PwC promoting tax avoidance ‘on an industrial scale’
If further proof were needed that corporate taxation avoidance is endemic, today's report should provide it. The public accounts committee found that despite its assurances to the contrary PricewaterhouseCoopers (PwC) is selling its corporate clients what appears to be a one-size-fits-all tax solution. It's not particularly complicated either: channel all the profit to Luxembourg.
As the dogged chairman of the committee, Margaret Hodge, said:
"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."
In January 2013, PwC told the committee that it was "not in the business of selling schemes". It went on:
"We do not mass-market tax products, we do not produce tax products, we do not promote tax products."
So it was strange that, in November last year, 548 disclosed letters between the firm and Luxembourg tax authorities relating to 343 of its multinational companies suggested otherwise. As the committee's report today found:
"The number of cases involved plainly demonstrates that PwC is effectively selling variations on a scheme to a large number of its clients. 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."
These companies don’t need to prove they're doing any substantial business in the country they shift their profits to. It's actually quite comical. Shire Pharmacuticals, for instance, which arranged intra-company loans worth £10 billion, has two people in Luxembourg out of its 5,600 staff. One of them holds 41 directorships of other companies. The firm pays tax of 0.0156% on its profits to the Luxembourg tax authority.
As the committee found:
"Neither PwC nor Shire could demonstrate that the company's presence in Luxembourg was designed to do anything other than avoid tax."
The report is unlikely to make much difference. After all, the public accounts committee already wrote a report on this subject in December 2012, April 2013 and June 2013. Even now HMRC does not ensure that tax liabilities reflect the substance of where companies conduct their business. Nor has it introduced a new code of conduct for all tax advisers. As the report found:
"That the Shire arrangement can still meet the conditions of PwC's Code of Conduct is indisputable evidence that the code is not fit for purpose."
In all likelihood we'll be back here again later in the year, assuming someone of Hodge's perseverance is chairing the committee after the election. The industry clearly can't be trusted to regulate itself but there is precious little reason to believe the government will take a more active role.
If you don’t pay your tax, it's called criminality. If a multinational corporation doesn't pay its tax, it’s called sound accounting.