks and proactively ensures key tax controls are designed and operate effectively. Working together with the respective UK and PFG Boards, including the PFG Board Audit Committee, Principal is able to effectively monitor and mitigate tax risk to an acceptable level whilst ensuring the organisation remains in a state of tax compliancy in all business operating tax jurisdictions.

Open and transparent communications are incorporated into all dealings with tax authorities and the wider stakeholder base (HMRC Relationship)

Integrity is honesty, truthfulness, honour, and reliability, a core PFG value serving as the foundation on which operations are built. The approach to day-to-day management of tax and interaction with tax authorities is built around open and honest communication.  Principal fully co-operates with tax authorities and regulatory bodies to meet statutory and legislative tax obligations. A transparent approach is taken with all business dealings and business decisions to ensure the production of a positive impact for all PFG stakeholders.

Principal strives to be tax efficient and deliver sustainable growth by balancing risk with reward, considering all stakeholder interests (Tax planning)

Principal delivers on a promise to its stakeholders by continuing an effort to improve operations and achieve strong commercial results, which includes being conscious of the implications of taxation as a cost of doing business. Where there are two routes to achieve the same commercial outcome, it is considered appropriate to consider the most tax efficient, appreciating an overriding aim to not have surprise tax costs. Therefore, to that end PFG abides by meeting tax obligations, and the responsibility of paying all taxes due by following the letter and spirit of the law. Principal does not tolerate or engage in any aggressive tax planning in line with a risk-tolerance threshold reflecting a stance to protect the widest range of stakeholders.

The approach to tax planning utilised by Principal remains being risk astute rather than risk averse. However, the organisation is keenly aware and mindful of the need to abide by approved minimum standards for protection of Principal’s business reputation. Therefore, tax planning emphasizes the following:

  • Legislative Risk– Tax legislative proposals around the globe are actively monitored for determination of the potential impact on Principal’s products, services, and operations, which is shared with senior management, appropriate stakeholders, and business partners. 
  • Reputational Risk – Being tax compliant alone is not enough to protect against assertions of tax avoidance.  PFG remains prepared to address the risk from potential allegations of tax impropriety and the perception of not paying a “fair share” of taxes. 
  • Enforcement Risk – The ever-changing environment presents a challenge from the time of taking tax positions to future advocacy efforts if/or when a position is formally challenged on examination by governing tax authorities.  This generates tax uncertainty, which is managed through robust analytical processes and application of appropriate accounting guidance.
  • Operational Risk– Regulatory pressures for accuracy and transparency necessitate employment of knowledgeable people, use of innovative technology, and continuous improvement / evaluation of tax financial reporting and compliance processes and productivity.

We encourage employee empowerment through collaboration, working in partnership with all stakeholders to ensure real time tax advice is provided (Business Partnering) –

Principal achieves this by investing in learning and development, advancing a coaching culture, encouraging collaboration, and communicating openly. This is critical to PFG as the best people are coached and developed so the organisation is able to deliver and support the wider business with real-time tax advice. Clear communication channels have been implemented at PFG, with regular presentations to senior leadership and Board committees to outline changes in tax legislation and any impact on the organisation.  Where any tax law is unclear or subject to interpretation, the assistance of external advisers is sought to ensure ongoing compliance.

1 Tax strategy complies with the UK legislation per Schedule 19 Finance Act 2016.  It applies to year ended 31 December 2017 and was published on 2nd October 2017.