Big Four accountants accused of 'legitimising' tax havens

The Big Four accountancy firms have been criticised for "legitimising" the use of offshore tax havens and for not taking a strong enough lead in international tax compliance. The claims are made in a new report by the Tax Justice Network.

"The extensive presence in tax havens of the Big Four accountancy firms in itself serves to legitimise the offshore world, which is vital in capital flight," said Richard Murphy of the Network, a group of accountants and economists concerned at the escalating wealth held in offshore locations.

"The global losses, often for the poorer countries, probably runs to many hundreds of billions of dollars a year.

"Accountancy firms have been castigated in recent years for their part in a series of financial scandals like Enron and WorldCom which had major offshore elements," added Mr Murphy, a leading tax expert. "But these firms still have a strong offshore presence."

KMPG worked for WorldCom before its collapse. The report cites an example of "creative" accounting whereby under WorldCom's licensing agreements some $20bn (£10.3bn) was moved from high tax states to low tax states in return for companies in the high tax states having access to "management foresight" in low tax states.

"KPMG represents itself to be an international business but is in fact a Swiss 'cooperative' of individual member firms but no one knows how they are linked. This is unacceptable under all current governance standards," said Mr Murphy.

"There is little doubt that the largest firms of accountants and lawyers working in the offshore world do their best to steer clear of illegal practices," says the report. But it observes: "It is not by chance that almost any story of international crime or corruption has an offshore element to it."

The Tax Justice Network's 150-page report, "Closing the Floodgates: Collecting Tax to Pay for Development", says that major international accountancy brands all have offices across nearly all the major offshore tax havens.

While there are around 72 offshore havens, only 45 of these are significant and active. The reports says KPMG works in 41 of these, PriceWaterhouseCoopers appears to have a presence in 38, the same number as Ernest & Young, and Deloittes are present in 33 tax havens.

A KPMG spokesman said: "KPMG has consistently called for more transparency in tax at all levels, and OECD has been leading efforts to improve transparency and effective exchange of information between countries on tax matters. We support their work.

"As HMRC, the UK tax authority, has said: 'Across the whole range of taxpayers, taxes and circumstances, tax intermediaries help their clients to avoid errors and deter them from engaging in unlawful actions. So tax intermediaries are not part of the problem, they are part of the solution.'

Deloittes and Ernst & Young said they did not wish to comment on the report, nor on Mr Murphy's comments.