The big four accountancy firms are under scrutiny over tax advice given to multinationals using tax havens, after the BBC’s Today programme reported that it had struck some observers as ‘strange’ that so far, the Commons public accounts committee has not summoned the people who have given tax advice to Amazon, Google, Starbucks and other ‘multinational giants’.
PAC chairman Margaret Hodge told the programme that accountancy firms ‘supporting anybody in trying to avoid tax in an aggressive way’ should be denied access to government contracts.
But the big four firms stressed ‘their global role and their requirement to respond to the needs of their clients’. Mary Monfries, head of tax policy at PwC, told the programme: ‘We help companies that are looking at tax as a cost but we have some clear principles about the way we work.’
Meanwhile, this morning’s Financial Times has reported that some members of the Commons treasury committee were ‘understood to have been irritated’ by the PAC’s inquiry into tax avoidance, complaining that the PAC had ‘overstepped its strict remit of analysing National Audit Office reports’. The treasury committee was now poised to carry out its own inquiry into Britain’s tax system, which will probe ‘its competitiveness and whether it is vulnerable to tax avoidance’, the FT added.
PwC, Deloitte, Ernst & Young and KPMG win valuable contracts from the UK government each year, said the BBC’s Andrew Hosken. Richard Murphy, tax campaigner and director of Tax Research, told the programme: ‘International tax avoidance could not happen without the active involvement, consent and support of the big four firms of accountants, and the fact that they maintain offices in all the major tax havens in the world to ensure that this activity can take place.’
It was ‘clear’ from recent decisions of UK tax tribunals and the Court of Appeal, Hosken said, that the big four had devised and sold tax avoidance schemes to clients in the last 12 years. ‘But according to these accountancy giants, they’ve moved on from this type of business and they now concentrate on what KPMG describes on its website as “helping multinationals manage their tax efficiency”,’ he added.
Some of the recent decisions related to schemes that were devised many years ago.
As Tax Journal reported yesterday, tax academics have emphasised in evidence to the National Audit Office the difference between the aggressive tax avoidance schemes that the government’s proposed general anti-abuse rule is designed to tackle, and the use of tax havens and low-tax jurisdictions to manage a multinational’s effective tax rate within the law.
This analysis is shared by many tax professionals, who do not regard tax planning by multinationals as ‘avoidance’. Some experts, recognising that the current system allows big multinationals to gain a competitive advantage over domestic businesses, have suggested that campaigners should be calling for a change in the law rather than criticising multinationals operating within the law.
However, with tax transparency high on the agenda, it is inevitable that the use of tax havens – many of which have constitutional links to the UK – to minimise tax bills will continue to be regarded as ‘avoidance’ by campaigners and the wider public.
Hosken said the big four ‘maintain a significant presence in jurisdictions recognised internationally as tax havens’. Joint research by the BBC and the Tax Justice Network established that the big four have 212 offices in ‘the 45 most prominent tax havens around the world, including Bermuda, Cayman and Liechtenstein’.
These jurisdictions were ranked 12th, 2nd and 34th respectively in the Tax Justice Network’s ‘financial secrecy index’ for 2011.
PAC chairman Margaret Hodge told the programme: ‘It seems bizarre to say the least that there are going to be many clients in Bermuda or the Cayman Islands other than people who are deliberately using those jurisdictions to avoid tax. The certainty we want – particularly from the big four accountancy firms who have a duty to lead by example – is that in the advice they give to their clients they are not advising how to engage in aggressive tax avoidance schemes, and they are advising clients to manage their affairs so that they pay a fair share of tax on the profits that are earned by the companies from their economic activity in the UK.’
Hosken said all four firms stressed ‘their global role and their requirement to respond to the needs of their clients, which often operate in many countries across the world’.
Hodge acknowledged ongoing EC and OECD work on reform of corporation tax but told Hosken that action was needed now: ‘Using the power of the public purse to purchase contracts is an important power that we have. The big four are getting more and more government business … If they want to access that work they’ve got to show that they are responsible companies who act properly and who don’t support anybody in trying to avoid tax in an aggressive way.’
Hosken asked: ‘And if they are doing that, they should be denied access to government contracts?’
‘Yes,’ Hodge replied.
Hosken said PwC and Ernst & Young ‘confirmed they had provided tax services for some or all of the five corporations Starbucks, Google, Facebook, Amazon and Apple, currently under scrutiny’. KPMG said ‘it was inevitable they will give or have given tax advice to most multinational corporations’. But spokesmen for all four firms said ‘they could not disclose the identity of companies for which they’d provided tax advice, or the nature of work carried out for them’.
Principles
Mary Monfries, head of tax policy at PwC, defended the firm’s work in an interview with the BBC’s Evan Davis, who said that none of the big four’s advisory work for the multinationals was ‘even close to being against the law’.
Davis asked Monfries whether PwC advised companies on ‘aggressive tax avoidance … how to get round the law’. The firm helped clients to understand what they need to pay, and defining ‘aggressive’ was difficult, she suggested. ‘We are advising clients on tax as part of their cost decisions.’
There was some confusion about avoidance and transfer pricing, she said. ‘Transfer pricing is the way that international governments have agreed that they will allocate profits between them and where those profits go in different countries.’
Richard Murphy was ‘quite sure that [the big four] all advise on aggressive tax avoidance’. Tax havens provided one way to ‘go round the law’.
‘We have a business in Bermuda that we base around the businesses that are important in Bermuda,’ Monfries said.
Evans said: ‘We all know that you are advising companies on how to structure their affairs in ways not to pay tax.’ Monfries replied: ‘We help companies that are looking at tax as a cost but we have some clear principles about the way we work … Any tax advice we give has to be based and supported by the law and cannot be based on any misinterpretation or non-disclosure of the facts.’
She stressed that clients were made aware of the risks of any challenge and ‘how other people might view their actions’, adding that ‘you have to separate in the debate whether the policy and the rules are right, and whether companies are complying with them’.
But Murphy said that in many tax havens there was ‘no tax authority’ requiring disclosure. ‘A lot of these activities will be recorded in places – like our Channel Islands and the British Virgin Islands – where no information gets on public record.’
The British Virgin Islands’ population of 23,000 did not need PwC’s services, Murphy said.
The Guardian’s recent ‘Offshore secrets’ series noted that the British Virgin Islands is now ‘the world's biggest provider of offshore entities’. More than a million BVI companies have been incorporated, the paper reported last week.
Tax Journal has invited all of the big four firms to comment.
Ernst & Young said in a statement that its clients ‘seek our advice on a wide range of issues, including the most appropriate tax planning that is in compliance with the applicable laws and rules’.
It added: ‘Ernst & Young strives to have an open and constructive relationship with tax authorities worldwide. We support improving certainty and transparency in the global tax system and compliance with it.
‘Our professional standards prevent us from commenting on client-specific matters.’
The big four accountancy firms are under scrutiny over tax advice given to multinationals using tax havens, after the BBC’s Today programme reported that it had struck some observers as ‘strange’ that so far, the Commons public accounts committee has not summoned the people who have given tax advice to Amazon, Google, Starbucks and other ‘multinational giants’.
PAC chairman Margaret Hodge told the programme that accountancy firms ‘supporting anybody in trying to avoid tax in an aggressive way’ should be denied access to government contracts.
But the big four firms stressed ‘their global role and their requirement to respond to the needs of their clients’. Mary Monfries, head of tax policy at PwC, told the programme: ‘We help companies that are looking at tax as a cost but we have some clear principles about the way we work.’
Meanwhile, this morning’s Financial Times has reported that some members of the Commons treasury committee were ‘understood to have been irritated’ by the PAC’s inquiry into tax avoidance, complaining that the PAC had ‘overstepped its strict remit of analysing National Audit Office reports’. The treasury committee was now poised to carry out its own inquiry into Britain’s tax system, which will probe ‘its competitiveness and whether it is vulnerable to tax avoidance’, the FT added.
PwC, Deloitte, Ernst & Young and KPMG win valuable contracts from the UK government each year, said the BBC’s Andrew Hosken. Richard Murphy, tax campaigner and director of Tax Research, told the programme: ‘International tax avoidance could not happen without the active involvement, consent and support of the big four firms of accountants, and the fact that they maintain offices in all the major tax havens in the world to ensure that this activity can take place.’
It was ‘clear’ from recent decisions of UK tax tribunals and the Court of Appeal, Hosken said, that the big four had devised and sold tax avoidance schemes to clients in the last 12 years. ‘But according to these accountancy giants, they’ve moved on from this type of business and they now concentrate on what KPMG describes on its website as “helping multinationals manage their tax efficiency”,’ he added.
Some of the recent decisions related to schemes that were devised many years ago.
As Tax Journal reported yesterday, tax academics have emphasised in evidence to the National Audit Office the difference between the aggressive tax avoidance schemes that the government’s proposed general anti-abuse rule is designed to tackle, and the use of tax havens and low-tax jurisdictions to manage a multinational’s effective tax rate within the law.
This analysis is shared by many tax professionals, who do not regard tax planning by multinationals as ‘avoidance’. Some experts, recognising that the current system allows big multinationals to gain a competitive advantage over domestic businesses, have suggested that campaigners should be calling for a change in the law rather than criticising multinationals operating within the law.
However, with tax transparency high on the agenda, it is inevitable that the use of tax havens – many of which have constitutional links to the UK – to minimise tax bills will continue to be regarded as ‘avoidance’ by campaigners and the wider public.
Hosken said the big four ‘maintain a significant presence in jurisdictions recognised internationally as tax havens’. Joint research by the BBC and the Tax Justice Network established that the big four have 212 offices in ‘the 45 most prominent tax havens around the world, including Bermuda, Cayman and Liechtenstein’.
These jurisdictions were ranked 12th, 2nd and 34th respectively in the Tax Justice Network’s ‘financial secrecy index’ for 2011.
PAC chairman Margaret Hodge told the programme: ‘It seems bizarre to say the least that there are going to be many clients in Bermuda or the Cayman Islands other than people who are deliberately using those jurisdictions to avoid tax. The certainty we want – particularly from the big four accountancy firms who have a duty to lead by example – is that in the advice they give to their clients they are not advising how to engage in aggressive tax avoidance schemes, and they are advising clients to manage their affairs so that they pay a fair share of tax on the profits that are earned by the companies from their economic activity in the UK.’
Hosken said all four firms stressed ‘their global role and their requirement to respond to the needs of their clients, which often operate in many countries across the world’.
Hodge acknowledged ongoing EC and OECD work on reform of corporation tax but told Hosken that action was needed now: ‘Using the power of the public purse to purchase contracts is an important power that we have. The big four are getting more and more government business … If they want to access that work they’ve got to show that they are responsible companies who act properly and who don’t support anybody in trying to avoid tax in an aggressive way.’
Hosken asked: ‘And if they are doing that, they should be denied access to government contracts?’
‘Yes,’ Hodge replied.
Hosken said PwC and Ernst & Young ‘confirmed they had provided tax services for some or all of the five corporations Starbucks, Google, Facebook, Amazon and Apple, currently under scrutiny’. KPMG said ‘it was inevitable they will give or have given tax advice to most multinational corporations’. But spokesmen for all four firms said ‘they could not disclose the identity of companies for which they’d provided tax advice, or the nature of work carried out for them’.
Principles
Mary Monfries, head of tax policy at PwC, defended the firm’s work in an interview with the BBC’s Evan Davis, who said that none of the big four’s advisory work for the multinationals was ‘even close to being against the law’.
Davis asked Monfries whether PwC advised companies on ‘aggressive tax avoidance … how to get round the law’. The firm helped clients to understand what they need to pay, and defining ‘aggressive’ was difficult, she suggested. ‘We are advising clients on tax as part of their cost decisions.’
There was some confusion about avoidance and transfer pricing, she said. ‘Transfer pricing is the way that international governments have agreed that they will allocate profits between them and where those profits go in different countries.’
Richard Murphy was ‘quite sure that [the big four] all advise on aggressive tax avoidance’. Tax havens provided one way to ‘go round the law’.
‘We have a business in Bermuda that we base around the businesses that are important in Bermuda,’ Monfries said.
Evans said: ‘We all know that you are advising companies on how to structure their affairs in ways not to pay tax.’ Monfries replied: ‘We help companies that are looking at tax as a cost but we have some clear principles about the way we work … Any tax advice we give has to be based and supported by the law and cannot be based on any misinterpretation or non-disclosure of the facts.’
She stressed that clients were made aware of the risks of any challenge and ‘how other people might view their actions’, adding that ‘you have to separate in the debate whether the policy and the rules are right, and whether companies are complying with them’.
But Murphy said that in many tax havens there was ‘no tax authority’ requiring disclosure. ‘A lot of these activities will be recorded in places – like our Channel Islands and the British Virgin Islands – where no information gets on public record.’
The British Virgin Islands’ population of 23,000 did not need PwC’s services, Murphy said.
The Guardian’s recent ‘Offshore secrets’ series noted that the British Virgin Islands is now ‘the world's biggest provider of offshore entities’. More than a million BVI companies have been incorporated, the paper reported last week.
Tax Journal has invited all of the big four firms to comment.
Ernst & Young said in a statement that its clients ‘seek our advice on a wide range of issues, including the most appropriate tax planning that is in compliance with the applicable laws and rules’.
It added: ‘Ernst & Young strives to have an open and constructive relationship with tax authorities worldwide. We support improving certainty and transparency in the global tax system and compliance with it.
‘Our professional standards prevent us from commenting on client-specific matters.’
