Tax Research UK

PwC and KPMG greasing the government contract wheel? | AccMan .

Dennis Howlett on KPMG and PWC ……. and the Tories.

Why are thyey donating so much?

Richard Murphy Conservatives, KPMG, PWC

KPMG report:

The Court of Appeal judgment in Prudential plc v HMRC1 was published on 25 June 2009. The Court of Appeal found in favour of HMRC, following the decisions of the Special Commissioners and the High Court.

The case revolves around hedging transactions involving off-market swaps. In 2002 Prudential entered into currency swap arrangements with the Royal Bank of Scotland and Goldman Sachs International. The swaps operated as hedges of two foreign exchange exposures in Prudential. Prudential made upfront payments of £65m and £40m and were seeking a tax deduction for the total of £105m paid up front in the accounting periods in which the payments were made. The legislation in question (foreign exchange rules in Finance Act 1994) has now been repealed but the Special Commissioners decision was of interest because of its analysis of the unallowable purpose test. However there has been no further discussion on this point in either the High Court or Court of Appeal decisions.

This case is, however, a reminder that the interpretation of a single phrase cannot be done in isolation without regard to the logic of the relevant area of legislation even in cases where the tax legislation is highly prescriptive.

I have added the emphasis. The reason is obvious: this is further evidence that the courts are seeking to determine the spirit of the law.

It’s rather pleasing that in the process they kick a scheme by some ‘usual suspects’ into touch. I believe it was concocted by Ernst & Young – another in that category, and no doubt why KPMG reported it as they did!

Richard Murphy KPMG

According to a report in India:

Tax havens like Mauritius with which India has a tax treaty or Bermuda, shield a staggering $225 billion in unpaid taxes a year, according to Girish Vanvari, Executive Director at KPMG for M & A Tax. The US alone loses $60 billion a year.

I have no idea where the figure comes from – indeed it looks suspiciously like a misquote of TJN’s $255 billion, but it’s good to see KPMG accepting the scale of the problem.

Richard Murphy India, KPMG, Secrecy jurisdictions, Tax Havens, Tax evasion

KPMG has published its budget wish:

With the budget less than a week away, KPMG suggests some measures which could improve the UK’s attractiveness to businesses from a tax perspective, principally:

• Reduce (or at least do not increase) the level of complexity and uncertainty in the tax system
• Address specific issues around the taxation of foreign profits
• Introduce a specific regime for intellectual property to attract such businesses to the UK

Oh dear KPMG. You reveal your bias (and probably your influence on the ICAEW).

KPMG claim they want reduced complexity. I have to say I do not see the evidence. Not least because they ask for principles based legislation but no General Anti-Avoidance Principle. Sorry, but one does not stick without the other.

They want to make it easier for companies to not pay tax in the UK on their foreign profits.

And they want to lower taxes on intellectual property in the UK.

The goal is unambiguous and clear. It is to reduce the tax rate on big business and those who own them – always the wealthiest in society. It is to make it easier to avoid tax. It is to ensure that unearned income is taxed less than earned income – so shifting the burden of tax onto ordinary people.

It is so transparent in its desire to increase the wealth gap it is ludicrous.

But still these people are treated as credible commentators when actually they are seeking to ensure that the problems this economy faces increase in scale. I despair, not for the first time today.

Richard Murphy Accounting, Economics, Ethics, KPMG, Tax avoidance

I thought this comment on the blog worth drawing attention to:

I am not from the Big 4, Richard.I’m from Indonesia, where more than 750 foreign- based corporations keep reporting losses for years for tax purposes.

We called this practices "transfer mispricing" schemes,but we can do nothing to eradicate it. We in tax department feels desperate to cope with this situation.

I do agree and fully support the content of your column, Richard, but also want to underline the issue that transfer "mispricing" is not tax avoidance , but it is tax evasion.

It is not the form, but it is the substance that counts.

It is similar to the term "treaty abuse", where some people preferably call it "harmful practice scheme" instead of "treaty abuse scheme".

Can the people from the Big 4 dare to answer whether there is such ‘good faith’ when planning the aforementioned schemes ?

I think it is highly time to CHANGE

Will the Big 4 rise to the challenge?

We’re waiting to hear from you. When will you stop assisting this abuse of developing countries?

Richard Murphy Accounting, Corruption, Deloittes, Development, KPMG, PWC, Tax evasion

Gordon Brown has demanded that the OECD look at tax avoidance as part of the anti-tax haven campaign.

Let’s be realistic. The tax avoidance issue is about transfer pricing more than anything else. It comes in many forms from the blatant abuse that is frequently seen in many developing countries – where too often I see profits transferred out of these states to tax havens as a result of abusive mineral exploitation agreements – to the abusive structures that many companies create to transfer intellectual property out of the UK for the sole reason of abusing and free-riding upon the backs of the ordinary taxpayers of the UK.

I designed a mechanism to tackle this abuse in 2003. It is called country-by-country reporting. It now has backing from many of the most important development agencies in the world – Oxfam, Christian Aid, Action Aid, CAFOD, War on Want in the UK alone, and many more around the world. The proposal is simple. It demands a profit and loss account and supporting notes, including on tax paid, for every single country in which a multinational corporation trades – including details of intra-group trading. This will provide considerable information likely to indicate those who are transfer mispricing, and as such either tax avoiding or evading as a result (and in this area it’s hard to differentiate which).

None of these agencies have become interested in accounting standard reform for fun. They have been convinced that accounts can deliver enormous benefit for ordinary people ,and most especially those of developing countries who could secure $160 billion as a result of this reform according to Christian Aid. That’s enough to pay for the Millennium Development Goals.

I am aware that this reform is opposed by PricewaterhouseCoopers, Deloittes, Ernst & Young and KPMG. Between them they effectively control the International Accounting Standards Board which is going to confirm in April that they think that the only relevant users of accounting data are those who trade capital in financial markets – the very people who have brought the world’s economy to its knees.

The G20 committed the world to one set of accounting standards. It did not commit itself to the standards issued by the IASB – which have quite clearly contributed to the problems to date.

I am under no illusion that we have a fight on our hands on this one. The partners in the Big 4 seem determined, by deliberately ignoring this issue, to keep the poor of the world on incomes of less than $1 a day – to feed their own greed. I stress – in my opinion this appears to be a conscious choice on the part of those firms. This is a choice they have made knowing they could eliminate that poverty by ensuring that tax is paid in the right place at the time and in the right amount by all taxpayers – where right means that the economic substance of the transactions a person (human or legal) undertakes matches the form in which it is reported for tax. Not one partner in these firms appears to have the courage to stand up and say that the systems they promote, which ignore this principle, condemn at least 1 billion people to poverty. Not one. That’s why I am sure it is a choice they have made.

And remember the Big 4 are also collectively the only organisations that are universally present in every major (and most minor) tax haven in the world, as a result of which these firms underpin the whole network of corruption that tax havens create even if they themselves never undertake a single illegal act.

Accountancy is at the forefront of the debate on beating poverty in this world now. I never thought I’d say that. But it is true. And it is a battle that is winnable simply because the gains are so readily apparent for everyone but the Big 4.

We won’t win yet – but as governments become desperate for revenue the abuse these firms facilitate for their clients will become increasingly apparent – and will be beaten.

And with it the corporate use of tax havens would end almost overnight. As Barclays have proven – no one wants to be shown to be abusing these places and this reform would detail everyone who was doing so. Reputational risk would then destroy the market for good.

You can see why Oxfam, Christian Aid, Action Aid, CAFOD, War on Want and others are convinced. Now it’s time for the Big 4 to join them.

But will they? Many people in those firms read this blog. Will one have the courage to respond?

Richard Murphy Accountancy, Country-by-country, Deloittes, KPMG, PWC

And non-doms say tax is a bad thing. Or, as a KPMG survey reports, non-doms have revealed the extent of their dissatisfaction over being charged tax. Apparently:

• One in four non-doms set to quit the UK
• More than 90 percent say tax changes damaged the UK’s competitiveness

Now let’s deconstruct that. First, as a matter of fact all non-doms are required to quit Britain. If not they’re domiciled. So the rules appear to have brought 75% within the UK tax net. Great!

Second, who the heck are the people who think they have a  right to define our competiveness in terms of their non-tax payment?

I have a response to this: it’s undiluted drivel.

Richard Murphy Domicile, KPMG

A couple of years ago I highlighted the offshore dimensions of the shenanigans then going on at Leeds United FC.

The debacle continues. David Conn has a full report on it in the Guardian today. This is a selection:

There is a certain symmetry to the fact that light has been shone on the mystifying offshore ownership of Ken Bates’ Leeds United in a court case brought by the club in a tax haven, Jersey. At a hearing on 29 January, Leeds declared that Bates and a long-term business associate, Patrick Murrin, jointly own "management shares" in Forward Sports Fund, the company registered in the Cayman Islands, administered in Switzerland, which ultimately owns Leeds United.

Murrin and Mark Taylor, Bates’ solicitor, both explained that that means they own the company.

The January hearing also produced the declaration that Forward Sports Fund was itself originally owned and formed by Astor Investments, a trust fund based in Guernsey with an address in Tortola, the British Virgin Islands. In May 2007, after Bates and his fellow directors had put insolvent Leeds into administration with debts of £38m, Astor agreed to write off a huge sum it was owed by the club, £17.6m, as long as Forward Sports Fund bought the club back and Bates remained in charge.

That gave Bates an enormous advantage over other bidders, who had to include Astor’s £17.6m in any offer they made. In July 2007 the administrators, KPMG, did sell the club back to Forward, for £1.8m. With Astor waiving its £17.6m, Leeds’ other creditors, including HM Revenue and Customs which was owed £7.7m unpaid tax and VAT, were paid off at 10p in the pound.

At the time the club entered administration, questions were asked about whether Astor was in fact connected to Forward. KPMG said then it had made "extensive inquiries", and been satisfied that Astor did not own any interest in the club or Forward Sports Fund. More recently KPMG told the Guardian that it had relied on sworn statements from Bates and the other Leeds directors.

There’s a lot more too.

Typical stuff. A multi-jurisdictional structure (Cayman, Guernsey, Switzerland, BVI, Jersey – talk about rounding up the ‘usual suspects’)  designed to con: in this case the creditors of the football club including HMRC. Which means all UK taxpayers lost. And it was used to cover what we will politely call misrepresentations. And yet still these places say all they do is clean. Who are they kidding?

Well, KPMG for a start, or so it seems. The question is, why did KPMG act as it did when everything implied the opposite of what they were told?

I support an investigation.

Richard Murphy Cayman, Corruption, Guernsey, Jersey, KPMG, Switzerland

KPMG has published a review of the UK tax amnesty (officially the “offshore disclosure facility”) run by HM Revenue & Customs in 2007. They summarise the outcome as follows:

62,000 people came forward during the initial registration stage and around 45,000 of these decided to disclose and pay the tax, interest and a fixed 10% penalty by the 26 November 2007 deadline.

HMRC is pursuing those with offshore accounts who did not come forward under the arrangements where there is a risk that the full amount has not been declared. In the most serious cases, criminal investigation may follow.

The ODF has so far recovered around £400m in unpaid revenue. The cost to the Exchequer of running the ODF has been approximately £6.5m.

I admit I have ethical concerns about such amnesties: I am worried that they create an expectation of future leniency, there is no doubt that another amnesty is on the way. The last one was only targeted at the customers of Barclays, HBOS, HSBC, Lloyds and RBS (all of whom fought it).

This does make some case studies that KPMG published quite interesting, not least because so many from Jersey, Guernsey and the Isle of Man (who were by far the most important territories targeted) say that I am wrong to suggest that there is any tax evasion taking place in these islands now. Take this case study as an example:

Large offshore structure

• UK resident and domiciled individual
• Settlor of offshore trusts, some with underlying overseas and UK companies
• Offshore accounts in own name
• Some offshore companies managed and controlled in the UK
• Range of technical arguments successfully advanced to minimise tax exposures

Disclosure covered 18 years ended 5/4/06
Total settlement £1.5m
KPMG fees (excl VAT) approx £50,000.

Note the period covered. We are talking about 2006. So let’s have no pretence that tax evasion was eliminated from these islands a decade ago, as they like to claim. It is current. It is rampant. The numbers quoted by KPMG prove it.

And let me be blunt: there is absolutely no chance at all that those involved in managing the trusts referred to in this case study did not know that tax evasion was involved. There is no chance at all that the banks did not know that their client was involved in tax evasion. There is no chance at all that the nominee directors of the offshore companies that were trading in the UK did not know that they had a UK tax liability. In other words, they all knew that they were assisting tax evasion.

My accusation is simple: there are lawyers, accountants, and bankers in Jersey, Guernsey and the Isle of Man knowingly facilitated tax evasion but who turn a blind eye to it despite the legal obligation imposed upon them by their own governments to declare suspected tax evasion to their money laundering authorities whether that tax evasion takes place within their own island or elsewhere.

I am not saying that every lawyer and accountant or bank is involved in this process. There must be some who are not. I expect that each of the banks I name above is involved in this process: it would be impossible otherwise for at least 42,000 of their customers to have made a declaration of tax evasion. They cannot pretend they did not know that was going on.

It is my suggestion that this is still going on. The cost of the UK is at least £4 billion a year. Jersey alone costs the UK more than a billion a year in tax evasion that if deliberately facilitates (and I stress: I am saying by creating secrecy that permits evasion to happen it deliberately facilitates the process which I must see as a foreseeable consequence of its actions).

This is why these places have to cooperate now or face sanctions. The time for prevarication is over.

Richard Murphy Guernsey, Isle of Man, Jersey, KPMG, Tax Havens, Tax evasion

KPMG has published its latest survey on the UK’s tax competitiveness.

It’s message is clear: it says the UK is slipping behind.

But look who it compares us to:

Let’s be blunt: Ireland, Luxembourg and the Netherlands are all small states who are tax havens. It’s an impossible business model for the UK to emulate. It’s also like asking us to move in the direction of Iceland. This is, to be blunt, economic madness.

Sue Bonney of KPMG says in the report that:

At a time when both the state and business are having to work closely in an unprecedented way to help us through the credit crunch, perhaps the feeling that we are all in this together will lead to increased mutual understanding and a better working relationship in the future.

She quite clearly does not understand the term “we”.

Alex Cobham of Christian Aid does (see earlier today).

We don’t want to be a tax haven. We know the harm they cause. We suffer the impact. KPMG may not. We do. That’s my point. That’s why they are so wrong. That’s why they’re the last people to help reform the tax system, economy or anything else right now.

Richard Murphy Corporation Tax, Ireland, KPMG, Netherlands, Tax management