Firms deny ‘lack of clarity’ over where they draw the line between acceptable planning and aggressive avoidance
The big four accountancy firms are still devising complex tax avoidance schemes that ‘look artificial’ and their appetite for risk appears ‘high’, MPs on the Commons public accounts committee (PAC) have claimed, although they appear to have accepted that the firms ‘no longer sell the type of very aggressive avoidance schemes that they sold ten years ago’. PwC’s head of tax said MPs had misunderstood both ‘what we do and how we do it’.
The PAC suggested that HM Treasury should introduce a code of conduct on acceptable tax planning, but the firms pointed out that professional guidance already exists on conduct in relation to taxation.
Heads of tax at Deloitte, Ernst & Young, KPMG and PwC defended their tax services in evidence given to the PAC in January. But today’s report 'Tax avoidance: the role of the large accountancy firms' concludes that there is ‘no clarity’ over where firms draw the line between acceptable tax planning and aggressive tax avoidance.
Some tax professionals have accused the PAC of adopting too wide a definition of avoidance and undermining the rule of law in relation to the taxation of multinationals. The PAC said today it was ‘pleased’ that the four firms agreed that ‘international tax rules are out of date and need to change to reflect the reality of modern business’.
PAC chairman Margaret Hodge said: ‘The firms declare that their focus is now on acceptable tax planning and not aggressive tax avoidance. These protestations of innocence fly in the face of the fact that the firms continue to sell complex tax avoidance schemes with as little as 50% chance of succeeding if challenged in court.’
HM Treasury should introduce a code of conduct for tax advisers, the PAC said, setting out what the Treasury and HMRC consider acceptable in terms of tax planning.
‘Compliance with this code should determine whether or not these firms can access both government and wider public sector work,’ it said.
The PAC recognised that ‘some’ tax advice related to transactions undertaken for commercial reasons, but said much of the advice was aimed at ‘minimising’ the tax that wealthy individuals or corporations pay.
‘An essential function’
Bill Dodwell, head of tax policy at Deloitte, denied that there was a lack of clarity over where his firm drew the line between acceptable tax planning and aggressive tax avoidance. ‘We have a significant role in helping our clients understand the law and meet their vital compliance obligations,’ he said. ‘The UK has a very substantial body of tax legislation and case law; we perform an essential function in the UK economy by helping our clients navigate this complexity.’
Dodwell added: ‘Tax advisers are already governed by a code of professional ethics which is set by a range of professional bodies including the Chartered Institute of Taxation and accountancy bodies and this is regularly updated to reflect the current environment. We expect that the next update will cover this issue in more detail, to help all tax advisers understand their professional obligations.’
The joint guidance, which HMRC reviewed in draft, was last updated in January 2011. It requires a member of a professional body to ‘always act in a way that will not bring his professional body into disrepute’.
However, it states: ‘All taxpayers have the right to arrange their affairs under the law to minimise their liability to tax.’
The guidance adds: ‘Where a member is considering arrangements which may be viewed as artificial by the tax authorities, he should consider carefully the risks and merits. He should do this in the light of the client's wider interests because of the risk that the arrangements may be challenged by the tax authorities … Members should ensure that clients are fully aware of the risks of undertaking transactions that HMRC may regard as “unacceptable” and that such transactions may be subject to litigation or possible changes in law.’
‘Misunderstanding’
Responding to the PAC report, Jane McCormick, head of tax at KPMG in the UK, drew attention to her firm’s published ‘tax principles’.
McCormick noted that the PAC described the tax system as ‘hopelessly complex’. In that complex environment, she said, ‘judgements have to be made’ about what constitutes acceptable tax planning.
Kevin Nicholson, head of tax at PwC, said: ‘We strongly disagree with the PAC’s conclusions about the role of large accountancy firms which seem to be based on a misunderstanding both of what we do and how we do it. We operate under a clear code of conduct, professional guidelines, and work constructively with HMRC.’
Nicholson told the PAC in January that reputational risk would be discussed alongside other factors in considering the options available to a client, ‘particularly at the moment, around wider public concern’. The client would decide how to proceed, based on their own circumstances, he added.
Firms deny ‘lack of clarity’ over where they draw the line between acceptable planning and aggressive avoidance
The big four accountancy firms are still devising complex tax avoidance schemes that ‘look artificial’ and their appetite for risk appears ‘high’, MPs on the Commons public accounts committee (PAC) have claimed, although they appear to have accepted that the firms ‘no longer sell the type of very aggressive avoidance schemes that they sold ten years ago’. PwC’s head of tax said MPs had misunderstood both ‘what we do and how we do it’.
The PAC suggested that HM Treasury should introduce a code of conduct on acceptable tax planning, but the firms pointed out that professional guidance already exists on conduct in relation to taxation.
Heads of tax at Deloitte, Ernst & Young, KPMG and PwC defended their tax services in evidence given to the PAC in January. But today’s report 'Tax avoidance: the role of the large accountancy firms' concludes that there is ‘no clarity’ over where firms draw the line between acceptable tax planning and aggressive tax avoidance.
Some tax professionals have accused the PAC of adopting too wide a definition of avoidance and undermining the rule of law in relation to the taxation of multinationals. The PAC said today it was ‘pleased’ that the four firms agreed that ‘international tax rules are out of date and need to change to reflect the reality of modern business’.
PAC chairman Margaret Hodge said: ‘The firms declare that their focus is now on acceptable tax planning and not aggressive tax avoidance. These protestations of innocence fly in the face of the fact that the firms continue to sell complex tax avoidance schemes with as little as 50% chance of succeeding if challenged in court.’
HM Treasury should introduce a code of conduct for tax advisers, the PAC said, setting out what the Treasury and HMRC consider acceptable in terms of tax planning.
‘Compliance with this code should determine whether or not these firms can access both government and wider public sector work,’ it said.
The PAC recognised that ‘some’ tax advice related to transactions undertaken for commercial reasons, but said much of the advice was aimed at ‘minimising’ the tax that wealthy individuals or corporations pay.
‘An essential function’
Bill Dodwell, head of tax policy at Deloitte, denied that there was a lack of clarity over where his firm drew the line between acceptable tax planning and aggressive tax avoidance. ‘We have a significant role in helping our clients understand the law and meet their vital compliance obligations,’ he said. ‘The UK has a very substantial body of tax legislation and case law; we perform an essential function in the UK economy by helping our clients navigate this complexity.’
Dodwell added: ‘Tax advisers are already governed by a code of professional ethics which is set by a range of professional bodies including the Chartered Institute of Taxation and accountancy bodies and this is regularly updated to reflect the current environment. We expect that the next update will cover this issue in more detail, to help all tax advisers understand their professional obligations.’
The joint guidance, which HMRC reviewed in draft, was last updated in January 2011. It requires a member of a professional body to ‘always act in a way that will not bring his professional body into disrepute’.
However, it states: ‘All taxpayers have the right to arrange their affairs under the law to minimise their liability to tax.’
The guidance adds: ‘Where a member is considering arrangements which may be viewed as artificial by the tax authorities, he should consider carefully the risks and merits. He should do this in the light of the client's wider interests because of the risk that the arrangements may be challenged by the tax authorities … Members should ensure that clients are fully aware of the risks of undertaking transactions that HMRC may regard as “unacceptable” and that such transactions may be subject to litigation or possible changes in law.’
‘Misunderstanding’
Responding to the PAC report, Jane McCormick, head of tax at KPMG in the UK, drew attention to her firm’s published ‘tax principles’.
McCormick noted that the PAC described the tax system as ‘hopelessly complex’. In that complex environment, she said, ‘judgements have to be made’ about what constitutes acceptable tax planning.
Kevin Nicholson, head of tax at PwC, said: ‘We strongly disagree with the PAC’s conclusions about the role of large accountancy firms which seem to be based on a misunderstanding both of what we do and how we do it. We operate under a clear code of conduct, professional guidelines, and work constructively with HMRC.’
Nicholson told the PAC in January that reputational risk would be discussed alongside other factors in considering the options available to a client, ‘particularly at the moment, around wider public concern’. The client would decide how to proceed, based on their own circumstances, he added.
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