PricewaterhouseCoopers' role in helping Shire Pharmaceuticals to cut its tax bill by lending billions from a Dublin subsidiary to one in Luxembourg that pays a pittance in corporation tax has "trashed" the global accounting company's reputation, MPs have charged.
Kevin Nicholson, PwC's UK head of tax, and Fearghas Carruthers, Shire's head of tax, endured a gruelling two hours of questioning from the Commons' Public Accounts Committee inquiry into the "Luxleaks" files that disclosed Luxembourg's tax avoidance schemes.
Denying that PwC and Shire had been involved in tax evasion, Mr Nicholson insisted that the lending from Shire’s Dublin subsidiary, Shire Holdings Ireland No 2 Limited, and the tax arrangements surrounding it, had been cleared by the Revenue Commissioners.
Shire’s treasury operation in Luxembourg has lent €10 billion, received nearly $2bn in interest and yet has paid just €2m in tax over four years. It is run by two middle-ranking employees who together earn €135,000 a year.
Mr Carruthers insisted that international tax rules are respected because decisions about granting loans are made by the Luxembourg staff and by locally-based directors. Disbelieving, Labour MP Margaret Hodge retorted: "If the decision-making is not genuinely made locally, then it's fraud."
Shire had, said Mr Carruthers, transferred its tax residency to Ireland from the UK in 2008 because of concerns that taxes incurred outside of the UK would pose a significant risk to the company. Shire has 100 employees in Ireland.
Defending its Luxembourg treasury operation, he said it fulfilled a valuable “commercial purpose” for Shire, since it allowed it efficiently to lend money to other Shire companies. “It is far easier to lend into a company than put equity in.”
The Luxleaks files reveal 548 letters from PwC to a now-retired top Luxembourg tax official, Marius Kohl, seeking favourable tax deals for 330 companies, including Shire, along with Amazon and Ikea. Some of the requests were granted within 24 hours.
Ms Hodge, chairman of the PAC, accused Mr Nicholson of having misled MPs during a previous appearance before them in January 2013 when he had insisted that PwC did not market tax avoidance schemes to clients.
Now, she said, it was clear in the wake of Luxleaks that PwC does sell them. “I think that you did mislead us. I think you are playing with words. If you have misled us again we will have to have you back on oath,” she warned him.
Urging PwC “to just clean up your act”, Hodge, who has led complaints about multi-nationals’ tax habits, said its Luxembourg operation seems like “a murky underground pool with dodgy operations”.
“You talk about material being stolen from PwC. In my view you had whistleblowers and you will continue to have whistleblowers for as long as you take this attitude. I will invite them to write to me on a confidential basis,” she said.
"I can't think of a company who would want to do business with you if they think they are going to end up in the New York Times or the Guardian because you are simply indulging in scams," she declared.
Clear tax laws
Group is one of the companies that set up a Luxembourg operation to lend money to its other international operations. Under Luxembourg tax law, companies are able to pay corporation tax on profits from such loans at just 0.0156 per cent.
Firms set up treasury operations in Luxembourg because its tax laws were clear, and intellectual property is protected. The rate of tax charged by the Luxembourg authorities would play a factor, said Mr Nicholson.
On behalf of Shire, Mr Carruthers spoke of its manufacture of life-saving drugs. However, he was quickly cut off by Hodge. “It is because what you do is so important that we are so offended by the way in which you do it . . . [and] feel such offence at the way in which you scam the British public.”