PAC slams PwC on tax avoidance advice

6 Feb 15

MPs have accused PwC of ‘nothing short of the promotion of tax avoidance on an industrial scale’ after examining the role of large accountancy firms in advising multinational how to minimise liabilities.

By Richard Johnstone | 5 February 2015

MPs have accused PwC of ‘nothing short of the promotion of tax avoidance on an industrial scale’ after examining the role of large accountancy firms in advising multinational how to minimise liabilities.

The Public Accounts Committee examined how PwC advises multinational companies with strategies to minimise tax after documents were leaked showing some of the tax advice.

According to today’s Tax avoidance: the role of large accountancy firms report, PwC advises multinational companies on ‘complex strategies and contrived structures which do not reflect the substance of their businesses and are instead designed to avoid tax’.

MPs stated that PwC did not convince them that its widespread promotion of schemes to numerous clients, based on artificially diverting profits to Luxembourg through intra-company loans, could be for any other purpose.

In particular, the committee highlighted the case of Shire Pharmaceuticals, which has arranged its affairs so that interest payments on intra-company loans worth £10bn significantly reduced its overall tax liabilities through moving profits to low tax jurisdictions.

PAC chair Margaret Hodge said the fact that PwC’s promotion of these schemes was permitted by its own code of conduct showed government must take a more active role in regulating the tax industry.

Revenue & Customs must do more to challenge the nature of the advice being given by accountancy firms to their clients to ensure tax liabilities reflect the substance of where companies conduct their business, she said. A code of conduct for all tax advisers should also be introduced.

It was only right that companies pay their fair share of tax according to the profits they make from their economic activity in the countries in which they do business, Hodge added.

‘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.’

However, responding to the report, PwC said it stood by its evidence to the committee and disagree with its conclusions.

‘But we recognise we need to do more to explain the positive role we play in the tax system and in helping businesses to operate successfully,’ its statement said.

‘We agree the tax system is too complex, as governments compete for investment and tax revenues. We take our responsibility to build trust in the tax system seriously and will continue to support reform.’

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