Tax avoidance accountants to face hefty fines as part of Government crackdown

Advisers, including big four accountants, PwC, Deloitte, KPMG and EY could be hit with massive bills if they help clients aggressively avoid tax

Ben Chapman@b_c_chapman
Wednesday 17 August 2016 16:30
City institutions have been faulted for selling businesses too cheaply
City institutions have been faulted for selling businesses too cheaply

The army of advisers that facilitate the multi-billion pound tax avoidance industry will have to pay up to 100 per cent of the amount they help their clients avoid, under radical new proposals announced today.

Previously, individuals and firms who flouted tax rules have been forced to cough up but advisers such as PwC, KPMG, Deloitte and EY, who earn millions in fees to design or provide advice on the schemes have faced little to no risk.

The tough new sanctions are intended to deter accountants, consultants and lawyers from entering into tax avoidance business, say ministers.

“The vast majority of their schemes don’t work and can land their users in court facing large tax bills and other costs,” said Jane Ellison, the financial secretary to the Treasury.

“These tough new sanctions will make would-be enablers think twice and in turn reduce the number of schemes on the market.”

The proposals will be subject to a consultation which starts today and is due to report on 12 October. The consultation document is expected to tighten up rules around whether tax avoiders have taken reasonable care to ensure their returns are accurate.

The proposals come after Theresa May made tax avoidance a pillar of her platform as Prime Minister, saying that tax is “the price we pay for living in a civilised society.

“It doesn’t matter to me whether you’re Amazon, Google or Starbucks: you have a duty to put something back, you have a debt to fellow citizens and you have a responsibility to pay your taxes,” she said in July.

Numerous tax scandals in recent months have heaped pressure on the Government to act. Former Chancellor George Osborne came under scrutiny for allowing Google a “sweetheart” deal which allowed it an effective tax rate of 3 per cent.

A new task force was set up in April after the Panama Papers revealed the scale of global tax avoidance, including details of David Cameron’s own offshore arrangements.

In the wake of April’s revelations Christine Lagarde, head of the IMF, said tax avoidance posed a clear risk to the global economy because, “the rules appeared to be skewed towards some and do not apply to all”.

HMRC has hailed some recent victories, including the £11 million Stagecoach paid after its aggressive avoidance scheme was deemed invalid. Tax relief claimed using a film investment loophole popular with Premier League footballers and celebrities, was also reduced by the courts in August.

However, experts estimate that avoidance costs the country up to £10 billion per year. The total amount stashed away globally in offshore accounts is several trillion according to research from Columbia University in New York.

Messi at tax fraud trial

Tax campaigners welcomed the proposals, which many say are long overdue. Richard Murphy, a chartered accountant and academic at City University, described the new measures as a “blunt instrument” but said he “very warmly” welcomed them.

“Such are the scale of penalties an accountant or lawyer might face from being involved in the supply of tax avoidance schemes that very few will take the risk of doing so,” Murphy predicted, adding that the “tax avoidance market is likely to die”.

However he added that the definition of tax avoidance adopted is likely to be narrow which may restrict its use.

Alex Cobham, research director for the Tax Justice Network expressed concern that the measures did not go far enough and urged higher penalties. "The sum may not be significantly greater than their immediate profit from marketing the scheme," he said.

New rules will have "no impact on this major area of tax losses, unless the government is finally willing to take on multinationals and the big four accountancy firms in court,” Cobham added.

Big four accountant, EY, would not comment directly on the new measures, but said it "strives to have an open and constructive relationship with tax authorities worldwide", and supports improving "clarity and transparency" in the tax system.

A KPMG spokesperson said: "We recognise that there’s a potential conflict between a tax payer’s right to minimise their tax liability and the duty they have to society to pay a fair amount of tax. Times have changed and the debate around tax has changed too. What was seen as acceptable behaviour is no longer regarded as appropriate."

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