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PwC rejects claims of mass-marketing tax avoidance

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6th Feb 2015
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PwC has rejected a claim by MPs that the Big Four accounting firm is promoting tax avoidance on an "industrial scale".

A report by MPs on the Public Accounts Committee (PAC) said PwC promoted hundreds of tax avoidance schemes that artificially divert profits to Luxembourg through intra-company loans. Companies using the schemes have paid less corporation tax, the committee said.

“We believe that PwC's activities represent nothing short of the promotion of tax avoidance on an industrial scale," said Margaret Hodge, chair of the committee.

She said that the evidence PwC gave the committee in January 2013 was "misleading", in particular its assertions that it was not in the business of selling tax schemes and that it did not mass-market tax products.

PwC in a statement: "We stand by the evidence we gave the PAC and disagree with its conclusions about the work we do.  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. 

"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." 

The committee heard evidence from Shire Pharmaceuticals which has arranged its affairs so that interest payments on intra-company loans worth £10bn reduce significantly its overall tax liabilities. The effect is to shift profits from other countries, where tax rates are higher, to Luxembourg. Shire paid tax of only 0.0156% on its profits to the Luxembourg tax authority, Hodge said.

“The 'substance' of Shire’s business in Luxembourg, used to justify these arrangements, consists of two people out of the 5,600 staff the company employs globally, the committee said. Neither PwC nor Shire could demonstrate that the company’s presence in Luxembourg was designed to do anything other than avoid tax, Hodge said.

Hodge said the tax industry could not be trusted to regulate their own tax advice and said the the government should introduce a code of conduct for tax advise.

"PwC’s Code does little more than shroud the way PwC exploits flaws in international tax law to devise and offer aggressive tax avoidance schemes to its clients."

Barry Johnston of charity ActionAid said the MP's report underlined the shocking scale of tax avoidance. The charity wants all the parties to commit to a "Tax Dodging Bill" within the first hundred days of the next parliament.

“Tax advisers are a huge part of the global problem of tax dodging, which also costs developing countries billions of pounds a year," Johnston said. "The public is clear that tax avoidance, both in the UK and in developing countries where UK firms operate is morally wrong.”

Law firm Pinsent Masons said that a code of conduct for tax advisers would be a "distraction".

Replies (11)

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By ireallyshouldknowthisbut
06th Feb 2015 15:12

.

"Tax avoidance is morally wrong"

No, its the mainstay of the job of being a tax advisor.

The moral element is the jobs of the likes of Ms Hodge to decide. 

Tax EVASION is illegal.

Be nice if Ms Hodge could tell the difference. 

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Basset Hound
By Cuchulainn
07th Feb 2015 00:10

So what?

They weren't promoting tax EVASION.
If the MPs don't like what PwC were doing, it's high time they got Parliament to change the law appropriately.

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By ShirleyM
07th Feb 2015 09:24

Maybe tax avoidance isn't illegal

However, those who make profits in the UK but pay no or little UK tax will eventually kill the golden goose that gives them those profits. Let's face it, business won't pay the high fees of PWC to save a few thousand in tax. They are depriving the UK of billions in tax receipts.

Think it through. Large amounts of tax doesn't go into UK coffers. The result will be that the rest of the taxpayers have to contribute more, therefore tax goes up, and this will cause more businesses/people jump on the avoidance bandwagon, therefore causing an even greater hike in tax rates, and the circle continues until everyone who can avoid tax will do so. The remainder shoulder all the responsibility (ie. employees who have little choice).

Alternatively, it could mean that road building, the NHS, education, etc is starved of funds, as is the current situation. A country without decent roads for transport won't be very attractive to any business. A sick workforce won't be very attractive either. 

Tax receipts are falling all the time. Benefit support for the low paid increases. Tax 'avoidance' is killing our country.

Whichever way it goes, whether it's higher taxes or reduced services, the brightest and most talented will leave the UK for a better life elsewhere, meaning that only businesses who need cheap labour will be attracted to the UK , and this will cause even lower tax receipts as the low paid will pay minimal tax, and the companies will use 'avoidance' to avoid paying tax in the UK.

Those companies who do pay tax in the UK are uncompetitive against tax avoiders, so they will have to jump on the avoidance bandwagon, or go out of business.

In the end, the low paid, possibly highly taxed, workers won't be able to afford to buy anything but the essentials of life, so the golden goose has gone (unless the businesses are in the avoidance industry or provide essential services). 

Can we trust governments to stop the UK being misused in this way? I doubt it! Hiya, Greece. We are about to join you!

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Replying to richard.murphy:
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By AndyC123
09th Feb 2015 12:16

"Thinking it through"

How exactly is the UK being deprived of billions in tax?

Company A is in the UK and borrows from abroad.  It pays interest on that loan.  There are rules in place that limit the amount of interest that can be deducted (thin capitalisation and transfer pricing).  The effect is that the interest payable by the company can be asumed to be at a fair rate.

So far so good.  That interest is paid to a company in Luxemburg and Luxemburg chooses to tax those profits lightly.  So LUXEMBURG receives less tax than it would get if it taxed at higher rates but the UK is completely unaffected.  If Luxemburg taxed the interest at 0.1%, 1%, 10% or 50% it makes not the slightest bit of difference to the UK. If Company A borrowed from the US, or Asia or anywhere else in the world it would make no difference to the UK.  So long as the amount of interest payable on the loan is a reasonable rate there is no loss of tax to the UK.  UNLESS you want to force UK companies to borrow from UK sources.  But then other countries might not like that.  The UK banking industry might not like the idea of other countries retaliating.

And if you adopted that stance, why stop at interest on loans?  Company A might also be buying raw goods from abroad.  Profit on that is taxed abroad, "lost to the UK" if you like.  Will you insist on UK companies only ever buying from UK sources?

I'm not saying international tax doesn't need to change with the times but it's just too simplistic to think that if only interest on loans wasn't taxed so lightly in Luxemburg, billions would suddenly come rolling into the exchequer.

It's a common theme among tax campaigners "change law x and we'll get billions in tax" but that assumes people won't change behaviour.  Take the non-dom tax regime, there's frequently calls for this to be done away with because then billions in extra tax will be raised from all those foreigners living here with massive wealth overseas but think seriously about this.  Why are many of those foreigners here in the first place?  Because we DON'T tax their overseas income.  If we did, would they stay?  Or would they go to (say) Switzerland or some other place that wouldn't tax them.  I'm not saying it's right or wrong but I do know it's not simple.

 

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Basset Hound
By Cuchulainn
07th Feb 2015 10:59

I don't disagree

Any country needs decent public services. In order to fund those services it needs a strong and broad tax base. I get nervous when I hear the Conservatives constantly promising lower taxes, for I feel they are low enough as they are and there is a limit to how far taxes can be cut before essential public services really start to be affected.
The other side of the coin, of course, is the fact that it is the right of anybody (legitimately) to order their affairs in such as way as to minimise their tax liability. PwC have been doing no more than assisting people to do this.
I do, however, have a huge issue with politicians who make a political football of tax avoidance without actually doing anything legislatively to ameliorate or stop the problem. In the first instance some tweaking of transfer pricing regulations could easily be done in my opinion.

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Adrian Pearson
By Adrian Pearson
07th Feb 2015 12:52

That's exactly what they should be doing

PWC are good at advising clients how to minimise their tax bills? Great. Exactly what the client needs and pays for.

Q: If Margaret Hodge decides to drive on an alternative road, because it does not have speed cameras, does that make her a tax evader?

Total b*llocks looking for populist votes.

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By Sheepy306
07th Feb 2015 21:57

All a bit of a show but it would be refreshingly honest if Hodge conceded that the schemes were infact perfectly legal (whether they were morally right or not), that PwC admitted that they mass marketed the schemes and if the Shires group admitted that there was no commercial basis for the structure other than to save tax. We all know that's the truth, so who do they think they're all kidding?

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Basset Hound
By Cuchulainn
09th Feb 2015 10:10

On Radio 4 this morning.....

..... in relation to HSBC, Margaret Hodge actually implied that tax avoidance is illegal, without her interviewer pulling her up on the remark.
Cynical vote-gathering indeed.

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By ShirleyM
09th Feb 2015 10:32

Some of it is ...

... the lines are becoming blurred.

Some of the 'avoidance' schemes were (in reality) evasion as they were based on untruths (outright lies!) and artificial transactions. Didn't GAAR say that transactions that had no business purpose, and made solely for the purpose of avoiding taxes, were no longer allowed?

Is there any wonder that people get confused?

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By ver1tate
09th Feb 2015 13:57

Tax avoidance

The Committee first took evidence on tax avoidance from PricewaterhouseCoopers in January 2013 alongside Deloitte, Ernst and Young and KPMG. The Committee’s report on the role of large accountancy firms noted that the four firms “insisted that they no longer sell the type of very aggressive avoidance schemes that they sold ten years ago. While this may be the case, we believe they have simply moved to advising on other forms of tax avoidance which are profitable for their clients; such as the complex operating models they offer to major corporate clients to minimise tax by exploiting the lowest international tax rates.” In light of recent information on tax agreements brokered by PwC between multinational corporations and the Luxembourg tax authorities, the Committee have recalled PwC to review that firm’s role in tax avoidance schemes.

--------------------------------------------------------------------------------------------Or as the burglar said to the judge in his plea for dismissal of the charge 'I used to burgle 50 houses a night, but now I have cut down to only ten'

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By Alan Davies
09th Feb 2015 15:39

Morally right

It is argueably morally correct for companies to pay as little tax as they can.  Most public companies are ultimately owned by pension schemes and therefore their profitability directly benefits the public.

The fact that some of these beneficiaries are not in the UK is a symptom of a globalised economy.  Undoubtably there will be beneficiaries of foreign companies that are based in the UK to counteract that.

If there is a problem (and it's an if) then it is with the laws around taxation not the companies being taxed or avoiding tax that needn't be paid.  

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