Big four accountancy firms direct tax avoidance on industrial scale – by Damien Quigg, London Planning Group

We know our democracy is flawed and hollowed out. But I bet you didn’t know that the country’s tax laws are effectively drafted by the private sector in the shape of the major accountancy firms. So it’s no wonder that tax avoidance, let alone tax evasion, exists on an industrial scale. 

One of the pledges in the Tories’ election manifesto was a commitment to raise an additional £5 billion per year by clamping down on tax dodging. A brave challenge indeed when considering that according to official figures from HMRC that tax avoidance and evasion cost HM Treasury £7.2 billion in lost revenue in 2012-13.

However, research carried out by fair tax campaigner Richard Murphy on behalf of the Public & Commercial Services Union suggests that the actual cost of tax avoidance and evasion is an astonishing £104 billion per year. That is enough money to cover the entire NHS budget in England. Suddenly George Osborne’s plans do not look so ambitious anymore.

Tax evasion is illegal and is defined as the non-payment of taxes due. However, tax avoidance is legal in Britain and in this context is defined as using a tax relief for a purpose that parliament never intended. Loopholes in our tax laws create an advantage that was never intended when the law was made by parliament.

The most common example used by supporters of tax avoidance is that individual savings accounts (ISA) are a form of tax avoidance. This is not true, as parliament definitely intended for us not to pay tax on interest earned from saving in an ISA, therefore they do not fit the definition of tax avoidance.

What most definitely does qualify as tax avoidance are the tax arrangements of companies such as Apple, Boots, Ebay, Facebook, Google, Microsoft and Starbucks to name a few that came to light between 2011-13. These companies deliberately set up complicated corporate structures through a series of subsidiary companies, with the parent company always being based in a jurisdiction with very low rates of corporation tax. In other words, they made use of a tax haven even though virtually all their revenue was earned in the UK. A series of inter-company loans would then be created by the parent company on paper only and the series of companies also existed on paper only.

The main method of taxing companies is through corporation tax and is payable on a company’s net profits for the year. Business loans are counted as a business expense and therefore not taxable. So when Google UK for example came to calculate their annual profits for the year, the cost of the fictitious loan from their parent company was deducted as a business expense. The result was that companies reduced their tax liabilities in countries with higher rates of corporation tax, including the UK. While perfectly legal, parliament never intended for the legislation allowing tax relief on loans to be used in this way.

So is this the fault of the civil servants writing our tax laws?. Only in part because it is not civil servants, ministers, MPs or any other part of government who write our tax laws. Under the official title of an “advisory group”, representatives of big corporations and the big four accountancy firms in Britain write our tax laws. Price Waterhouse Cooper (PWC), Ernest & Young, Deloitte and KPMG effectively write the laws.

When a new tax law is to be passed, civil servants draft the bill, which is then passed to the “advisory group” for amendment/approval as they see fit. Once the draft has been amended and the “advisory group” have given their final approval, it becomes the draft bill that is presented and voted on in the House of Commons.

Armed with the information gained from effectively writing the bill, the representatives from the big four accountancy firms go back to their offices and design schemes to get around the law they have just written! Charging the appropriate fee of course, they then meet with and advise big multi-national corporations and the mega rich on the benefits of the scheme they have just designed, based on the information gained from their “advisory” role in writing the new tax law. Corporations and individuals who sign up to the scheme, are charged an annual fee equal to a percentage of the tax saved. The new tax law is therefore rendered at best ineffective right from the start.

Leading accountancy firm PWC were called to give evidence before the Public Accounts Committee in January 2013 as part of the committee’s investigation into tax avoidance, following revelations in the press relating to some of the companies mentioned above. In evidence to the committee, the then head of tax at PWC said “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.” However, these assertions were blown apart when in November 2014 journalists disclosed 548 letters from PWC to the Luxembourg tax authorities, whereby they were negotiating the rate of corporation tax applicable to 343 of PWC’s multi-national clients. Chair of the committee Margaret Hodge MP later accused PWC of selling tax avoidance on an industrial scale.

It would be reasonable to expect that government would have measures in place to measure the effectiveness of the laws they pass, but astoundingly this is not the case. Neither HM Treasury, the chancellor, the Office of Budget Responsibility, nor HMRC in fact monitors the effectiveness of any of the 1,100 tax laws we have. Once a piece of legislation is passed and implemented, that is the end of the matter as far as our government are concerned.

So it remains to be seen how committed the chancellor is to cracking down on tax avoidance and evasion. I suggest that what will happen is HMRC will be instructed to further hound and harass small businesses for more money, while impending cuts to tax credits and child benefits will be used to make up the £5 billion target. Meanwhile, the major corporations will be laughing all the way to the bank. Democracy this isn’t.

One thought on “Big four accountancy firms direct tax avoidance on industrial scale – by Damien Quigg, London Planning Group

  1. Thank you for updating me .. A great article indeed.


    Sent from my BlackBerry® smartphone on O2


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s