A new report from a British Parliamentary committee attributes the marketing of a tax avoidance scheme in Luxembourg to PricewaterhouseCoopers and says other large accounting firms have played a role in similar maneuvers.
The report, published last Friday by the House of Commons' Public Accounts Committee, said the tax arrangements that PwC promoted in Luxembourg bear the characteristics of a mass-marketed tax avoidance scheme. The report follows up on documents published last November by the International Consortium of Investigative Journalists that indicated PwC negotiated advance
tax rulings for hundreds of companies with Luxembourg tax authorities. The report said that the published documents appeared to be inconsistent with
PwC’s previous evidence to the committee suggesting that PwC had been promoting complex structures that are similar in nature to numerous clients. The committee invited the head of tax at PwC's U.K. firm, Kevin Nicholson, to give further evidence, alongside Fearghas Carruthers, the director of tax at Shire Pharmaceuticals, one of the corporate clients that had reportedly benefited from the tax arrangements. The committee noted that many other major firms were named in the Luxembourg tax rulings published by the ICIJ and its concerns go wider than the behavior of PwC and Shire alone.
“We consider that the evidence that PwC provided to us 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.”
PwC's U.K. firm said it stood by the evidence it had given to the committee but agreed with the need for reform. “We stand by the evidence we gave the Public Accounts Committee and disagree with its conclusions about the work we do,” the firm said in a statement. “But we recognize 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.”
Last November, the ICIJ disclosed 548 letters between PwC and the Luxembourg tax authorities, relating to 343 of PwC’s multinational clients. “The number of cases involved plainly demonstrates that PwC is effectively selling variations on a scheme to a large number of its clients,” said the report. “The effect has been to reduce the amount of corporation tax that these multinational companies have to pay in the countries in which they are in fact operating. Whilst acknowledging that the schemes have common features, PwC tried to argue that they are in fact individual arrangements tailored to the needs of individual clients.”
Public Accounts Committee chair Margaret Hodge was lacerating in her criticisms of the tax strategies promoted by PwC's U.K. firm.
"It is only right that companies pay their fair share of tax according to the profits they make from their economic activity in the countries in which they do business,” she said in a statement. “This is the second time we have had cause to examine the role of large accountancy firms in advising multinational companies on complex strategies and contrived structures which are designed for no purpose other than to avoid tax. We believe that PricewaterhouseCoopers’s activities represent nothing short of the promotion of tax avoidance on an industrial scale. Contrary to its denials, the tax arrangements PwC promotes, based on artificially diverting profits to Luxembourg through intra-company loans, bear all the characteristics of a mass-marketed tax avoidance scheme. 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.”
Hodge noted that the behavior goes beyond PwC and also applies to other major firms.
“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 behavior of PwC and Shire alone,” she said. “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.”
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