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PwC promotes avoidance on an industrial scale, says PAC

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Following the conclusion of its inquiry into PwC and Shire Pharmaceuticals following the ‘LuxLeaks’ furore, the Public Accounts Committee (PAC) has released its report on tax avoidance and the role of large accountancy firms. This found that PwC’s ‘widespread promotion of schemes to numerous clients, based on artificially diverting profits to Luxembourg through intra-company loans, constituted … the promotion of tax avoidance on an industrial scale’. The PAC called on HMRC to ‘do more to challenge the nature of the advice being given by accountancy firms to their clients, ensure that tax liabilities reflect the substance of where companies conduct their business, and introduce a new code of conduct for all tax advisers’.

PAC chair Margaret Hodge said: ‘Contrary to its denials, the tax arrangements PwC promotes, based on artificially diverting profits to Luxembourg through intra-company loans, bear all the characteristics of a mass-marketed tax avoidance scheme. We consider that the evidence that PwC provided to us in January 2013 was misleading … In our view, these are in fact marketed tax avoidance schemes and we are also sceptical that HMRC was kept fully informed of PwC’s activities.

‘We took evidence from Shire Pharmaceuticals which has arranged its affairs so that interest payments on intra-company loans worth £10bn reduce significantly its overall tax liabilities. The effect is to shift profits from other countries to Luxembourg. Shire paid tax of only 0.0156% on its profits to the Luxembourg tax authority. 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. Neither PwC nor Shire could demonstrate that the company’s presence in Luxembourg was designed to do anything other than avoid tax.’

In a statement, PwC said: ‘We stand by the evidence we gave the PAC and disagree with its conclusions about the work we do. But we recognise we need to do more to explain the positive role we play in the tax system and in helping businesses to operate successfully. We agree the tax system is 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.’