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EY split paused as partners arm-wrestle over tax practice

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EY has put the brakes on plans to split the Big Four’s advisory arm from its audit operations after a tug of war over which side retains a large portion of the tax practice.

9th Mar 2023
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The decision to pause EY’s plans was revealed to partners on Wednesday evening in a call headed up by Julie Boland, the head of US operations. 

As partners were told that the deal needs to be reworked, tension has been growing behind the scenes over how the tax practice is split between the two businesses. 

As the news reverberated around EY corridors this morning, the firm’s chief executive Carmine Di Sibio attempted to reassure staff that he had a “high degree of confidence” that the split is still going ahead and he’s working to resolve the dispute. 

Who gets tax?

Under the original plans, the majority of the tax practice would have joined the new consulting arm of the split, with the remaining minority of tax experts staying with the audit side of the business. 

According to the Financial Times, the US audit side of the business has been pushing for more of the tax practice to stay on their side after the organisation splits in two. 

The tug of war is over the percentage of the tax practice, with the audit business only taking 14% of the tax practice under the original plans, but the FT has reported the percentage is looking likely to increase from 20% to 25%. 

It’s thought that the US audit firm would account for a higher percentage of the tax practice due to firms there being able to offer more tax advice to audit clients compared to other countries. 

The origins of the idea

The genesis of the idea to split EY into two separate organisations came from the desire to free the Big Four firm to advise audit clients in what is an increasingly regulated area. 

But this is yet another roadblock in EY’s global leadership team’s efforts to persuade 13,000 partners worldwide to vote in favour of the split. But voting was already delayed at the end of last year as those pushing what is being called internally “Project Everest” are still trying to win over the hearts and minds of the partners. 

But there have been a few thorny issues that the Big Four firm has had to navigate to guarantee the vote is successful. One of the big sticking points is that the new advisory business will move away from the traditional partnership model. 

The potential windfall of the split for partners is also becoming a contentious issue as dividing up the “$100bn company” among 6,000 on the audit side, and shares for 7,000 on the advisory company, is set to be complicated – especially with retired partners asking for a cut of the pie too. 

While the status of the split is up in the air, EY’s UK chair Hywel Ball had previously publicly backed the idea of the two new brands. “The strategic rationale for our separation into two leading businesses is compelling,” said Ball in EY UK’s annual results in January.  

“The environment we operate in is changing rapidly and it’s important that we continue to adapt to ensure that we maintain our strong sustainable growth and meet the needs of all our stakeholders.”

However in a comment to the FT, Ball conceded that most partners are “going to be [split], with a ‘but’. And the ‘but is they need to see the detail.”

While the vote on the future of EY has yet to happen, plans are already underway for the new consultancy arm to launch a $2.5bn acquisition spree, with the split allowing the new firm to pick up firms where clients are being audited by EY. 

In a statement, EY said it remained “committed to the strategic rationale that underpins Project Everest and believe that a deal can and should be done.”

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