The Public Accounts Committee issued a new report overnight in which they said:
We believe that PricewaterhouseCoopers’s activities represent nothing short of the promotion of tax avoidance on an industrial scale.
Contrary to its denials, the tax arrangements PwC promotes, based on artificially diverting profits to Luxembourg through intra-company loans, bear all the characteristics of a mass-marketed tax avoidance scheme.
The effect has been to reduce the amount of corporation tax that some multinational companies pay in the countries in which they make their profits.
Damningly they added:
We consider that the evidence that PwC provided to us in January 2013 was misleading, in particular its assertions that “we are not in the business of selling schemes” and “we do not mass-market tax products, we do not produce tax products, we do not promote tax products”.
In our view these are in fact marketed tax avoidance schemes and we are also sceptical that HMRC was kept fully informed of PwC’s activities.
In the process they passed blunt comment on PWC's ethics:
The fact that PwC’s promotion of these schemes is permitted by its own code of conduct is clear evidence that Government needs to take a more active role in regulating the tax industry, as it evidently cannot be trusted to regulate itself.
In particular, HM Revenue & Customs needs to do more to challenge the nature of the advice being given by accountancy firms to their clients, ensure that tax liabilities reflect the substance of where companies conduct their business, and introduce a new code of conduct for all tax advisers.
Unless HMRC takes urgent action, this irresponsible activity will go unchecked, causing harm to both the public finances and the reputations of the companies involved.
This last point is vital. As a result of their review the Committee, which always reports on a cross party consensual basis, made three recommendations:
HMRC should set out how it plans to take a more active role in challenging the advice being given by accountancy firms to their multinational clients, with a particular view to the mass marketing of schemes designed to avoid tax.
In contributing to the OECD’s discussions aimed at reforming international tax law, HMRC should push for a more rigorous and meaningful definition of what substance means.
We believe strongly that the Government must act by introducing a code of conduct for all tax advisers, as we recommended in our April 2013 report. We further recommend that it should consult on how it should regulate the industry and enforce such a code, including through financial sanctions that could be imposed in the event of non-compliance.
I admit I do not think those recommendations go far enough. The reality is that PWC and the other big firms of accountants are not just a threat to the public finances ( although no one could deny that this is true). They are also a fundamental threat to democracy in this country by deliberately putting in places structures that undermine the rule of law in the UK with the intention of denying tax revenues to properly elected governments so that those governments are unable to fulfil their mandate given to them by the UK's electorate with the intention of ensuring that wealth is redistributed from the majority of people in this country to a minority on whose behalf these firms are acting. In other words, PWC are not just pursuing an agenda of self-interest but are also pursuing an overtly political agenda that is intended to fundamentally alter the balance of power in the UK and elsewhere.
In the process the Big Four firms (PWC, EY, KPMG and Deloitte) provide the complete backbone to the tax haven economies of the world, none of which could be used by the large companies that artificially relocate transactions to these places for the purposes of avoiding tax if those firms of accountants were not present in those places to both provide the structures that facilitate the abuse and then audit them.
It is not then an accident that PWC sell mass-marketed tax avoidance schemes in this country; their tax haven operations are dependent upon them doing so. The tax haven operations are pivotal in this process. By capturing the state in these places PWC and other firms can have enacted the laws that permit abuse. Then having effectively created their own ability to legislate they use that capacity to undermine tax law elsewhere, including in the UK. These are not coincidental processes: they are entirely integrated ones. The capture of one state is used as the basis for capturing the next in one part of what has been appropriately called the 'race to the bottom'. The race will only end when wealth is not taxed and the democratic means to re-impose such tax has been neutered: that is the goal.
So what do we do? Are Codes of Conduct good enough to face off such a threat? I do not think so. Something rather more radical is required.
The first is direct regulation of accountancy firms. This might be another task for an Office of Tax Responsibility. There is simply no option but do this now: self regulation has to be confined to history forever. And this Office has to be well funded to do its task.
Second, only licensed firms should be able to sell tax advice in the UK. Those with links, whether legal or through mutual marketing arrangements, in places that are recognised as tax havens or secrecy jurisdictions should be denied such licences. Only firms that demonstrate a commitment to effective tax compliance, which is always incompatible with tax haven usage, should be allowed to practice tax in this country. Regulatory visits should be maintained to make sure that this is not abused.
And, very obviously, auditing should be divorced from all tax practice in the UK. If the firms object then the NAO or HMRC should take over their audits in this country. The licence to audit should be revocable, and a state alternative should be available. The idea that audit firms are too big to fail and can abuse however they wish is something that we need to consign to history.
These are radical proposals, but radical steps are needed. The threat from these firms is extremely serious and has to be countered in the interests of most people in this country. We cannot be held to ransom by them anymore. To deliver a capitalism fit for the 21st century the corruption these forms have purveyed has to be removed from the market place once and for all.
If they want a continuing licence to operate they should be given the choice of complying. If they don't want to play by the rules then the rules should now exclude them from the game. It is as simple as that.