Deloittes » Tax Research UK

Oil transparency is essential for Uganda

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

Mar 082011

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.

PWC, Deloitte and the ICAEW, all supporting corruption

Accounting, Corruption, Country-by-country, Deloittes, Development, ICAEW, PWC 2 Responses »

Feb 212011

Larry Elliott has a good article under the title “The new scramble for Africa must have the courage to curb corruption” this morning. It does, of course, support country-by-country reporting in the extractive industries, to which George Osborne and Vince Cable lent their support yesterday. The idea originated long ago in a publication I wrote called Extracting Transparency.

Larry notes in the article that:

Vince Cable, the business secretary, says he is in favour of the initiative and the Treasury has made similar noises. Ministers are expected to voice their support at an experts’ conference Sarkozy has organised in Paris to discuss the issue next week.

Cable says that so far he has had no push back from UK companies, which is somewhat surprising.

It’s also wrong. There is massive opposition to this transparency in business. The call for country-by-country reporting has just been subject to a consultation by the European Union. As the submissions show the massed rank of opposition to this proposal, whose aim is to ensure the end of corruption and the increase in shareholder value as well as the beating of tax abuse, is enormous. Those bodies who oppose disclosure and so support the continuation of corruption (one follows the other – since none of them suggest an alternative mechanism for tackling the issue) include:

The Institute of Chartered Accountants in England and Wales

PricewaterhouseCoopers

Shell

European Banking Federation

Societe General

International Association of Oil and Gas Producers

Deloitte

Deutsche Bank

UK 100 Group of FTSE Finance Diectors

Federation of European Accountants

Glaxo Smith Kline

Repsol

The Association of Chartered Certified Accountants

UK Accounting Standards Board

Belgian Accounting Standards Board

Association of British Insurers

Each and every one of them needs to be held to account for supporting corruption.

Each and every one of them could have said they wanted disclosure to help stop corruption. But they refused to do so. Thy put their own self interest first.

And for that they deserve all the blame they get.

And in due course special mention will go to PWC – watch this space.

Don’t doubt that the major corporates are still tax avoiding for all it’s worth

Deloittes, KPMG, Tax avoidance, USA 4 Responses »

Dec 312010

Bloomberg have produced another of Jesse Drucker’s stunning reports on tax avoidance in the last couple of days.

This one is wholly US focussed, but has a strong offshore element and a much broader appeal than the US market because it shows two key things. First that business is still demanding tax favours, even when not due. Second, it shows that old hands in the game like KPMG are still well and truly active.

I’m not going to in any way summarise the arguments in an important article. Just a few extracts:

At the White House on Dec. 15, business executives asked President Obama for a tax holiday that would help them tap more than $1 trillion of offshore earnings, much of it sitting in island tax havens.

The money — including hundreds of billions in profits that U.S. companies attribute to overseas subsidiaries to avoid taxes — is supposed to be taxed at up to 35 percent when it’s brought home, or “repatriated.” Executives including John T. Chambers of Cisco Systems Inc. say a tax break would return a flood of cash and boost the economy.

But as Drucker notes later:

The argument that a new tax break for offshore earnings would generate a domestic stimulus “holds no water at all,” said Joel B. Slemrod, an economics professor at the University of Michigan’s school of business and former senior tax economist for President Reagan’s Council of Economic Advisers. U.S. companies are already sitting on a record pile of cash — $1.9 trillion in liquid assets, according to Federal Reserve data.

“The fact that they have these cash hoards suggests that investment is not being constrained by lack of cash,” Slemrod said.

I am convinced that is true. So what is this about?:

The tax benefits from such profit shifting can have a greater impact on share price than boosting sales or cutting other expenses, since the reduced rate goes straight to the bottom line, said John P. Kennedy, a partner at Deloitte Tax LLP, speaking at the conference in Philadelphia Nov. 3.

In other words, tax avoidance is about aggressively boosting earnings in the short term – and as I have long argued, that’s linked to executive options:

“You may think two bucks isn’t much, but when you’re the CFO and she has 100,000 options, that’s pretty interesting,” [Kennedy] said. He cited large pharmaceutical and biotech companies, including Merck, Amgen Inc. and Eli Lilly, which have reported effective income tax rates at least 10 percentage points below the statutory 35 percent rate.

This link has to be broken. It’ a vital policy issue.

But there’s also the issue of the sheer waste of this whole industry. The description of what KPMG is up to is detailed, and will I suspect to many be deeply unattractive however legal it might be. To quote Drucker again:

“Some of the best minds in the country are spent all day, every day, wheedling nickels and dimes out of the tax system,” said H. David Rosenbloom, an attorney at Caplin & Drysdale in Washington, D.C., and director of the international tax program at New York University’s school of law.

Let’s not pretend the tax avoidance game has stopped: it hasn’t. It’s real, and it costs the rest of us money by shifting the burdens of tax onto those least able to pay. And that’s why it is wrong.

Why it’s right to protest about individual company’s tax

95, Deloittes, KPMG, PWC, Tax avoidance, Tax Havens, Tax justice 22 Responses »

Dec 082010

It’s been argued – even to their shame by Labour politicians – that it’s inappropriate to target individual companies when protesting about tax avoidance. That’s wrong, for three reasons.

First, the decision to tax avoid or not is that of the individual company. No one asks them to. Despite the claims made by some company directors and some apologists for this abuse, company directors are under no obligation to minimise their tax bills. Indeed, if doing so increases the risk within their companies it’s quite easy to argue that they’re acting against the best interests of their shareholders when doing so. In that case the main reason why many companies do it is to increase short term earnings that trigger director’s bonuses – and that has to be wrong for everyone throughout our economy except the already overpaid directors.

Second, it’s not necessary to tax avoid. It’s quite clear that some companies don’t and get along well all the same. They seek to be tax compliant, which means that they seek to pay the tax that the law intended they should pay in each place that they operate, and no more. We can’t argue with that. No one has to voluntarily pay more tax than the law expects.

Third, it is certainly true that government is responsible in a very real sense for tax avoidance; after all, it is government that creates the laws that are avoided. However, no government invites people to abuse the law, and secondly, far too much of that law (including the loopholes in it) now exists as a result of the lobbying and advice of business itself. For some people to suggest that there is, somehow, some clear and absolute divide between the government and the rest of society when it comes to tax law is just wrong.

The reality is that big business and those with wealth and the people who act for them have enormous impact on the way in which tax law has developed. This happens in three ways. First, they fight the laws we have through the courts to undermine them. The classic example was the 1936 case involving the Duke of Westminster – who paid his gardeners using a wholly artificial device called a deed of covenant to save himself tax. As a result he won a concession from the House of Lords that said that:

Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.

This has been the tax avoiders excuse for their abuse ever since.

Second these companies, and most especially the tax profession, lobby for taxes that suit those with high incomes and in the process invariably ignore the burden they place on ordinary members of society. Two examples will suffice. The Association of Chartered Certified Accountants has argued for flat taxes in the UK. These would remove all higher rates of tax, which would massively advantage those who no pay them. Many tax institutes argue for similar ‚Äòsimplifications’ that seem to have the same net effect. PricewaterhouseCoopers, the biggest firm of accountants in the world, has regularly argued for the replacement of higher rates of tax on income and profits by Value Added Taxes. When doing so they usually fail to note that this move would be regressive – shifting the tax burden from those most able to pay to those least able to pay as a result.

Third, big business and the tax profession set up the mechanisms for tax abuse. So, for example, the Big 4 firms of accountants that dominate the profession world wide – PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young – are present in all the world’s major tax havens. That’s not chance: their presence underpins the credibility of these locations and lets big companies use them for tax avoidance. If they weren’t there then those companies couldn’t have their tax haven subsidiaries audited. But the relationship is stronger than that: in many cases the Big 4 proactively support the creation of tax havens as PricewaterhouseCoopers are doing in Jamaica, or support their abolition of taxes on business, as PWC (again) did in Jersey in 2004.

So, most certainly government has a very clear role to play in tackling tax abuse. But don’t for one minute think that because tax avoidance is legal it isn’t firstly a crime against society and secondly that large companies and their advisers aren’t guilty of it, because it is, and they are.

Conflicts of interest? Surely not

Auditing, Deloittes, PWC 2 Responses »

Nov 192010

As the Guardian notes:

The government is spending millions of pounds employing firms that audit its accounts to also carry out vast swaths of its work, in an arrangement that risks creating conflicts of interest.

The "big four" auditors that dominate the commercial world – KPMG, Deloitte, Ernst and Young and PwC – received nearly £70m from the public purse in the first five months after the election. The vast majority of payments were for management consultancy and large project work, but two of the auditors were also commissioned to simultaneously carry out internal audits for Whitehall departments.

Conflicts of interest? Surely not? Not when there’s a chance to share in the loot from the government gravy train for the already well off. When that’s on offer such a thing’s not possible. Surely?

Deloitte – going out of their way to undermine accountability

Accounting, Country-by-country, Deloittes 1 Response »

Oct 272010

Accountancy Age has reported:

The average annual report has broken the ton, stretching to more than 100 pages, according to research by Big Four firm Deloitte, which wants government to ease the reporting burden on UK businesses.

The average report length has almost doubled from 56 pages in 2000 to 101 pages today, according to the study.

There is no great surprise to that. The increase has arisen almost entirely because of the introduction of International Financial Reporting Standards, and that is a voluntary initiative from and by the accounting profession, in no small part paid for by Deloitte who are one of the four major contributors to the International Accounting Standards Board. But note the reaction from Deloitte:

Isobel Sharp, senior partner with Deloitte, believes current reporting regulation is confusing and can hinder meaningful communication between companies and their shareholders.

"The current model is a confusing and one which, in my previous report, I described as dysfunctional," she said.

The conclusion being

The research will put pressure on the government to ease the reporting burden on businesses as part of its far-reaching review of corporate reporting.

So here we have the accounting profession arguing that a self-imposed burden, created at its own expense, should justify the reduction in reporting of the activity of a corporation to its members. This is utterly absurd. As long ago as 1975 a paper entitled The Corporate Report suggested that users of accounts wanted to appraise information on:

1. The performance of the entity;

2. Its effectiveness in achieving stated objectives;

3. Evaluating management performance, including on employment, investment and profit distribution;

4. The company’s directors;

5. The economic stability of the entity;

6. The liquidity of the entity;

7. Assessing the capacity of the entity to make future reallocations of its resources for either economic or social purposes or both;

8. Estimating the future prospects of the entity;

9. Assessing the performance of individual companies within a group;

10. Evaluating the economic function and performance of the entity in relation to society and the national interest, and the social costs and benefits attributable to the entity;

11. The compliance of the entity with taxation regulations, company law, contractual and other legal obligations and requirements (particularly when independently identified);

12. The entity’s business and products;

13. Comparative performance of the entity;

14. The value of the user’s own or other user’s present or prospective interests in or claims on the entity;

15. Ascertaining the ownership and control of the entity.

The sad truth is that in the intervening thirty five years we have made very little progress in achieving these goals. And now accountants want to reduce the limited disclosure we already have. Deloitte should be ashamed of themselves. How can anyone call themselves an accountant when their sole aim appears to be hiding information from those who need it?

The Big 4 are moving in the wrong direction. Country by country reporting is the direction of travel in which they should be going.

What do this lot know about small business tax?

Deloittes, PWC, Tax management Comments Off

Oct 072010

I noted a report today that said:

The Office of Tax Simplification (OTS) has announced the recruitment of four private sector tax experts to help with its review of small business taxation in the UK.

Joining the existing members of the panel will be former HM Revenue & Customs officer and IR35 expert Kate Cottrell and Deloitte senior manager Thomas Byng.

BDO senior tax manager Partha Ray and PwC senior manager Caroline Turnbull-Hall will also help the OTS carry out its review, which will see the controversial IR35 tax legislation placed under the microscope.

Commenting on the appointments, John Whiting, tax director for the OTS, said: "I am delighted to have such an experienced team with their wide range of tax backgrounds in place and I am very grateful to the firms that have released them. "We are now getting going on our challenging task of helping to simplify Britain’s tax system."

And I thought “what the heck do this lot know about small business tax?”

Come on – who are they kidding? Deloitte, PWC and BDO are going to think about small business tax. When they have not one typical small business client between them, I suspect. What a farce.

Why not ask some small business experts to help. Wouldn’t that have made sense? To anyone but the Big 4 (who think BDO are small) of course it would. But to a PWC dominated exercise it’s anathema. So expect a complete cock-up as a result.

Deloitte & PWC can’t agree on losses – and one needs a rude awakening

Accounting, Banking, Deloittes, PWC Comments Off

Feb 152010

FT.com / Companies / Banks – Deloitte chief reignites accounting debate.

The debate on how to account for banking losses goes to the core of International Accounting Standards project.

Now Deloitte and PWC cannot agree on the issue,a s the FT notes:

Jim Quigley, global head of “Big Four” accounting firm Deloitte Touche Tohmatsu has proposed that banks account for losses in two radically different ways, to meet the opposing demands of politicians and accountants.

He has told the Financial Times that he is an “advocate” of banks making loan loss provisions for “incurred losses” separately from “expected losses” – and reporting them in two different lines in their accounts.

However, PWC says this proposal would:

“muddy the waters”.

Politicians and regulators have blamed the current system of “incurred losses” – whereby companies may make provision for loan losses only as they occur – for exacerbating the crisis, by encouraging a cyclical approach to risk management.

But that view is questioned by many accountants and bankers who argue that “incurred losses” give investors clarity. Accountants and bankers are also are sceptical about the “expected loss” model, as they fear it raises the risk of “cookie jar” accounting, whereby executives put funds aside during years of bumper profits only to release them later to cover up bad performance.

Let’s be clear about this: until 2005 everything PWC are arguing for would have been unacceptable in the UK. We did expected loss accounting under UK rukles. It is only the International Accounting Standard Board that over-ruled this.

Three years later most banks fell over.

And the thing PWC is arguing against is anti-cyclical provisioning to ensure capital retention. To put it anothjer way, PWC wants pro-cyclical accounting that encoruages recklessness.

PWC’s recklessness seems to know no bounds. The lack of honesty in their argument is also stunning: to suggest that the prudence that under-pinned accountancy for more than a century is “cookie jar” accounting is an appalling mis-statement of reality. That prudence served us well and is exactly what we need now.

PWC needs a rude awakening.

The madness of accountants

Accounting, Deloittes, Ethics, PWC, Tax avoidance 1 Response »

Dec 082009

I debated bankers bonuses with Mike Warburton of Grant Thornton yesterday on Radio 2. As Howard reed – a co-author of mine on the recent Compass tax report noted:

I doubt there will be many sympathisers with Mike Warburton’s position outside the banking sector itself. He was effectively arguing that the UK should tax bankers as lightly as possible when times are good and then give them as much money as possible to bail them out when times are bad. One doesn’t need to be an economic genius to work out that this creates an incentive for bankers to gamble as recklessly as possible in the knowledge that the taxpayer will always bail them out. It’s a crazy approach – and I think the UK public understands that at a fundamental level.

I am sure Howard is right. But this morning we have my old friend Bill Dodwell of Deloittes telling the Guardian:

We’ve had calls from bankers asking about … what action they might take under the Human Rights Act. There’s never been a precedent [for a tax targeted on one group].

I think government lawyers will be working incredibly hard as to whether this [tax] is feasible at all

You can be sure that Bill will be doing his best to make sure it is not. So will Jon Terry at PWC, who said:

They will find ways around it

Since the report continues by noting:

Terry at PwC said the definition of "bonus" and "banker" would be crucial

I think we can safely assume that Terry actually means “we will find ways round it”.

This is the madness of the big firms of accountants. I use the word mad advisedly. If mad means “being out of touch with reality”, and I think it does, then I can genuinely say these comments represent the madness of these firms.

If they continue this way accountants are next for public opprobrium. And quite rightly so. Advertising intent to circumvent the law is, in my opinion, profoundly unethical behaviour if that is, indeed, what they are doing.