The Public Accounts Committee issued a new report overnight in which they said:
We believe that PricewaterhouseCoopers's activities represent nothing short of the promotion of tax avoidance on an industrial scale.
Contrary to its denials, the tax arrangements PwC promotes, based on artificially diverting profits to Luxembourg through intra-company loans, bear all the characteristics of a mass-marketed tax avoidance scheme.
The effect has been to reduce the amount of corporation tax that some multinational companies pay in the countries in which they make their profits.
Damningly they added:
We consider that the evidence that PwC provided to us in January 2013 was misleading, in particular its assertions that “we are not in the business of selling schemes” and “we do not mass-market tax products, we do not produce tax products, we do not promote tax products”.
And:
In our view these are in fact marketed tax avoidance schemes and we are also sceptical that HMRC was kept fully informed of PwC's activities.
In the process they passed blunt comment on PWC's ethics:
The fact that PwC's promotion of these schemes is permitted by its own code of conduct is clear evidence that Government needs to take a more active role in regulating the tax industry, as it evidently cannot be trusted to regulate itself.
In particular, HM Revenue & Customs needs to do more to challenge the nature of the advice being given by accountancy firms to their clients, ensure that tax liabilities reflect the substance of where companies conduct their business, and introduce a new code of conduct for all tax advisers.
Unless HMRC takes urgent action, this irresponsible activity will go unchecked, causing harm to both the public finances and the reputations of the companies involved.
This last point is vital. As a result of their review the Committee, which always reports on a cross party consensual basis, made three recommendations:
HMRC should set out how it plans to take a more active role in challenging the advice being given by accountancy firms to their multinational clients, with a particular view to the mass marketing of schemes designed to avoid tax.
In contributing to the OECD's discussions aimed at reforming international tax law, HMRC should push for a more rigorous and meaningful definition of what substance means.
We believe strongly that the Government must act by introducing a code of conduct for all tax advisers, as we recommended in our April 2013 report. We further recommend that it should consult on how it should regulate the industry and enforce such a code, including through financial sanctions that could be imposed in the event of non-compliance.
I admit I do not think those recommendations go far enough. The reality is that PWC and the other big firms of accountants are not just a threat to the public finances ( although no one could deny that this is true). They are also a fundamental threat to democracy in this country by deliberately putting in places structures that undermine the rule of law in the UK with the intention of denying tax revenues to properly elected governments so that those governments are unable to fulfil their mandate given to them by the UK's electorate with the intention of ensuring that wealth is redistributed from the majority of people in this country to a minority on whose behalf these firms are acting. In other words, PWC are not just pursuing an agenda of self-interest but are also pursuing an overtly political agenda that is intended to fundamentally alter the balance of power in the UK and elsewhere.
In the process the Big Four firms (PWC, EY, KPMG and Deloitte) provide the complete backbone to the tax haven economies of the world, none of which could be used by the large companies that artificially relocate transactions to these places for the purposes of avoiding tax if those firms of accountants were not present in those places to both provide the structures that facilitate the abuse and then audit them.
It is not then an accident that PWC sell mass-marketed tax avoidance schemes in this country; their tax haven operations are dependent upon them doing so. The tax haven operations are pivotal in this process. By capturing the state in these places PWC and other firms can have enacted the laws that permit abuse. Then having effectively created their own ability to legislate they use that capacity to undermine tax law elsewhere, including in the UK. These are not coincidental processes: they are entirely integrated ones. The capture of one state is used as the basis for capturing the next in one part of what has been appropriately called the 'race to the bottom'. The race will only end when wealth is not taxed and the democratic means to re-impose such tax has been neutered: that is the goal.
So what do we do? Are Codes of Conduct good enough to face off such a threat? I do not think so. Something rather more radical is required.
The first is direct regulation of accountancy firms. This might be another task for an Office of Tax Responsibility. There is simply no option but do this now: self regulation has to be confined to history forever. And this Office has to be well funded to do its task.
Second, only licensed firms should be able to sell tax advice in the UK. Those with links, whether legal or through mutual marketing arrangements, in places that are recognised as tax havens or secrecy jurisdictions should be denied such licences. Only firms that demonstrate a commitment to effective tax compliance, which is always incompatible with tax haven usage, should be allowed to practice tax in this country. Regulatory visits should be maintained to make sure that this is not abused.
And, very obviously, auditing should be divorced from all tax practice in the UK. If the firms object then the NAO or HMRC should take over their audits in this country. The licence to audit should be revocable, and a state alternative should be available. The idea that audit firms are too big to fail and can abuse however they wish is something that we need to consign to history.
These are radical proposals, but radical steps are needed. The threat from these firms is extremely serious and has to be countered in the interests of most people in this country. We cannot be held to ransom by them anymore. To deliver a capitalism fit for the 21st century the corruption these forms have purveyed has to be removed from the market place once and for all.
If they want a continuing licence to operate they should be given the choice of complying. If they don't want to play by the rules then the rules should now exclude them from the game. It is as simple as that.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Tax avoidance is a multi billion pound business for the Big 4. There are hundreds of partners on more than a million pounds a year because of it.
These people should be named and shamed. They are every bit as bad as the bad bankers and off shore hedge fund managers in terms of destroying the income stream which the UK exchequer should receive from business.
Plus, don’t get me started in terms of the money they pocket from worthless, valueless audits.
This news is totally shameful and disgraceful. I teach accounting to students and if this is the profession they will get into it is hugely worrying. Now I know why the lobby at PWC headquarters in London is so lavish. I very much hope that social media platforms jump on this story and young people stop applying to this misleading firm. Your proposals are spot on and the banking crises have been actively supported by these firms who specialise in regulatory arbitrage. Like Tesco the Chairman should be fired for such gross misconduct.
“and young people stop applying to this misleading firm”-I agree Atul but I fear that prevailing economic conditions (high house prices and flatlining wages for most) will encourage the young to go in the very direction that perpetuates the problem-I know an accountancy lecturer at a University in my part of the world who is inundated with applications – young people know that the rewards are substantial for those that ‘make it’ in this profession-finance management rules the roost and I don’t expect it’s reign of terror to end soon.
Whatever reforms are required, HMRC are part of the problem: a textbook case of regulatory capture.
A quick review of the worst cases – flagrant ten-figure tax leakages in the last decade – shows a department of State whose senior staff with an ambition to retire as paid consultants and directors among the very companies they have chosen not to regulate.
Perhaps some of these nit-picking critics which attack you on this blog, will see it’s not just your opinion. I doubt, though, it will make much difference to them. Equally, this is even more reason to ignore them.
Given the above, it would be nice to see Labour politicians who wish to be elected in May promptly disassociating themselves from PWC by rejecting the Westminster office staff PWC have supplied them. Chuka Umunna, I’m looking at you here.
It would be more than nice, Bill, it’d demonstrate a clear determination to distance themselves (and the party) from this kind of dubious and highly unethical behaviour – particular pertinent given the subject of Ed’s ding dong with Cameron at PMQ earlier this week. Let’s see what happens, but given the background of the MP you name, I doubt he’ll have much hesitation standing his ground on this one. I stand to be surprised, though.
And when I say I’m looking at Chuka Umunna in this regard, clearly I’m not alone http://www.ianfraser.org/chuka-umunna-pwcs-useful-idiot/.
Licensing won’t work. The big accountancy companies have offices worldwide. If they are barred from giving advice from the UK then they’ll give it from their offices in Jersey, the Isle of Man, Dublin, Luxembourg, Dubai, or elsewhere. There are thousands of qualified accountants in those countries who would jump at the chance to win London’s business. They can set up high-definition video-conferencing (telepresence) rooms in London to maintain contact with their clients.
Besides that, lawyers have client secret privilege. They’re under no obligation to disclose what their clients tell them.
Such things can all be changed
It is not just PWC. EY, Deloittes and KPMG all do it.
They ‘offer’ government departments people for free or at very low rates to ‘help’ government departments in policy creation and administration.
Usually it is some bright young thing on Partner track who are looking to make a name for themselves.
Sometimes it is just a junior person but that is even better – it is cheaper for the firm but then a senior partner can turn up to take the client out to lunch whenever they feel like it ‘just to check that young Johnny is getting on alright….’ .
As a previous poster said, a very clear case of regulatory capture.
In terms of the Big 4, in reality, they all have the same agenda ie making money from helping clients to avoid paying tax so they are quite happy to take it in turns to influence government policy.
PWC is the most notable
We really need to investigate the business models of these professional firms. They thrive on complexity and profit hugely from it. As to public interest I doubt if they even understand what this means.
I’m fascinated. I’ve been getting advice on my UK tax affairs from a rather clever chap in Luxembourg, who’s come up with some useful suggestions. Most of the conversations have take place whilst I’ve been physically in Spain or France. I am now in possession of information I would not have been in otherwise & which I will bear in mind when disposing of my affairs. It should result in a considerable reduction in UK tax liability. All in accordance with UK tax law. Which part of & in what way would you intend making what I’ve done subject to UK licensing regulations?
I won’t be able to
But perfection is not the aim of any system because it is not achievable
Cheats are always with us
In which way am I cheating? At the moment I choose to have money in the UK economy & thus incur a UK tax liability. In actuality I’m very rarely there & make little call on UK entitlements. I’m, by far, a net contributor. Would be after taking the tax advice. I could choose to move my money elsewhere & never darken your shores again. It’d be little loss. I’m hardy coming for your weather, am I? Is this what you’d prefer? Nothing rather than considerably more than nothing? I’m not bothered either way.
Well if you are not here you’re not resident in which case imposing UK regulation on you is bound to be hard
So what?
As I said, no regulation can ever cover every circumstance