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General Dynamics Tax Policy

Background
General Dynamics Corporation and its subsidiaries (hereinafter “General Dynamics”) is a global aerospace and defence company. Our broad portfolio of products and services includes business aviation, combat vehicles, weapons systems and munitions, C4ISR and IT solutions and shipbuilding. General Dynamics’ UK member companies are listed in Appendix A (The UK Group).

Policy regarding UK Taxation
Our worldwide and UK business activities generate substantial economic activity and generate substantial payments of various taxes that significantly contribute to the economy of the countries in which we operate. In addition, we collect and pay employee taxes as well as indirect taxes such as excise duties and VAT.

General Dynamics’ overall policy with respect to taxation and tax planning is to ensure that we pay the right amount of tax, in the right place, at the right time. This is part of our overall global commitment to being a highly ethical and responsible business for our customers, employees, shareholders, communities and other stakeholders.

Because a majority of our turnover is with governments, we are acutely cognizant of the possible negative effects that aggressive tax planning might have on our reputation and ability to win future contracts. In addition, a very high sense of ethics is insufflated throughout our operations by our board and management, which is another factor governing our very conservative threshold of acceptable tax risk.

In consequence, we are committed to adopt a low threshold of acceptable tax risk and to ensure an excellent level of communication and transparency with HMRC at all times. In recognition to this and ever since this approach to managing tax compliance risk was introduced, HMRC has granted and consistently confirmed a low risk rating to all of our companies in the United Kingdom.

With that in mind, General Dynamics is committed to conducting its tax affairs consistently with the following objectives:
– To comply fully with applicable laws, rules, regulations and reporting and disclosure requirements.
– To pay the right amount of tax and file all appropriate tax returns in a timely manner.
– Not to use contrived or artificial arrangements that lack economic substance or tax havens to reduce tax liabilities.
– To comply with the arm’s length principle when entering into intercompany transaction.
– To take advantage of relevant tax reliefs and incentives available to minimise tax in a manner consistent with the government’s policy objectives.
– To act with integrity and transparency in all tax matters.
– To maintain an open and honest relationship with the tax authorities. We will not deliberately conceal or knowingly misrepresent issues and if errors are discovered they will be disclosed in a timely manner.

Governance and implementation
General Dynamics’s Corporate Vice President – Taxes (“VP–Taxes”) is responsible for developing and implementing tax strategy consistent with the policy noted above. The VP-Taxes works closely with General Dynamics’s Senior Vice President and Chief Financial Officer and periodically brief’s the Audit Committee of the Company’s Board of Directors, which is committed to ensuring that the business is managed consistent with the high ethical standards. The tax strategy is applicable to General Dynamics and the worldwide group of companies for which General Dynamics Corporation (GDC) has ultimate control (The Group). The tax strategy is publically available on the website of General Dynamics United Kingdom Limited to enable external stakeholders to understand The Group’s approach to tax. It has been prepared and published in accordance with Schedule 19 to the Finance Act 2016 and complies with the duty under paragraph 16(2).

This strategy is effective for the year ended 31 December 2016 and will be reviewed annually and will remain in force until it is superseded.

Governance
The Group’s tax department is part of the central finance function that reports to the Senior Vice President and Chief Financial Officer of GDC. Responsibility for tax is delegated to the VP–Taxes who delegates certain responsibilities relating to European tax to the EMEA Tax Director. The VP–Taxes and the EMEA Tax Director lead a team of experienced tax professionals who have appropriate professional qualifications and experience commensurate with the responsibilities required for their roles. Certain UK related responsibilities are delegated to the General Dynamics Global Holdings Tax Manager who, with the UK based tax team, provide guidance and support to The UK Group.

There are robust internal policies, processes, training and compliance programmes to ensure alignment across the business of tax obligations. Tax decisions will be taken at an appropriate level as determined by the Delegations of Authority. The VP–Taxes is responsible for ensuring that policies and procedures that support the approach to tax are maintained and used consistently around the world. In addition, The UK Group are part of the Senior Accounting Officer (SAO) sign- off process in the UK that further ensures there are efficient tax accounting processes and controls in place.

All tax department members proactively seek to operate in line with the tax strategy. They further seek to provide training and support to non-tax personnel across the business whose decisions may have tax consequences so that business decisions can be made in a manner that takes the tax strategy into account.

Tax Risk Management
Although our appetite for tax risk is low, uncertainty occasionally arises in applying and interpreting complex tax laws as in any large and diverse multinational business. We activity identify, monitor, manage and resolve these uncertainties to ensure risk management remains in line with our objectives. Tax risk is assessed on a case-by-case basis taking into account many factors, including the level of uncertainty, social responsibilities, reputational risk and the legal and fiduciary duties of directors and employees.

Tax positions with identified tax risk are typically supported through strong, well-documented technical analysis. We typically involve external advisors in cases of significant and material uncertainty or complexity.
Our tax risk-averse approach is reinforced by the potential significant impact on our reputation and ability to win future contracts in the event of non-compliance with tax law. For example, the UK introduced the ‘Procurement Policy Note’ effective 1 April 2013 which requires suppliers to self-certify their tax compliance during the selection stage. Specific questions are targeted towards criminal tax offences, tax returns which are incorrect under the General Anti-Abuse Rule (GAAR) or for failure of an avoidance scheme which should have been notified under the Disclosure of Tax Avoidance Scheme (DOTAS). Occasions of non-compliance can result in the government contracting department excluding the supplier from the procurement process which could have a significant impact on the Company.

Approach to dealing with HMRC
General Dynamics participates in the Compliance Assurance Process (CAP) with the Internal Revenue Service in the US. CAP is a selective program, to which the IRS only admits low risk and compliant taxpayers. CAP taxpayers provide real-time disclosure and receive real-time review of business activity and tax positions with both the taxpayer and the IRS sharing information, analysis and review of such business activity, transactions and other related matters so that CAP taxpayers’ returns can be fully audited and approved before filing. Once the return is filed and confirmed as reflecting the agreed pre-filing review, the audit process is closed. This cooperative process relies heavily on transparency.

Similar to General Dynamics’s status in the US as a CAP taxpayer, the Company’s UK Group have had a low risk rating with HMRC since 2009, reflecting our exemplary behaviour in our relationship with HMRC. This is underpinned by the following behaviours:
– We maintain an open and honest relationship and believe in engaging in full and early dialogue with HMRC on UK Group’s tax affairs so that matters are addressed on a real-time basis.
– We meet regularly with our Client Relationship Manager to discuss all areas of taxes and seek advice in cases of uncertainty.
– We are committed to adopting the behaviours expected by HMRC as set out in the ‘Framework for Cooperative Compliance’ published on 9 December 2015.

Annex A
The UK Group
– General Dynamics Global Holdings Limited
– General Dynamics Information Technology Limited
– General Dynamics Mission Systems International Limited
– Gulfstream Aerospace Limited
– Force Protection Europe Limited
– General Dynamics European Finance Limited
– General Dynamics United Kingdom Limited
– General Dynamics Swiss Financial Management Limited
– General Dynamics Limited
– Kylmar Holdings Limited
– Electric Boat LLC