Friday, 6 February 2015

MP Report Says PricewaterhouseCoopers Promotes Tax Avoidance "On Industrial Scale" but Still within the Limits of the Law

In a Public Accounts Committee (PAC) report by MP's the accountancy firm, PricewaterhouseCoopers (PwC), has been accused of providing information for companies to avoid UK corporation tax on an "industrial scale".

Image by dalbera (PriceWaterHouseCoopers Building, Oslo) [CC BY 2.0] via Wikimedia Commons

The chairwoman of the PAC, Margaret Hodge said, "We believe that PricewaterhouseCooper's activities represent nothing short of the promotion of tax avoidance on an industrial scale". Contrary to its denials, the tax arrangements PricewaterhouseCooper promotes, based on artificially diverting profits to Luxembourg through intra-company loans, bear all the characteristics of a mass-marketed tax avoidance scheme.

The investigation was launched by MPs after hundreds of documents were leaked last year and found their way to the International Consortium of Investigative Journalists (ICIJ) which consists of more than 20 world wide news outlets. The documents leaked contained tax agreements and other sensitive papers revealing that Luxembourg were "rubber stamping" tax avoidance.

An investigation by the Guardian in November of 2014 revealed that more than 300 companies were using Luxembourg as a tax haven. These companies include: Pepsi, Ikea, Accenture, Burberry, Procter and Gamble, Heinz, JP Morgan and FedEx. The tax arrangements were complex but were not deemed to be illegal within the UK and other parts of the world.

In a statement, PwC said, "We stand by the evidence we gave the Public Accounts Committee and disagree with its conclusions about the work we do. 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".

In the PAC report, Shire Pharmaceuticals was described as one such company that diverted profits to Luxembourg. Shire Pharmaceuticals is based in Basingstoke, UK. The report revealed that Shire Pharmaceuticals only paid 0.0156 percent of its profits to local UK tax authorities, where the main corporation tax rate in the UK is 21 percent.

The MPs' report says, "Shire has arranged its affairs so that interest payments on intra-company loans reduce significantly its overall tax liabilities… The 'substance' of Shire's business in Luxembourg, used to justify these arrangements, consists of two people".

MPs of the PAC report also accused PwC of misleading the committee during an earlier hearing in 2013.

Ms Hodge said, "We consider that the evidence that PwC provided in January 2013 was misleading, in particular its assertions that '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'".

The issue of taxation is a complex plethora of red tape and legal maneuvering. Companies that can afford for advice from PwC can legally minimise their tax bills while smaller SMB's and start-ups may have to bear the the full brunt of the UK's complex tax system.

Many organisations and individuals have called for the tax system to be simplified and reforms need to be made, but this is easier said than done.

In an effort to combat tax avoidance, the UK government will be introducing the diverted profits tax in 2015. The new tax will raise the corporation tax rate to 25 percent and is aimed at large multinationals that engage in aggressive tax planning schemes.

Author: Vin Coh