Accountancy » Tax Research UK

Why the UK’s business schools and accounting academics are failing us

Accountancy, Accounting, Uncategorized 16 Responses »

May 172011

I have been in debate on another post with a UK accounting academic. I admit that the debate would not make an edifying read. I have found the commentators’ observations irritating, to say the least. I explained why in a comment I have made on that post this morning but at the same time I have also responded to his suggestion that I should spend my time writing for academic journals. He suggested this because he believes that this would, rather bizarrely, prove my credibility even though I recall reading a while ago that the average UK academic journal paper was read by just six people, and that included the editor, the author and the peer reviewers. Having reflected on this issue I added the following comment, which I think worth sharing more widely (and I’ve edited it a little here):

At the core of your latest comment is an absolutely fundamental error of judgement, and that is that academic accounting has had anything whatsoever to offer to British society for many a long year. As a consequence you think that I should somehow seek academic approval for what I do, and that this would give it greater status. Why on earth would I want to do that? With the notable, and singular, exception of Prem Sikka academic accounting’s track record over the last thirty or more years has been dire, and that is probably being kind to it.

Can you suggest one innovation in accounting that originated in the U.K.’s academic accounting network in that period? Can you name one accountant who was framed public debate in any way, apart from Prem? Is there an academic accountant who is in any way contributed to tax debate, apart from saying cutting it might be a benefit, without reason given?

Imagine what would have happened if I had submitted my work for peer review of the sort you suggest. Would country by country reporting exist? Would it now be on the agenda of the European Union, International Accounting Standards Board, Organisation for Economic Cooperation and Development, and others? Of course it wouldn’t. Peer review would have prevented me publishing a paper on the subject. Academic accounting is about quoting from existing ideas, not developing new ones. That is the poverty of intellectual thought in the UK, exemplified in a discipline like accountancy that has no history of original thinking.

Would the debate on the tax gap, now prevalent in politics, have survived peer review? I very much doubt it. Methodology would have been torn apart forever, but the reality is that because I wrote about the tax gap for the TUC the government was forced to address the issue, whether it liked it or not. We still disagree about methodology, but the debate was created. That did not happen as a consequence of academic accounting.

And what about tax havens? Is the fundamental distortion of markets that they create an issue at your business school? Is the opacity that hiding accounts from public view that they encourage highlighted as an economic distortion? Is the opacity within consolidated accounts that ensures that large corporations can shift their profits without being subject to public scrutiny treated as a fundamental failure of our existing accounting framework within your department? Are academic accountants everywhere jumping up and down saying tax havens must be abolished to ensure that effective markets operate on behalf of all participants, large and small, and whether they’re in business or its stakeholders? If not, why not? What corruption has led to this absolutely absurd position where you teach that markets are the solution to all problems and yet fail to highlight any of the abuses of markets that are promoted to ensure that the ordinary people of the world are exploited?

I will tell you what it is that ensures that these issues aren’t raised. Firstly it is the appointments process. If you disagree with the system, then you won’t get a job. If you do not buy into the absolutely fundamental (and absurd) underlying assumptions of neoliberal economics, even if you are an accountant, then you have absolutely no prospect of a career in a UK university business school or academic accounting department. Second, peer review ensures that this is the case. You must quote the opinions of those in authority, and approve them. If you do not your papers are not published. If you do not publish your career does not progress. The system has been set up to ensure that is the case. The neoliberal hegemony is enforced. Third, funding ensures that this is the case: far too many departments are dependent upon raising money from business or large firms of accountants. Their independence is, as a consequence, fundamentally threatened. Fourthly, and essentially, business wants to make sure that this is the case. It suits them very well have people like you placed in academic departments to suggest that people like me, who question the system, aren’t up to the task of preparing an academic paper. How convenient it is to question my credibility. But they, and you, miss the whole point. I’m not choosing to play that game. I’m questioning the whole system, and the UK’s business schools, in particular, exist for one reason and one reason only and that is to reinforce the neoliberal dogma which is destroying the capacity of UK business to think about anything but short-term trading. That is in turn destroying both our society, and by the destruction of the environment, the world at large.

I am, of course, open to comments but if they do not pass my peer review process they won’t be published.

The Lords debate the Tax and Financial Transparency Bill

Accountancy, Companies House, Corporation Tax, Country-by-country, Tax avoidance, Tax compliance, Tax evasion Comments Off

Mar 182011

This exchange took place in the Lords yesterday (and I have edited to highlight the relevant sections):

Lord Haskel (Labour)

Caroline Lucas MP is today introducing in another place a Presentation Bill about disclosing the amount of corporation tax paid and the profits made. Will the Government support her?

Lord Phillips of Sudbury (Liberal Democrat)

I entirely agree with what the noble Lord, Lord Haskel, said in relation to the Bill just introduced in the other place by Caroline Lucas. If companies domiciled or paying tax here had to disclose year by year where else they were operating, what the turnover was, how many employees they had there and what tax they paid, it would be a huge disincentive to the ludicrous exploitation of tax havens. Let us look at Barclays. It has admitted to some 150 subsidiaries in tax havens-I think that the true figure is more than 300-and that is true of so many organisations. There is no morality or sense of fairness in corporate tax-paying in so many instances. So let us have that.

Lord Sassoon (Commercial Secretary, HM Treasury; Conservative)

The noble Lord, Lord Haskel, raised the question of Caroline Lucas’ Bill in another place. My understanding is that the Second Reading of that 10-minute rule Bill is scheduled for June. The Government will decide at that stage whether to support it. I understand its import.

Good news to have such an impact in such a short period of time, across parties.

Now, will the government support a bill aimed at tax evasion and seeking tax transparency? And if not, why not?

Country-by-Country Bill tabled in UK parliament

Accountancy, Corporation Tax, Country-by-country 6 Responses »

Mar 172011

Caroline Lucas MP, leader of the UK Green Party, has today tabled a Bill in the House of Commons that would require country-by-country reporting by all UK companies for all their activities.

Clause 3 of her Tax and Financial Transparency Bill 2011 says:

Financial transparency: companies and trusts

(1)Every company, including a parent company, incorporated in or operating in the United Kingdom must publish in its annual financial statements prepared in accordance with the requirements of the Companies Act 2006 an analysis of the consolidated turnover and profit made by it in each jurisdiction in which it has a permanent establishment for taxation purposes as defined by section 1119 of the Corporation Tax Act 2010 and the resulting taxation liability due and payment made by that company and its group (if applicable) in each such jurisdiction, without exception being made on the grounds of immateriality.

(2)Such trusts, organisations and other bodies to be set out in regulations made by the Secretary of State shall be subject to the provisions of subsection (1).

(3)Regulations under this section may make such incidental or transitional provision as the Secretary of State considers appropriate.

(4)Regulations under this section shall be made by statutory instrument and shall 35be subject to annulment in pursuance of a resolution of either House of Parliament.

(5)In this section‚Äî

“company” means a company registered under the Companies Act 2006 in the United Kingdom and all its subsidiary companies; and

“operating in the United Kingdom” includes trading, acting charitably or making donations for political purposes.

This is country-by-country reporting reduced to its most basic form, but the Bill is important for a number of reasons.

First, this is the first time such legislation has been presented in this form in the UK.

Second this is the full version of country-by-country reporting, and is not restricted to the extractive industries.

Third, there is clear sign that the Bill will receive useful support. Labour shadow ministers have indicated support as have some Lib Dems. This is very welcome.

Fourthly, limited as this form of country-by-country reporting is it lets us answer what might be called ‘the Barclays’ question’. That is, what proportion of your trade was here, what proportion of your profit was here, what rate of tax do you expect to pay on that and how much did you actually settle (which lets us have some idea on the current /deferred tax split).

With these disclosed UK financially transparency would leap forward. Which is why this Bill deserves to become law.

But I should disclose that I worked on this Bill with Caroline Lucas, so I may be biased.

Chartered Accountants against the Cuts

Accountancy, Economics, TUC Comments Off

Mar 152011

Oil transparency is essential for Uganda

Accountancy, Country-by-country, Deloittes, Development, IASB, ICAEW, PWC Comments Off

Mar 082011

From the FT this morning:

From Henry Banyenzaki MP.

Sir, News that the European Union is to pass legally binding measures on country by country reporting for extractive companies has given a lift to transparency campaigners here (“EU closer to adopting financial reform similar to US”, March 4). The committee I chair in parliament soon will have much of the information on oil revenue that we need to hold our executive accountable.

The recent oil finds in Uganda, estimated at 2bn barrels, have the potential to transform our country, reducing poverty and pushing us to middle-income status. However, our neighbours in Congo have shown that natural resources do not always lead to development. Swift implementation of these reforms, and assurances that payments will be broken down project by project, will give us the best chance possible to avoid the resource curse and allow all Ugandans to benefit from our oil.

Henry Banyenzaki,

National Resistance Movement, Uganda

Chair, Uganda Parliamentary Forum on Oil and Gas

That’s why country-by-country reporting is important.

That’s why the EU must adopt it.

This is about relieving poverty.

And yet big business – like Shell, big firms of accountants – like PWC and Deloitte, and the accountancy profession in the shape of the Institute of Chartered Accountants in England and Wales and the International Accounting Standards Board all oppose it.

Why are they opposed to the relief of poverty in developing countries?

If they’d like to explain I’ll give them the space to do so.

Most accountants who’re making comment are to blame for the mess we’re in

Accountancy, Barclays, Big 4, Ethics 11 Responses »

Feb 202011

Nick Cohen wrote in the Observer today:

The banks are as great a threat to our national security as a foreign enemy. We collect intelligence on hostile powers. Why should we not collect it on the hostile City?

He’s right in his analysis: the banks, and let’s be honest about this, some other parts of the financial services industry and big business, are a massive threat to our well being. What they promote is detrimental to the well-being of the vast majority of people in this country.

And yet it’s assumed they’re the innocent party. Clear evidence of this came yesterday. As I’ve noted, I gave several interviews for the BBC on Barclays’ tax. All I am asking Barclays to do is to pay their tax in accordance with the letter and spirit of UK law – something they have signed up to do but which i doubt they have done in the past. And yet the BBC were tortured in their attempts to link me to UK Uncut, or not (as is the case – as I made clear – I have sympathy but am not a member – however that might be defined). As was explained to me that’s because they had to make clear to viewers “I have opinions, but of course most accountants who come on are just commentators”.

No they’re not! Most accountants who go on air come from the big firms – and they’re the architects of the tax abuse we are witnessing and the failure to account of which we are seeking the consequences. They’re not innocent, unbiased parties. They’re profoundly political, utterly conflicted by self interest and wholly vested in maintaining the status quo.

But because I simply ask that people comply with the law as parliament intended it my position has to be explained.

Cohen is right – these people have even captured the BBC, and it’s time we reclaimed the state for the benefit of the people of this country – because right now it is being openly abused by those who really are its enemies.

Where 4 art thou?

Accountancy, Big 4, Secrecy jurisdictions, Tax Havens, Tax Justice Network 2 Responses »

Jan 302011

The Mail on Sunday seems to have got it in for tax havens – and those who operate there. And rightly so, of course.

Last week they highlighted the number of subsidiaries UK based multinational corporations have in such places, using methodology I have used in the past.

This week they’re back on the trail – highlighting the role of the Big 4 firms of accountants in these locations. As they note today:

The Big Four accountancy firms have come under attack for maintaining on average more than 20 offices each in offshore tax havens despite countries working together to crack down on tax avoidance.

The four firms – PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young – have 81 offices in offshore tax havens, according to new research by Financial Mail.

MP Chuka Ummuna, who earlier this month confronted Barclays chief executive Bob Diamond over the banks’ 300 offshore subsidiaries, said: ‘There’s a whole industry out there dedicated to helping people avoid tax that will increasingly come under the microscope.’

This work also seems to be based on methodology I have used before now – and I’ve got no complaint about that. Using a broader definition of tax havens / secrecy jurisdictions than The Mail has used I published a paper on this issue last summer, available here. I’d stress that it has been suggested I overstated the number of locations PWC have on Hong Kong: that aside I stand by the research.

And as I said in my paper, there is, I am sure, nothing illegal about what the Big 4 are doing. But as I also note:

[This paper shows] that the [Big 4] act as auditors and advisers to almost all multinational corporations. It is shown that they have prevalence in secrecy jurisdictions that cannot be explained by local commercial need. It is shown that those places in which they are present have much higher incomes per head of population than is to be found in those where they are not present. It is suggested that this is not the result of local characteristics of the places in which they are located but is the result of income being transferred into these locations for accounting purposes, a process which their presence would assist whether directly or indirectly.

And if there is reallocation of income to secrecy jurisdictions in which the Big 4 operate then it has to come from somewhere. That somewhere might be the UK, in which case, as the Mail is no doubt suggesting, it is at cost to the ordinary taxpayes of the UK. And if it is from developing countries it creates poverty – an argument many NGOs who work in developing countries have made. And that can cost lives when necessary resources are denied to the poorest people in the world.

I repeat, nothing illegal may be happening. After all, few tax havens / secrecy jurisdictions have transfer pricing legislation to make such practices illegal so it’s hardly surprising that what goes on in such places can meet legal expectations. That’s not the point though. There is a cost all the same. And one that is unacceptable to the UK, and the people of developing countries.

And the Mail is right to highlight that.

And in the circumstances the refusal of the Big 4 to answer the questions the Mail put to them is all the more telling. It’s time they were held to account for what they do. After all, that’s the very core of what they’re meant to be about, isn’t it?

KPMG plans to get them young

Accountancy, KPMG 7 Responses »

Jan 142011

The FT has reported that KPMG is planning to give up its graduate recruitment programme in the UK, and is instead planning to recruit before young people go to university. It is intending to take on 75 school leavers a year and send them on a four-year accountancy degree at Durham University, for this which KPMG will pay the costs, and a salary.

Three thoughts follow: KPMG are clearly worried about the need to catch young people young so that they can train them in their way of thinking before they can be corrupted by thoughts of ethics, tax justice or duty to society.

Second, doesn’t this deny 95% of the benefit of going to university, which in my experience was to have the opportunity to learn and question independently, even if I did end up with KPMG at the end of the process?

Third, shame on Durham for being so blatantly commercial that they will degrade their academic process into being a mere training scheme. I talk about regulatory capture quite often, but this is academic capture, and it probably amounts to much the same thing because in both cases the chance of objectivity disappears.

New professional guidance on tax avoidance

Accountancy, Tax avoidance, Tax compliance 18 Responses »

Jan 042011

The joint tax institutes of the UK have issued new professional guidance to their members today. It includes the following statements:

Tax avoidance is legal and is to be distinguished from evasion, which is illegal. All taxpayers have the right to arrange their affairs under the law to minimise their liability to tax.

Where a member is considering arrangements which may be viewed as artificial by the tax authorities, he should consider carefully the risks and merits. He should do this in the light of the client’s wider interests because of the risk that the arrangements may be challenged by the tax authorities.

The language is not that I would have used. But this does not seem – semantics aorta – that far removed from discussion of the difference between tax avoidance as I describe it ( seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes) in the first paragraph and tax avoidance as I describe it in the second paragraph.

And it is good that it is made clear that there is a choice implicit in the difference. That’s welcome.