Big Four Accounting Firms Hit Back At Tax Avoidance Criticism In UK

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Tax chiefs from the world’s Big Four accountancy firms – KPMG, PwC, Deloitte and Ernst & Young – on Thursday denied accusations from the U.K. parliament that they had advised clients on adopting “aggressive” tax avoidance schemes, arguing rather that their methods were completely legal and benefitted the country by encouraging companies to locate and recruit there.

According to The Telegraph, the quartet had been summoned to appear before the U.K. Public Accounts Committee (PAC), where they were grilled on their tax advice practices – including whether they had told big companies to channel their funds into tax havens, or headquarter their company in a low-tax jurisdiction in order to avoid higher tax rates.

MPs from all parties also challenged the tax advisors' claims that their primary role was to help companies comply with the U.K.’s tax law, rather than to minimise their tax bill.

You’re a poacher turned game-keeper, and then you go back and become a poacher again,” said Margaret Hodge, Chairman of the PAC, directly to the tax heads of the Big Four accounting firms. “That is shocking. You’re writing the technical stuff then you use that very stuff you’ve written to go away and advise your clients how to abuse the law, find loopholes in it to avoid tax.”

“What really depresses me is you could contribute so much to society and the public good and you all choose to focus on working in an area which reduces the available resources for us to build schools, hospitals, infrastructure,” Hodge added.

Hodge – who once worked for PwC, though not in its tax department – later accused the Big Four of creating at least 79 tax avoidance schemes over the past 3 years, waving brochures, reportedly made by the accounting firms, advising companies their shift profits out of the UK into lower tax jurisdictions.

“You have deliberately taken them off shore so they don’t pay their fair share in the UK - and that stinks,” Hodge said, adding: “Avoiding tax has become a new way of making profits.”

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The panel grilling came just a week after Prime Minister David Cameron had vowed to lead a global crackdown on tax avoidance, telling companies to "wake up and smell the coffee" in a speech delivered during the World Economic Forum in Davos, Switzerland.

Companies targeted by the U.K. parliament included Starbucks, who is audited by and paid no UK corporation tax last year, and Google, whose chief executive Eric Schmidt recently brushed aside criticisms that it had shifted revenues of about $9.8 billion into a shell company in Bermuda.

"It's called capitalism. We are proudly capitalistic. I'm not confused about this," said Schmidt, as cited by The Guardian.

Tax chiefs from the Big Four firms also hit back at the parliament’s criticisms, attacked the government for complex tax rules, which are detrimental to businesses and the economy.

"One of the challenges now is we're seeing a lot of discomfort, unrest and unhappiness around the fact that businesses are selling a lot in the U.K. but they are not seeing the profits. And part of the reason for that is the way the international rules were designed puts the value in different places. One of the debates we need to have now is how do you get tax and profits in the right places,” said PwC's Kevin Nicholson.

“We help make the tax system work,” added Bill Dodwell, head of tax policy at Deloitte.

Referring to accusations by Hodge that some of their advice may have illegal about a decade ago, John Dixon, tax head at Ernst & Young, said: "The advice we give is based on substance and fact. I think that the world you refer to is gone."

Jane McCormick, KPMG's tax head, further added that there was "no appetite among clients" to do anything outside the law; rather clients wanted a “sustainable” business and tax model, not one that was trying to find loopholes.

Among the issues brought up during the PAC meeting included whether the Big Four firms should continue receiving government contracts. Hodge noted that the four accountancy firms made almost £490 million ($777 million) annually from public sector work.

“I don’t think people who give advice to cut the tax payable should be getting government business. Quite simple,” she said.

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Labour committee member Austin Mitchell also expressed concern that the “firepower” of the Big Four, meant that they were always ahead of the U.K.’s own tax department, the HMRC, on exploiting tax loopholes.

“There are 9,000 people in the four firms dealing with tax advice or tax avoidance or whatever it turns out to be, as against less than 100 in HMRC dealing with those areas,” said Mitchell, as cited by The Independent.

“This a game in which you are battling a slower-moving HMRC with fewer staff and possibly smaller brain-power - certainly you are better paid than they are. It's a game you must win. It is an illegitimate game to outwit the taxpayer.”