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PwC at centre of ‘industrial scale’ tax avoidance, claims PAC

PWC is promoting corporate tax avoidance on an “industrial scale”, and the tax industry needs more stringent government regulation, according to the Public Accounts Committee.

In its 38th report of session, the government’s spending watchdog censured PwC and its fellow big firms for “marketing and promoting tax avoidance schemes”.

PAC chair Margaret Hodge said the government “must take a more active role in regulating the tax industry, as it evidently cannot be trusted to regulate itself”.

Indeed, the report goes further and singles out PwC, accusing it of “misleading” the committee in January 2013.

In the 2013 hearing, PwC told the PAC it is “not in the business of selling schemes” and that it “[does] not mass-market tax products, we do not produce tax products, we do not promote tax products”.

The committee cites a more recent hearing in December as evidence, when it accused the firm and pharmaceutical group Shire of “scamming the British people” through the drug manufacturer’s tax structure.

The arrangement was just one instance from a cache of almost 28,000 documents unearthed by the International Consortium of Investigative Journalists describing tax deals struck with Luxembourg, showing the tiny EU state was facilitating more than 1,000 multinationals in tax avoidance activities. Those arrangements – which are entirely legal – were signed off by the Grand Duchy. The leaked documents primarily relate to clients of PwC.

The original investigation – carried out by 80 reporters across 26 countries found a Luxembourg unit of Shire staffed by just two people – received more than $1.9bn (£1.2bn) in interest income from subsidiaries over the last five years, paying corporation tax of less than $2m over four of the years despite minimal overheads.

But while both Shire and PwC – through head of tax Kevin Nicholson – refuted the claim, and told the committee the commercial purpose of Luxembourg structure was to reinvest cash “properly and efficiently”, the PAC has rejected their position.

Hodge said: “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.”

Scheme effect

The effect of the so-called schemes was to reduce the corproation tax bills of large multinationals; the PAC was also “sceptical” that the Big Four firm had kept HMRC abreast of its activities.

“We believe there is no clarity about the boundary between acceptable tax planning and aggressive tax avoidance. Multinational companies do not need to conduct any business of substance in the countries where they shift profits to in order to avoid tax.”

A statement from PwC said: “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.”

 

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