Public Accounts Committee tax crusade marches on
The Public Accounts Committee (PAC) spearheaded by Margaret Hodge, the Tax Avenger, have been busy putting the world of tax to rights again. This time it is the turn of the big four accountancy firms to feel the wrath of Hodge and co.
In its latest report, 'Tax avoidance: the role of large accountancy firms', the PAC accuses the likes of Deloitte, Ernst and Young, KPMG and PwC of exerting “undue influence” over the formulating of tax law and policy. Whilst the Big Four were providing advice to the government on changes to tax law they were exploiting their insider knowledge by passing on to their clients loopholes that they had discovered, so claim the PAC. The report said: “We have seen what look like cases of poacher turned gamekeeper, turned poacher again, whereby individuals who advise government go back to their firms and advise their clients on how they can use those laws to reduce the amount of tax they pay.”
Hodge, Chair of the PAC, stated “the large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government. They second staff to the Treasury to advise on formulating tax legislation.
When those staff return to their firms, they have the very inside knowledge and insight to be able to identify loopholes in the new legislation and advise their clients on how to take advantage of them. The poacher, turned gamekeeper for a time, returns to poaching.
This is a ridiculous conflict of interest which should be banned in a code of conduct for tax advisers, as we have recommended to the Treasury and HMRC.”
HMRC
According to the PAC, HMRC are fighting a losing battle when it comes to tax avoidance. A large and profitable market exists in the area of providing advice to companies on how to take advantage of international tax law and setting up global structures. The Big Four firms collectively employ nearly 9,000 people thereby outnumbering HMRC and leaving the department in their wake.
International tax rules
The four firms agreed with the PAC that international tax rules are now outdated and need to change to reflect the reality of modern business.
Whilst the PAC welcomes the Government's commitment to reforming international tax laws, it is concerned that, in the meantime, companies will continue to find ways of avoiding paying tax where they actually do business.
Complexities
Simplicity is the key to combating tax avoidance, so say the PAC. Again, the four major accountancy firms were in agreement with the committee that UK tax law is too complex and a simpler system would be beneficial all round.
The PAC were disappointed that the Office of Tax Simplification (OTS) had not taken a more radical approach to simplifying tax law. If they were expecting the OTS to overhaul the UK's tax system overnight then the committee clearly need to lower their expectations as this will ultimately be achieved by effective legislation.
Tax avoidance
Despite the insistence of the Big Four that they no longer sell the type of aggressive avoidance schemes they did ten years ago, the PAC believe that firms and tax avoiders are taking advantage of the constraints under which HMRC Is forced to operate.
The PAC have recommended an embargo on those firms used by public sector departments if they have sold tax avoidance schemes and wants the Treasury to implement a 'code of conduct' for tax advisers, that maps out what it and HMRC consider acceptable tax planning. This however was met with a derisory response from the Treasury who said, “the analysis and conclusions in the PAC report bear almost no resemblance to reality of what government is doing or what is happening. In particular, as a matter of principle, the suggestion that government shouldn't work with business and indeed anyone affected by its policies is totally absurd.”
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