The Public Accounts Committee hearing with the Big 4 accountants took place this morning.
If I'm honest I do not think a killer blow was delivered: I'd have loved there to be a question, for example, on what each firm would have done for a client who wanted to take part in Jimmy Carr type scheme; would they have introduced or not? I think that would have indicated where they really were. But none the less a lot was discovered.
Ernst & Young seem reluctant to answer questions.
KPMG were deeply embarrassed by questions on their lending staff to HMRC who then promote the exploitation of the policy on which they have advised.
Bill Dodwell has no idea whether his firm have an office in the BVI (they have) and had difficulty justifying why his firm is in tax havens: saying it was to audit ignored the fact that people only need audits because they're there to avoid tax.
The problem of these firms auditing tax arrangements they may have been involved in advising on caused clear discomfort.
All of the firms agreed they had taken conditional fees based on the success of tax planning schemes despite seeking to say they did not sell schemes: a paradox if there was one.
And all the firms tried to deny selling schemes, but were happy to describe arrangements.
Tax efficient supply chain management was something they did not want to talk about - although all the firms sell it. It is, of course, about shifting profits into tax havens, about which they were willing to offer as much bluff as possible.
They all agreed reform was needed - but were sure transparency and and country-by-country reporting won't help - because knowing that no tax was paid could be so misleading according to KPMG.
Like politicians there was a willingness to pass the buck towards the OECD - and at least welcome recognition from PWC that its project on profit shifting needed much more funding.
And at the end of it all there was a feeling, hard to explain, but definitely real, that they were simply doing their best to duck the questions. Avoidance is their speciality; using language that does not reflect the substance of what is happening (so tax efficiency means not paying and tax neutrality means no tax, for example) is their forte. And in the face of that the feeling that there is, indeed a massive industry here that does work against the public good was impossible for them to dispel, because it clearly is.
What's the way forward. I'd suggest three things. First, Codes of Conduct are essential, and a commitment to country-by-country reporting, stopping using tax havens and to the ideas behind the General Anti-Tax Avoidance Principle Bill are essential to that.
Second, issues on procurement have to be looked at.
Third, the government has to expand its consulting base on tax, much more widely. These firms have too much power.
I'll be interested to see what the committee conclude.
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I watched it, and like you, concluded it was a bit of a mixed bag.
It would have been nice if the chairwoman would actually have let the 4 of them actually answer the questions put to them instead of constantly interrupting them (mostly to make ridiculous comments of her own which added nothing to the debate).
To criticise the big 4 for providing free advice to HMG (on the basis of perception of insider knowledge) and then to ask them to get involved in the tax simplification project also seemed a slightly odd way for the committee to carry on !
from what you read in the press/private eye it would seem to be the small firms which are promoting the Jimmy Carr esq type schemes. I have to say I was surprised at the low number of notifiable schemes the big 4 had come up with (think it was 25, over half of which were withdrawn or not used) – does this sound right to you RM?
not sure I would call it 4-0, looked more like a score draw to me !
Quick question. These 4 firms are enormous and therefore very powerful. Are they not subject to competition law? Or is that law so couched that this is not seen as detrimental for some reason.Why were the mergers that led to this position allowed to go ahead?
For the avoidance of doubt, it is not that I have much faith in competition as a force for justice or for good: it is just that it normally portrayed in that way and that is seldom questioned. So why does it not appear to apply here?
Excellent questions
These guys run a business, which in their terms until confronted remains legitimate.Taking a simple view these people need to be confounded.There is nothing more confounding to people who behave in this way than to introduce the possibility that they will be deprived of their liberty. Time for some exemplary justice. Bankers not excluded.
Richard
If a code of conduct were drawn up could miscreants who pertetuate and facilitate avoidance ( and evasion) be ‘struck off’ as with the medical profession and thereby lose their livelihoods?Sounds like a good idea to me.
I know he’s an old adversary of yours, but Bill Dodwell came across as the most convincing and switched-on of the lot. The others seemed absorbed with self-interest.
The E&Y representative should have been asked if he has been making staff redundant over the past few years for not “selling” enough avoidance.
As Prof Bill Black said in his keynote speech at the shame ‘Public eye’ award in Davos:
“Accounting is the financial weapon of choice”
Video clip of his speech on New Economic Perspectives and http://think-left.org/2013/01/31/criminogenic-environments-like-the-city-of-london/
“The “race to the weakest supervisor” did not occur only within the U.S. Brooksley Born and a former senior SEC official have confirmed …that UK regulators directly pitched U.S. financial firms to relocate operations to the City of London in order to obtain weaker supervision. “Fed lite” supervision was a competitive response to the FSA’s “reg lite” system of deliberately weak supervision. The City of London became the most criminogenic environment in the world for financial fraud, which is why so many UK banks and units of foreign banks located in the City have caused the major scandals in the UK and globally. “
It’s a lovely comment
What interested me was the threshold the firms used to ‘go’ with a scheme.
If we accept (in good faith) that a judgement has been made that a scheme is defensible. It seems curious that it takes so long for the scheme to be challenged, and that there is no criminal and or civil penalties levied on the participants including technical advisors. After all they acknowledge there is a risk or probability the scheme will be found to be not legal and therefore a risk they will have been acting or advising on an illegal scheme and actively supporting the client for a fee. Despite their ignorance or best judgement or good intention at the time – prior to the judgement.
All notifiable schemes should be paid for by the promoter/clients for clearance via a HMRC tax tribunal with an appeal mechanism all paid for by the promoter/client. Why take years to clear the schemes – much more is wrong with the system and some politicians/governments are not the actors they portray themselves as.
The size of the avoidance industry versus the HMRC resources was a clear signal that MNC invest to minimize tax as an expense.
I still wonder how many of the MP’s,the great and good have dealings with Swiss or offshore banks they would not like to be made public or known to HMRC!
“If we accept (in good faith) that a judgement has been made that a scheme is defensible.”
I see no reason to accept that. While those involved questioned before the PAC last December were not from the “big 4” I do not think the mind set is any different. The transcript makes clear that they are not all that bothered
http://thosebigwords.forumcommunity.net/?t=49310661&p=371123398
[…] And what this also proves is that there is, unfortunately, a massive market for what looks like a tax scheme involving a charity here in the UK, which more than justified yesterday’s PAC hearing. […]
Certainly not 4-0.
What this session and the session with Starbucks, Google and Amazon both highlighted is the lack of resource to combat the problem.
I don’t agree that these firms don’t have “schemes” to avoid tax which they can mass market, but I do suspect that they push the legislation to its absolute limit.