All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

PAC hearing shows gulf between Big 4 and public opinion: COMMENT


Round two of the UK Parliament’s Public Accounts Committee (PAC) hearing on tax avoidance saw Margaret Hodge MP land a number of damaging blows on tax leaders of the Big 4 accountancy firms, but few preconceived opinions will have changed on either side of this polarised debate.

Someone on Twitter asked how people would sum up yesterday's PAC hearing on tax avoidance in three words. Tongue in cheek, I replied: “Good versus evil”.

The point is that this is a polarised debate on a moral question and despite the grey area tax avoidance occupies between legitimate planning and illegal avoidance, both sides came at it with black and white views. Supporters of the PAC‘s pugnacious approach and those of the Big 4 accountancy firms brought firmly held preconceptions into the room and left with exactly the same ideas.

It is worth noting that PwC’s Kevin Nicholson, KPMG’s Jane McCormick, Ernst & Young’s John Dixon and Deloitte’s Bill Dodwell performed considerably better under Hodge’s aggressive questioning than Google, Amazon and Starbucks did, as you would expect. It is their job to deal with difficult questions of tax structuring. But their answers showed just how far the debate around tax avoidance has moved on and the gulf that now exists between tax advisers and the public.

Hodge seemed less interested in what the firms had to say and more interested in voicing the concerns of an outraged electorate in whose eyes the firms and their clients have a reputational problem.

The inability of the Big 4 to answer how much tax they saved their clients in return for paying their fees could not have looked good. The same could be said about their vagueness concerning their offices in tax havens. It will only add to the public’s idea that no genuine commercial activity takes place on these tropical islands.

At one point Dodwell brushed over the issue of VAT avoidance by big online retailers such as Amazon by saying that low value consignment relief (LVCR) was abolished last year. In doing so, he failed to address an increasing body of evidence which suggests companies are getting around the UK government’s removal of LVCR on Channel Islands mail order by shipping via Belgium.

The firms agreed that greater transparency is necessary, but it was clear that their idea of transparency differed greatly from the PAC’s. Dodwell explicitly rejected the idea of country-by-country reporting (CBCR) because it would be “too costly”, but if the Big 4 want to win this argument they will have to explain in clear terms how CBCR would be any more costly when companies will already be collecting this information. Otherwise it looks to a suspicious public as though corporates are only opposed to CBCR because they want to avoid taxes.

Advisers are right to point out that tax is complex. But it is not the public’s lack of understanding that has led to popular anger. Quite the opposite. The public has become aware of how the global tax system operates and it does not like it.

The problem is that the closed circles of the accountancy world, among which minimising clients’ tax bills is an unquestioned good, is isolated from public opinion, which has concluded that big corporations dodging taxes while services are cut is very much a bad thing.

That the two sides occupy two different worlds was apparent at the hearing.

At the end, Hodge asked a question which she said was rhetorical. But in a way, the entire hearing was rhetorical. For corporations and their advisers to restore their reputation, and for governments to design better laws, both sides will need to begin a more open and cooperative dialogue and work together to answer the question of what constitutes a fair share of tax and what requirements the spirit of the law places on companies.

more across site & bottom lb ros

More from across our site

The UN may be set to assume a global role in tax policy that would rival the OECD, while automakers lobby the US to change its tax rules on Chinese materials.
Companies including Valentino and EveryMatrix say the early adoption of EU public CbCR rules could boost transparency of local and foreign MNEs, despite the short notice.
ITR invites tax firms, in-house teams, and tax professionals to make submissions for the 2023 ITR Tax Awards in Asia-Pacific, Europe Middle East & Africa, and the Americas.
Tax authorities and customs are failing multinationals by creating uncertainty with contradictory assessment and guidance, say in-house tax directors.
The CJEU said the General Court erred in law when it ruled that both companies benefitted from Italian state aid.
An OECD report reveals multinationals have continued to shift profits to low-tax jurisdictions, reinforcing the case for strong multilateral action in response.
The UK government announced plans to increase taxes on oil and gas profits, while the Irish government considers its next move on tax reform.
War and COVID have highlighted companies’ unpreparedness to deal with sudden geo-political changes, say TP specialists.
A source who has seen the draft law said it brings clarity on intangibles and other areas of TP including tax planning.
Tax consultants say companies must not ignore financial transactions in their TP policies as authorities, particularly in the UK, become more demanding.