MP's grill the big 4
Accountancy firms 'answer' avoidance questions
MP's yesterday questioned the big 4 accountancy firms (PriceWaterhouseCoopers, KPMG, Deloitte and Ernst and Young) on tax avoidance at a Public Accounts Committee hearing.
A number of key issues were raised; below we outline the key points.
Giving 'tax advice' is a $2billion industry. The big 4 have approx 9,000 staff working on tax 'advice' (the HMRC have 100) and about a quarter of their business is based around tax advice.
The companies employed considerably more people than HMRC in tax avoidance. Around 200 highly-paid professionals pursued by 65 overworked and lower-paid HMRC staff.
There is no clear line between avoidance and evasion. Schemes 'legal' now can be found to be illegal next week. MP Margaret Hodge has evidence the companies are selling products with only a 25% chance of proving legal. The committee described this as "playing a game of risk where the odds are stacked in your favour".
There is a problem in that the firms auditing tax arrangements may have been involved in advising on them, a clear conflict of interest. All of the firms had taken conditional fees based on the success of 'tax planning schemes'.
And all firms actively used tax minimisation schemes in sales and marketing literature. They call it “tax efficient supply chain management”.
The companies are seconding professionals to the HMRC, where they help formulate policy. They then use this knowledge to sell services to clients. For example, Jonathan Bridges helped to formulate new policy on tax relief on patents that is likely to cost the HMRC around £1 billion per year. On returning to KPMG, the company advertised his services thus: "While on secondment to HMT, Jonathan Bridges also acted as lead policy adviser on tax and innovation, including the Patent Box." Hodge said this was case of poacher turned gamekeeper, turned poacher again.
All the firms still denied selling tax avoidance schemes!
In his blog Richard Murphy said of the hearing:
“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.”
As MP Margaret Hodge said:
"you all choose to work in an area that reduces the available resources for us to build schools and hospitals."
Read Richard Murphy's tax justice column in Ethical Consumer magazine. In the next issue 'David Cameron and G20 tax duplicity'.
You can read more from Richard Murphy here.
Join our boycott Amazon campaign over their tax avoidance.