Saturday 12 January 2013

Saturday, January 12, 2013 Posted by Jake 6 comments Labels: , , ,
Posted by Jake on Saturday, January 12, 2013 with 6 comments | Labels: , , ,

Despite the evidence of fraudulent schemes, no firm has ever been disciplined by any professional accountancy body
By Prem Sikka, 
Professor of Accounting, University of Essex 

George Osborne's attack on organised tax avoidance is a huge disappointment. Her Majesty's Revenue and Customs (HMRC) is investigating some 41,000 tax avoidance schemes, but there is still no investigation of the industry that designs and markets aggressive tax avoidance schemes.
In contrast to the UK, reports by various US Senate committees have been critical of the predatory practices of the major accountancy firms (for examples, see herehere and here). KPMG was fined $456m(£284m) for facilitating tax evasion and a number of its former personnel have been sent to prison, as have some of the former personnel of Ernst & Young.
Now the public accounts committee (PAC) chair Margaret Hodge has PricewaterhouseCoopers PwC, Ernst & Young, KPMG and Deloitte in her sights. The PAC should investigate the role of these firms in organised tax avoidance. An earlier internal HMRC study estimated that these four firms "were behind almost half of all known avoidance schemes".
Some of the evidence about their predatory practices is on the public record. In November 2012, a tax tribunal threw out an Ernst & Young inspired scheme that enabled Iliffe News and Media to create a new asset – newspaper mastheads. This asset was created for a nominal sum of £1. It was leased back to its subsidiaries who paid the parent company over £51m in royalties and thus reported lower profits. No cash left the group but the companies now sought tax relief on royalty payments to reduce their corporation tax bill. The company's board minutes stated that Ernst & Young, who audited the company's financial statements as well, confirmed that the use of the scheme would also "significantly lessen the transparency of reported results".
PricewaterhouseCoopers devised a scheme to enable a rich entrepreneur to avoid capital gains tax on profits of £10.7m. A tax tribunal heard that the scheme involved a series of circular and self-cancelling transactions resulting in the creation of assets and disposals which somehow managed to generate a loss of £11m and thus cancelled out the profit. The scheme was thrown out by a tribunal, and in August 2012 by the court of appeal. The presiding judge said that "there was no asset and no disposal. There was no real loss". This scheme was sold to 200 entrepreneurs and if successful, would have enabled them to avoid capital gains tax on profits of around £1bn.
KPMG devised a scheme for an amusement arcade company to avoid paying VAT on its operations. The scheme was not developed in response to any request from the company; KPMG cold called the company. Its presentations were subject to a confidentiality undertaking being given. A 16-page report cited by the tribunal said that by using Channel Islands entities, the company's profits could improve by £4.2mn. KPMG charged £75,000 plus VAT for an evaluation report and counsel's opinion, and a fee of 25% of the first year's VAT avoided, 15% of the second and 5% of the next three year's VAT avoided. KPMG felt that the UK tax authorities would regard the scheme as "unacceptable tax avoidance" and would challenge the arrangements, but still sold it. The case subsequently went to the high court and the European court of justice and the scheme was quashed.
We are all suffering from the bankers' follies. But Deloitte devised a scheme to enable bankers to avoid income tax and national insurance contributions on £91m of bonuses. More than 300 bankers participated in the scheme, which operated through a Cayman Islands-registered investment vehicle. A tax tribunal threw out the scheme and the presiding judge said that "the scheme as a whole, and each aspect of it, was created and coordinated purely for tax avoidance purposes".
The above only provides a tiny glimpse of the predatory practices of major accountancy firms. They create sham transactions, phoney losses and phantom assets to enable their clients to dodge taxes. Despite the evidence, no accountancy firm has ever been disciplined by any professional accountancy body. Despite spending millions of pounds to quash predatory schemes, the UK Treasury has never sought to recover the legal costs from the promoters of the schemes. Instead, the big accountancy firms continue to receive taxpayer funded contracts.
No government will be able to effectively tackle tax avoidance without shackling the designers and enablers. It is hoped that the public accounts committee will investigate the role of the big accountancy firms in tax avoidance.
This article was first published in the Guardian.

For those of you interested in further details of mischief by the "big four", we recommend you read this paper by Professor Sikka and Austin Mitchell MP titled "The Pin Striped Mafia: How Accountancy Firms Destroy Societies".


  1. When some accountancy firm helped Delorean rip-off the UK tax payer Thatcher ensured that the accountancy firm in question never got near any government contract again. How is that as a warning cause the taxpayer to lose money and you will be shut out from government contracts, when Gordon brown became chancellor he let the rascals back in.

  2. I suspect that the 'big 4' are also have a hand in influencing tax policy via lobbying disguised as the 'consultation' process with HMT & HMRC.

    1. You know full well they DO

  3. it goes hand in hand with banks, anz most corrupt bank in world, paid out loan Conveyancing lawyer didn't know were originals, receipt or sittlement docs but when legal surfaced he charge 3 x times legal amount, bank knocked on six grand and lied that there was any proof, now I got second hand info lega aid after stopping work,will be charging all knock on costs to Dodgeyn lawyer in local court tomoz. wonder what judge will say no rvipts, no tax land title searches ho hum er miscond erh negligence, parasite even said he did think he could any paper work from bank lol can't wait to see the judges face, a barrister and all well he may get disbarred if judge escalets jurisdiction to district cause to show full investigation....I'm going to eat this big fat cat barrister in court,,,,would be called pinstripped parasites lol. great articles you guys provide to help confront white collar crimes banks et al.

  4. Don't forget the 'revolving door' of Big 4 staff in and out of HMRC.

  5. ENDEMIC CORRUPTION IS - WELL - ENDEMIC. Before I was moved to investigate governance and administration including police, I had no idea how corruptly constrained the proles are. Today, more than 4.5 years later, I realise financial corruption is just one aspect. Westminster is the key and acts as a template. Westminster is self 'policing'' and - as we all know - POWER TENDS TO CORRUPT ABSOLUTELY.


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