Jessica Fino 16 Nov 2017 02:03pm

Big Four criticised over Paradise Papers

Too many big accountancy firms in the UK are facilitating and profiting from tax avoidance schemes, UK politicians say

Shadow chancellor John McDonnell told the Financial Times that the Paradise Papers were “yet another exposé of the industrial scale of tax avoidance in this country”, after the 13.4 million leaked files exposed the use of offshore tax havens by some of the world’s biggest businesses, political figures and celebrities, earlier this month.

Among them was the Queen, Lord Michael Ashcroft – a major donator to the Conservative Party who was linked to a trust in Bermuda with assets worth £341m – and Formula One world champion Lewis Hamilton who was found to have dodged tax payments when buying a private jet.

In parliament this week, Labour MP and former chair of the Public Accounts Committee Margaret Hodge, criticised the Big Four firms for their role in minimising the tax bills of multinationals and the rich.

“Until advisers are hauled to account and properly punished for inventing schemes that are purely aimed at avoiding tax, the army of lawyers [and] accountants will continue to prosper,” she said.

The Paradise Papers revealed that EY was involved in the scheme that helped Hamilton avoid paying VAT taxes when purchasing his jet .

An EY spokesperson commented, “All our advice, whether in planning or compliance, is based on our knowledge of tax law and providing transparency to tax authorities. EY does not offer mass market tax planning schemes.”

Documents also showed that Blackstone consulted PwC and Deloitte for tax advice on property deals to avoid millions of pounds in taxes.

PwC responded, “The advice we provide is given in accordance with all applicable laws, rules and regulations, including proper disclosure to tax authorities, and adheres to the highest professional standards and our own tax global code of conduct.”

Meanwhile, a Deloitte spokesperson said, “We fully disclose our clients’ tax positions to tax authorities as required.”

According to research by the Aston Business School and the Tax Justice Network, multinationals that use a Big Four audit firm to audit their accounts make “significantly greater use of tax havens” compared to those who do not use the Big Four.

The report, titled Tax haven networks and the role of the Big 4 accountancy firms, said there was a strong correlation between Big Four use and tax avoidance, with multinationals that took on the firms appearing to become “more tax aggressive”.

“Our research shows that rather than leading the way in ensuring the public accountability and transparency of their clients, the big four are key players in the promotion of financial secrecy and complexity that underpins the massive revenue losses globally from profit shifting,” it added.

Following the leaks, McDonnell called for HMRC to investigate Lord Ashcroft’s tax affairs, and pushed for a full public inquiry into aggressive tax avoidance and UK companies’ and individuals’ role in it.