WELLINGTON: A British parliamentary committee accused the accounting firm PwC of promoting tax avoidance on an “industrial scale” and called for the government to do more to regulate the tax industry.
The Public Accounts Committee issued a scathing report, accusing PwC of mass-marketing tax avoidance plans that encouraged clients to divert profits to Luxembourg through intra-company loans. “We believe that PwC’s activities represent nothing short of the promotion of tax avoidance on an industrial scale,” committee chair Margaret Hodge said. “The effect has been to reduce the amount of corporation tax that some multinational companies pay in the countries in which they make their profits.”
The committee said such tax-avoidance advice shows the “government needs to take a more active role in regulating the tax industry, as it evidently cannot be trusted. “PwC said it disagrees with the committee’s conclusions. However, PwC agreed that the tax system had become “too complex, as governments compete for investment and tax revenues.”
“We take our responsibility to build trust in the tax system seriously and will continue to support reform,” PwC said in a statement. The committee cited the example of Shire Pharmaceuticals, which used intra-company loans to divert profits to Luxembourg to take advantage of lower corporate tax rates. Shire paid tax equal to 0.0156 percent of its profits to the Luxembourg tax authority, the committee said. By comparison, the tax rate in the U.K. on corporate profits over 300,000 pounds ($458,000) is currently 21 percent.
“The effect is to shift profits from other countries, where tax rates are higher, to Luxembourg,” the committee said. “The ‘substance’ of Shire’s business in Luxembourg, used to justify these arrangements, consists of two people out of the 5,600 staff the company employs globally.Shire said in a statement that it complies fully with its tax obligations in the jurisdictions in which it operates. “We consider effective and lawful management of our tax affairs to be an appropriate and responsible part of our drive for efficiency and re-investment into research and development of innovative medical treatments,” it said.
