Labour's John McDonnell has called for a new "Hippocratic oath" at Britain's large accountancy firms, warning that they must work to maximise the amount of tax their clients pay.
Speaking at the World Economic Forum in Davos, the shadow chancellor said the so-called big four accountants were not doing enough to tackle tax avoidance.
He reserved his harshest comments for accountancy firms, whom he said must change "their entire ethos" and rediscover their moral purpose.
"I think we need a new Hippocratic oath for [the accountancy firms], where they sign up to being committed to tackling tax avoidance themselves, rather than coming up with all these bizarre schemes to enable that to happen," Mr McDonnell told the BBC.
"There is almost a monopoly, a cartel that's going on, there are so few of them that are dominating the sector," he added.
"If they don't act," he cautioned, "they will be open to real public opprobrium."
The big four accountancy firms - Deloitte, PwC, EY and KPMG - declined to comment when asked by the BBC for a response to Mr McDonnell's comments.
This feels to me very like a policy created by Prem Sikka, who is John McDonnell's tax adviser these days. I can't be sure, because Labour don't come near me now, but I suspect the thinking is based on something I did with Prem a decade or more ago, when I wrote a Code of Conduct for Taxation.
There's a big difference though. McDonnell, and I suspect Prem, is targeting the Big 4 alone. Please don't get me wrong: heaven knows, they need targeting. But the issues in tax are bigger than that. My suggested Code was reduced to two pages. They said this:
A Code of Conduct for Taxation
Objective
This Code of Conduct relates to the payment of taxes due to a State or other appropriate authority designated by it.
Scope
This Code applies to:
- Governments and their agencies in their role as tax legislators, assessors and collectors;
- Taxpayers, whether individuals, corporate bodies or otherwise;
- Tax agents, whether they are undertaking tax planning or assisting with tax compliance.
Application
It is intended that this Code be voluntarily adopted by States and should be used to guide the conduct of taxpayers and their agents who choose to comply with it whether or not they reside in a State which has adopted the Code.
The Code
The Code is divided under six sections, each of which includes three statements of principle.
1. Government
a. The intention of legislation is clear and a General Anti-Avoidance Principle ('Gantip') is in use;
b. No incentives are offered to encourage the artificial relocation of international or interstate transactions;
c. Full support is given to other countries and taxation authorities to assist the collection of tax due to them.
2. Accounting
a. Transparent recording of the structure of all taxable entities is available on public record;
b. The accounts of all material entities are available on public record;
c. Taxable transactions are recorded where their economic benefit can be best determined to arise.
3. Planning
a. Tax planning seeks to comply with the spirit as well as the letter of the law;
b. Tax planning seeks to reflect the economic substance of the transactions undertaken;
c. No steps are put into a transaction solely or mainly to secure a tax advantage.
4. Reporting
a. Tax planning will be consistently disclosed to all tax authorities affected by it;
b. Data on a transaction will be consistently reported to all tax authorities affected by it;
c. Taxation reporting will reflect the whole economic substance and not just the form of transactions.
5. Management
a. Taxpayers shall not suffer discrimination for reason of their race, ethnicity, nationality, national origin, gender, sexual orientation, disability, legal structure or taxation residence; and nor shall discrimination occur for reason of income, age, marital or family status unless social policy shall suggest it appropriate.
b. All parties shall act in good faith at all times with regard to the management of taxation liabilities;
c. Taxpayers will settle all obligations due by them at the time they are due for payment.
6. Accountability
a. Governments shall publish budgets setting out their expenditure plans in advance of them being incurred, and they shall require parliamentary approval;
b. Governments shall account on a regular and timely basis for the taxation revenues it has raised:
c. Governments shall account for the expenditure of funds under its command on a regular and timely basis.
Enforcement
States seeking to comply with the Code will voluntarily submit themselves to annual appraisal of their Conduct. These appraisals will in turn be reviewed by a committee of independent experts appointed by participating States. Differences of opinion will be resolved by binding arbitration.
Any taxpayer or agent wishing to comply with the Code may do so. A State should presume that a person professing compliance with the Code has done so when dealing with any tax return they submit. In consequence the administrative burdens imposed upon that person should be reduced. In the event of evidence of non-compliance being found any consequential penalty imposed should be doubled.
It will be noted that I thought the obligations went rather beyond the accountants. They extended to clients as well. And as importantly, to government, which has to play its part.
Would I extend or change the Code now? I think I might: things have moved on a bit since 2007, but the essence is still OK.
But the key issue remains of significance: Labour has to not only tackle abuse in our tax profession; it has also to get HMRC in right order as well.
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I’ve nothing to argue about here. These are sound propositions for improvement, consistent with the Joy of Tax.
One of the factors determining my future support for Labour is how well they re-frame the issue of taxation. If I smell any scent of them being self-consciousness or lily-livered about it then they can ……well I’ll leave at that.
I don’t think McDonnell is articulating a policy here, he is just firing a warning shot. Showing some intent. I’m not sure that a “Hippocratic oath” would help. It hasn’t stopped the medical profession from creating a million plastic surgery disasters. “Do no harm” indeed.
Does he really think the big 4 really care about the public perception?
Do you really think they don’t?
I am slightly surprised you didn’t make a comment on the bit that said … “warning that they must work to maximise the amount of tax their clients pay”.
As I understand it your line has always been that people should pay the right amount of tax based on the substance of the transaction, not too much or too little. Working to “maximise the amount of tax” might play well to certain people, but it isn’t the same thing at all and appears to go beyond reasonable expectation.
I deon’t agree with that sentiment
It’s an absurd objective
Maximising anything is absurd, come to that
‘Maximising anything is absurd, come to that’
Could someone please make our avaricious investor and CEO class aware of this please!