PWC » Tax Research UK

Why the banks won’t be paying tax this year

Banking, Corporation Tax, PWC, Tax avoidance 7 Responses »

Feb 142011

Project Merlin claims the banks will be making a tax contribution of at least £8 billion to the UK Exchequer this year. It was a number that anyone with an ounce of knowledge of recent banking tax history could see was artificial. This just doesn’t even vaguely relate to the tax that banks pay if you bother to actually ask people what tax banks really suffer.

Of course, in popular perception the tax that banks pay is corporation tax – and rightly so. Most of the other taxes that will very obviously go to make up this tax are other costs of sale on which they get tax relief – like VAT included in their purchases, or taxes actually really suffered by other people. Employer’s national insurance is an example of the latter – it’s a tax that all economists agree is really paid by employees who simply see their gross wages reduced to reflect that part notionally paid by their employer. In other words, this is not a real cost to banks at all.

And if in doubt that VAT is not a real cost consider the simple fact that banks only pay VAT themselves becasue they do not charge VAT on their services to their customers – which means that their products are relatively underpiced compared to almost all other services a consumer can buy, most of which will have VAT included in them. In this case the VAT paid by banks is not a measure of what they’re paying, it is a measure (yet again) of the way the tax system is used to provide them with a hidden subsidy.

So let’s get back to the one tax the banks do pay as a charge on the income they make – which is corporation tax. As the Mail on Sunday notes today, based on research I did for them, the likelihood that any of our big banks will be paying any serious sums in corporation tax for a while to come is remote in the extreme. That’s because the 2009 accounts of each of the major banks shows just how much deferred tax asset they’re sitting on relating to tax losses that they can offset against their future profits – including those subject to Project Merlin. The figures are:

HSBC _ £4.2 billion

Barclays – £1 billion

Lloyds – £4 billion

RBS – £5.1 billion

Add them together and that’s more than £14.3 billion of tax that’s not going to be paid any time soon. Or at UK current corporate tax rates some £51 bn of profit that needs to be earned before tax is paid.

Now of course not all that tax will not be paid in the UK, I admit.

But let’s also be candid – these are UK banks and so some of it definitely will not be paid here. Which makes Project Merlin look even more like a sham.

And whose accounting logic is behind it? Why, PricewaterhouseCoopers and its Total Tax Contribution of course – their purely political form of accounting designed to add up every penny a company pays to government for the sole purpose of seeking reduction in the one rate that really maters – which is corproation tax.

The Total Tax Contribution was the invention of John Whiting when he was at PWC. Of course he’s now director of the Office of Tax Simplification. No coincidence there then, eh?

PWC say Northern Ireland should not cut tax rate

Corporation Tax, Ireland, PWC Comments Off

Jan 072011

I have written more than I ever expected to on the proposal that Northern Ireland should cut its tax rate to 12.5% in an attempt to emulate the financial success (!) of the Republic of Ireland. In a nutshell, I am quite sure the policy would be an outright disaster, and may not even be legally possible.

Support comes from an unlikely quester today, according to the Belfast Telegraph:

Cutting Northern Ireland’s rate of corporation tax is unlikely to attract significant volumes of new overseas investment, a report has claimed.

Business advisers PricewaterhouseCoopers (PwC) describe cutting corporation tax as a “relatively blunt instrument” in the latest shot across the bows in the debate over bringing the main 28% rate into line with the Republic’s 12.5%.

As part of the report ‘Corporation tax – game changer, or game over?’ PwC surveyed tax regimes in 182 countries. The survey showed that the UK, including Northern Ireland, had the sixteenth most business-friendly regime despite having a higher corporation tax rate than many other countries.

PwC also said that matching the Republic’s corporation tax rate could cost the Assembly around £280m a year, with no certainty of an equivalent uplift in new foreign direct investment.

I am delighted they have had the honesty to agree.

This policy proposal really does look like dogma gone mad.

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.

Why ask PWC?

Banking, Corruption, PWC Comments Off

Dec 032010

As has been widely reported:

The FSA blamed "bad" decisions rather than dishonesty for the events that led to the £45bn taxpayer bailout of the bank. The [FSA] review by PwC – whose role as an auditor to a number of banks is being investigated by various regulatory bodies – analysed the events that led to RBS’s takeover of the Dutch bank ABN Amro as the credit crunch was beginning in late 2007. PwC also looked at rights issues conducted by the bank in 2008, which are the subject of legal action by some shareholders who are concerned they were misled by the bank.

The report will remain secret.

Let’s look at this. First, the appointment of PWC was corrupt: they were obviously not qualified to act. Their own role in the crisis conflicted them out of objectivity. The result was foregone as a consequence. Oh, and yes I did mean corrupt – because that inevitability was desired.

Second, the secrecy is corrupt. We paid for this loss. we should know why we are. Yes, I mean corrupt, again.

Third, did this review ask the right questions? Sure ABN Ambro was important a an issue – but was it a useful diversion so that the real malaise in the bank could be ignored. I think so? The decision to investigate the wrong question also looks corrupt. And yes, I mean it again.

Regulators who act in this way are not fit for purpose. That’s not a reason for getting rid of the FSA. It is a reason to get decent people to work for it and to ring fence it from the world it regulates.

PWC, supporting the pretence that tax is paid when it isn’t

Country-by-country, Development, PWC 6 Responses »

Nov 292010

I have already mentioned the new Action Aid report on SAB Miller and it’s tax affairs . The Tax Justice Network has also covered this issue. As they report:

The Guardian notes:

“SABMiller said its companies “pay a significant level of tax”, adding that in the year ended 31 March 2010, the group reported $2.93bn (£1.88bn) in pre-tax profit . “During the same period our total tax contribution remitted to governments – including corporate tax, excise tax, VAT and employee taxes – was just under $7bn, seven times that paid to shareholders,” the company said. “This amount is split between developed countries (23%) and developing countries (77%).”

This looks impressive, but it needs serious unpacking. This appears to be from a concept apparently designed by PriceWaterhouseCoopers called the “total tax contribution” whereby a firm rakes in every single tax it can conceivably claim to be associated with its business, and claims it for itself.

So it will claim, for example, Value Added Tax paid on its businesses, and employee taxes. But of course much of the VAT is paid by consumers, not by PWC. Similarly, the employee taxes are paid by the employees. They are not taxes borne by the company. It is a very clever idea, and we will be seeing a lot more of this Total Tax Contribution, now that people are beginning to wake up to the issue of tax avoidance.# Continue reading »

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?

This is the man

Accounting, Country-by-country, Development, PWC 1 Response »

Oct 222010

The International Development Committee of the House of Commons is holding a meeting next week. On its agenda is, as they note in a press release that I cannot find on the web:

a pre-appointment hearing on Tuesday 26 October, examining the professional competence and personal independence of the Government’s preferred candidate for the post of Chief Commissioner of the Independent Commission for Aid Impact (ICAI), Graham Ward.

Graham Ward is a former World Utilities Leader of the PricewaterhouseCoopers (PwC) network of firms, a former President of the Institute of Chartered Accountants in England and Wales (ICAEW) and a former President of the International Federation of Accountants (IFAC). He retired from the PwC partnership on 31 January 2010.

Graham Ward’s cv in Debretts is here. Note he is a member of “Soc of Cons Accountants” which I think we can safely assume is the society of Conservative accountants, which seems to blow apart his personal independence,but this is the least of my concerns about this appointment.

This is a man who has gone out of his way to promote International Financial Reporting Standards, which are widely acknowledged to have helped precipitate the current financial crisis.

This is a man who helped promote new international auditing standards which debased the audit so that it no longer represented the expression of opinion on the true and fair view shown by a set of accounts ,but became a simple checklist on compliance with the disclosure requirements of IFRS.

This is a man whose firm audited Northern Rock.

This is a man whose firm audited Granite, the shadow bank of Northern Rock; a shadow that was owned by a trust set up for the benefit of a children’s charity in the north-east of England that had no knowledge of the abuse of its name for that purpose.

This is a man whose firm promotes deregulation whenever it can.

This is a man whose firm promotes indirect rather than direct taxation in developing countries, so the poor pay most.

This is a man whose firm is present in every single major tax haven in the world,even though it has been shown that tax havensare fundamental in undermining development.

This is a man whose firm sells vast quantities of tax avoidance advice – advice designed to undermine the income stream of governmentswhen that income is essential to the delivery of effective international development support and the delivery of healthcare, education and other services in developing countries.

This is a man whose firm promotes what they call the “total tax contribution” – a bogus accounting concept that adds up all the payments that a company makes to a tax authority,whether on its own behalf or on behalf of others when acting as agent, and then uses the utterly meaningless resulting number as the basis for a demand for the reduction of its corporate tax burden.

This is a man whose firm opposes country by country reporting even though the vast majority of the major development agencies in the world now supported because they believe it good help monitor transfer pricing abuse,illicit financial flows,and could help developing countries collect the taxes that they are owed.

And for all these reasons,I’m sorry to say that I do not think that this is a man who is due to hold the position for which is being considered.

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.

How can the FTSE 100 and PWC have got tax so wrong?

Accounting, PWC 7 Responses »

Mar 022010

PWC issued the latest of their Total tax Contribution reports today.

I readily admit I do not buy the logic of these reports, but this is what they say:

A survey by The Hundred Group of FTSE 100 Finance Directors has found that the UK total tax rate – combining all taxes borne or collected by FTSE 100 businesses on the Government’s behalf – has grown significantly as a proportion of total corporate earnings since 2007.

The members of The Hundred Group reported that their total tax rate increased from an average of 38.2% of total earnings in 2008 to 41.6% in 2009. This represents a year-on-year increase of 9% in FTSE 100 companies’ average total tax rate; an expansion in the overall corporate tax burden which has been implemented against the backdrop of the deepest recession for many years.

The survey was conducted on The Hundred Group’s behalf by PricewaterhouseCoopers LLP. During the 2008/2009 tax year, the UK’s largest companies paid or collected £66.6 billion in taxes. Corporation tax payments fell 6.4% to £10.3 billion over the period. However, other taxes did not reduce in line with declining profitability and therefore account for a higher proportion of overall earnings.

But hang on – don’t economists all agree that business can’t pay tax?

How can so many people – the captains of industry and the biggest firm of accounts in the world no less – have made such a drastic mistake in the face of that evidence from the world’s best economists (you know, the ones who didn’t see the recession coming)? Note that PWC say borne? Surely some mistake?

I hope Tim Worstall’s on the case