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U.K. Parliament Blasts Accounting Firms’ Role in Tax Avoidance


code 85230509026, cruse tax planning associates


The Public Accounts Committee in the British Parliament has issued a
critical report blaming large accounting firms, particularly the Big Four, for
contributing to tax avoidance.


in our tax system can only be maintained if every company and every individual
is seen to be paying their fair share of tax,” said Friday’s 
report from the House of Commons committee. “We held
hearings last year to investigate why some multinational companies pay little
corporation tax despite doing a large amount of business in the UK, and why
some individuals can get away with using contrived schemes to avoid tax. We are
also concerned about the role of tax advisors and in January 2013 we took
evidence from Deloitte, Ernst and Young, KPMG, and PwC to understand more about
the nature of the 
tax advice they provide.”


The report noted
that Her Majesty’s Revenue & Customs department appears to be “fighting a
battle it cannot win in tackling tax avoidance.”


can devote considerable resource to ensure that they minimize their 
tax liability,” said the committee report. “There is a large market
for advising companies on how to take advantage of international tax law, and
on the tax implications of different global structures. The four firms employ
nearly 9,000 people and earn £2 billion from their tax work in the U.K., and
earn around $25 billion from this work globally. HMRC has far fewer resources.
In the area of transfer pricing alone there are four times as many staff
working for the four firms than for HMRC.”

The report
acknowledged that the committee was pleased that the four firms agreed that
tax rules are out of date and need to change to reflect
the reality of modern business. “Modern communications mean companies need as
little as a computer and a handful of staff to set up a place of business in a
tax haven,” said the report. “Under current tax rules, this can be enough to
establish that they can pay their tax there, rather than where the business
activity takes place. This is unfair to responsible companies based in the U.K.
who do pay their fair share of tax.”


Minister David Cameron’s government has expressed a commitment to reforming
international tax laws, the report noted, but added that this will be a lengthy


“Until it
happens, we are concerned that companies will 
continue to find ways to avoid paying tax where they actually do
business,” said the report. “We believe that simplicity is key to fighting tax
avoidance. The four firms agreed with us that tax law is too complex and a
simpler system is in everybody’s interests. It is disappointing that HM Treasury’s
Office of Tax Simplification is working with fewer than six full time staff and
as a result has so far focused on abolishing unused tax reliefs, rather than
being able to take a more radical approach to simplifying tax law. Removing
unused reliefs may be good housekeeping, but it does little to tackle the
problem of complexity and does not prevent the continued abuse of some tax
reliefs, such as those to encourage investment in films or donations to
charity. We intend to examine those tax reliefs that are widely used and may be
subject to abuse at a future hearing.”


The four
firms insisted that they no longer sell the type of very aggressive avoidance
schemes that they sold 10 years ago, the report noted. “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 minimize tax by exploiting the
lowest international tax 
rates,” said the report. “The four firms have developed
internal guidelines on where the line between tax planning and aggressive
avoidance lies, but these principles do not stop them selling schemes with as
little as a 50 percent chance of succeeding if challenged in court.”

The U.K. tax
authorities need to consider the risk to the taxpayer of a protracted legal
battle,” the report acknowledged.


“It would
appear that firms and tax avoiders are taking advantage of the constraints
under which HMRC is obliged to operate,” said the report. “Furthermore, HMRC is
always constrained by resources. The close relationship that the four firms
enjoy with government creates a perception that they wield undue influence on
the tax system which they use to their advantage. They told us that they second
staff to government to provide technical advice on changes to tax laws and that
this has improved the quality of legislation. The witnesses conceded that this
may give the perception that they are able to influence legislation to help
their larger clients to the disadvantage of smaller U.K. businesses. More
worryingly, we have seen what look like cases of poacher, turned gamekeeper,
turned poacher again, whereby individuals who advise government go back to
their firms and advise their clients on how they can use those laws to reduce
the amount of tax they pay.”


Since the
committee’s last hearing HMRC has announced that it is consulting on a set of
draft rules to allow departments to ban tax-avoiding businesses from being
awarded government contracts, the report noted.

“This is a
step in the right direction, but the draft rules as they stand are narrowly
focused and would not cover those companies providing tax advice,” said the
report. “The draft rules would allow firms to win government contracts whilst
also advising on schemes that allow their clients to avoid tax. We will want to
monitor closely what rules emerge from the consultation process and how they
are applied.”


code 85230509026, cruse tax planning associates

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