UK MPs slam big accounting firms

Major international accounting firms handling tax affairs for multinational firms run rings around the United Kingdom’s Revenue and Customs, a powerful House of Commons committee has declared as it calls for major changes to tax laws.

Nine thousand staff working with the accounting firms, which earn £2 billion a year from handling such tax affairs, are daily involved in tax work, leaving HMRC “fighting a battle it cannot win in tackling tax avoidance”, says the House of Commons public accounts committee in a report published today.

Big Four
The four biggest firms – Deloitte, Ernst and Young, KPMG and PwC – have four times as many staff dealing with transfer pricing schemes used by multinationals to siphon off income to low-tax countries, such as Ireland, the committee complained.

'Complex schemes'
Noting that the firms have said that they will not repeat tax avoidance schemes that were ruled out in the past, MPs said they are still devising "complex schemes that look artificial and their appetite for risk appears high".

Some of the schemes have just a 50 per cent chance of being upheld in court, the report went on: “There is no clarity over where firms draw the line between acceptable tax planning and aggressive tax avoidance.”

Even if they have stopped past “very aggressive” schemes, the committee complained that “they have simply moved to advising on other forms of tax avoidance which are profitable for their clients”, including complex transfer pricing rules.

“HMRC has to consider the risk to the taxpayer of a protracted legal battle. It would appear that firms and tax avoiders are taking advantage of the constraints under which HMRC is obliged to operate,”the MPs said.

Revolving door
Meanwhile, the influential committee has demanded an end to the revolving door in Whitehall where staff from accounting firms routinely do tours of duty in the treasury and HMRC, often advising, or designing tax legislation that they later use.

"The close relationship that the four firms enjoy with government creates a perception that they wield undue influence on the tax system which they use to their advantage," said the report, Tax Avoidance: the Role of Large Accountancy Firms .

During evidence, the biggest four firms claimed the involvement of their staff helped to improve legislation, but conceded it may encourage “the perception that they are able to influence legislation” to the advantage of their biggest clients.