PwC promoted tax avoidance 'on industrial scale'

PwC promoted tax avoidance 'on industrial scale'

Big Four accountancy firm PwC was accused of promoting "tax avoidance on an industrial scale" to numerous multinational firms in a scathing report by MPs today.

PwC was heavily criticised in an investigation by the Commons' Public Accounts Committee (PAC) on how accountants provide "complex strategies and contrived structures" to big companies to help them slash tax bills.

It found that arrangements to divert profits artificially via Luxembourg promoted to numerous PwC clients "bear all the characteristics of a mass-marketed tax avoidance scheme".

MPs investigated following the leak of hundreds of documents last November that appeared to show how the firm secured deals with Luxembourg tax authorities for 343 multinational companies between 2002 and 2010.

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

"The effect has been to reduce the amount of corporation tax that some multinational companies pay in the countries in which they make their profits."

The report said many of the companies that received advice from PwC - citing Amazon, Ikea, Burberry, Accenture, Coca-Cola and Vodafone - were household names and that at least 80 had UK headquarters.

"These deals appeared to contradict the evidence which PwC had given us in 2013," the report said.

"PwC had told us that it does not sell schemes but the Luxembourg leaks suggest that PwC had advised many multi-national firms to adopt similar complex financial structures for the purpose of avoiding tax."

It called for the Government to take a more active role in regulating the tax industry "as it evidently cannot be trusted to regulate itself".

The committee said there were long-standing concerns about the way in which some multinational companies paid little corporation tax despite doing a large amount of business in the UK.

It said common features of deals arranged by PwC that it investigated saw the companies all set up subsidiaries in Luxembourg where they were protected by advance tax rulings from the authorities.

Most of these used a complex system of intra-company loans from the Luxembourg subsidiaries to subsidiaries located elsewhere, the MPs said.

Interest on these loans was deductible against profits in other countries while the interest paid to Luxembourg was taxed at a very low rate as a result of the agreement negotiated with the tax authorities, the report said.

"The schemes thereby reduced the amount of corporation tax that multinational companies have to pay in the countries in which they are truly operating."

The report cited the example of Shire Pharmaceuticals, which, while it has external borrowings of £800 million, makes interest payments on intra-company loans worth 10 billion US dollars (£6.5 billion) to a company it has established in Luxembourg.

It said: "The effect is to shift profits from other countries, where tax rates are higher, to Luxembourg.

"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.

"Neither PwC nor Shire could demonstrate that the company's presence in Luxembourg was designed to do anything other than avoid tax."

The report said Shire paid tax on only 0.0156% of its profits to the Luxembourg tax authority.

Ms Hodge said the committee had found evidence by PwC in January 2013 that it was "not in the business of selling schemes" and that it did not "mass-market tax products" was "misleading".

She said: "Many other major firms were named in the Luxembourg tax rulings published by the International Consortium of Investigative Journalists in November 2014 and our concerns go wider than the behaviour of PwC and Shire alone.

"The fact that PwC's promotion of these schemes is permitted by its own code of conduct is clear evidence that Government needs to take a more active role in regulating the tax industry, as it evidently cannot be trusted to regulate itself.

"In particular, HM Revenue & Customs (HMRC) needs to do more to challenge the nature of the advice being given by accountancy firms to their clients, ensure that tax liabilities reflect the substance of where companies conduct their business and introduce a new code of conduct for all tax advisers.

"Unless HMRC takes urgent action, this irresponsible activity will go unchecked, causing harm to both the public finances and the reputations of the companies involved."

:: The MPs' report came as the National Audit Office (NAO) found HMRC had made "good progress" since 2010 towards its aims of maximising revenue and making sustainable cost savings, while responding positively to PAC recommendations.

It said the department had reorganised to tackle some of the root causes of marketed tax avoidance, and had sought and received new powers to allow it to disrupt this and challenge the users of avoidance schemes more quickly.

The gap between the tax that is collected and should be collected was £34 billion in 2012-13 according to HMRC, of which £3.1 billion was lost to tax avoidance.

PwC said in a statement: "We stand by the evidence we gave the Public Accounts Committee 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."

An HMRC spokesman said: "Since 2010 we have brought in £31 billion additional tax from intervening with large businesses and tackling non-compliance, irrespective of who promoted or set it up.

"We have an outstanding record for challenging multi-nationals and their tax advisers who try to get around UK tax law, and this drive will be further strengthened by the Government's announcement of a diverted profits tax, which will counter contrived arrangements to move profits off-shore in order to reduce the tax payable in the UK."

MPs Accuses PwC of 'Tax Avoidance on an Industrial Scale'

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PwC promoted tax avoidance 'on industrial scale'

She may have won five Grammys and sold more than 19 million copies of her solo album, but that didn't save her from being jailed for failure to pay her taxes. She was sentenced to three months in jail, then three months confined to her home, for failing to pay tax on £1.2 of earnings between 2005 and 2007.

Hill told the court that she had meant to pay the taxes, but she had withdrawn from public life in order to raise her six children, so had been unable to pay the tax bill. She has since paid the money back, but must still spend three months at Danbury open prison.

Dolce and Gabanna were given jail sentences in June for failing to declare 1 billion euros of income. They were sentenced to a year and eight months in jail, but said they would appeal.

Heidi Fleiss was sentenced in 1997 to seven years in prison for failing to pay tax on profits from the prostitution ring she ran. She eventually served 20 months in jail, and 10 months in a halfway house - and was released in 1999.

Judy Garland was wrong-footed by a tax bill in 1967, she had her home repossessed by the IRS and was forced to live in a hotel. She died two years later.

Richard Hatch is a relatively minor celebrity, but makes the list for sheer stupidity. He was the first winner of Survivor, and its £1 million prize, but failed to declare it to the tax man. He was sentenced to jail and home confinement for more than three years.

The rapper and actor admitted he hadn't paid tax on his earnings between 2004 and 2006. He was ordered to repay $1 million and spend two years in prison. He is actually serving it concurrently with a New York sentence for possession of a weapon.

Lester Piggott was sentenced to three years in jail in 1997, after failing to declare income to the taxman. At the time it was thought to be Britain's longest-ever sentence for personal tax fraud.

Richard Pryor served 10 days in jail in 1974 for failing to pay his taxes. He told the judge that he had simply forgotten about it.

Wesley Snipes owed an impressive $17 million in tax after failing to file returns from 1999 to 2004, and was jailed for three years. On release he still had to pay the cash back.

Sophia Loren was sentenced to 30 days in prison in 1982 for failing to pay tax. She served 17 days in a Naples jail.

Nicholas Cage was never given any jail time, but after failing to pay his taxes, he was ordered to pay more than $14 million in back tax and charges. He blamed his ex-manager and accountant, and has been selling his assets to pay the taxman back.


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