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1 August 2017 Edition

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Big Four audit firms ‘promote secrecy, aid tax avoidance’

Sinn Féin MEP Matt Carthy hosts Dublin launch of tax justice report

‘The Big Four’ are crucial regulators of the global economic system with a unique role of auditing and advising

THE first-ever major report looking into the secretive workings of the Big Four accountancy firms that assist individuals and companies to dodge taxes has been released in Dublin by Sinn Féin MEP Carthy and colleagues from the European United Left/Nordic Green Left (GUE/NGL) European Parliament Group.

‘The Big Four – A Study of Opacity’ is an in-depth study on how KPMG, Deloitte, EY and PricewaterhouseCoopers (PwC) operate their businesses.

Co-authored by Professor Richard Murphy (founder of the Tax Justice Network and director of Tax Research UK) and Saila Naomi Stausholm (PhD candidate at the Copenhagen Business School), the study analyses the size, scope and location of the activities of ‘The Big Four’ accounting firms. 

It was unveiled at the European Parliament Office in Dublin on Tuesday 18 July by Matt Carthy and his fellow MEPs from GUE/NGL who sit on the European Parliament’s Panama Papers tax inquiry committee.

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Saila Naomi Stausholm and Oxfam Ireland CEO Jim Clarken spoke at the Dublin event, which was attended by tax justice activists, NGOs and academics.

The report makes a number of findings including that these firms are heavily over-represented in tax havens when compared with the population size and GDP of these locations, where they make exceptional profits. 

The Irish state is once again identified as a tax haven – or secrecy jurisdiction – in this report.

Some of the practices uncovered by this study include deliberately obscuring the links between their numerous offices in dozens of countries by claiming they are separate legal entities.

The findings show that while each firm claims to consist of networks of legally independent companies, they all in reality have central management organisations under common control. The authors of the report suggest that this structure has been adopted because it reduces the level of legal risk and scrutiny from regulators that they and their clients are exposed to. It also ensures secrecy on the scale of their operations and the rewards flowing from them.

In addition, the report identifies that ‘The Big Four’ often conceal data on profits earned as well as the number of staff working in various jurisdictions globally.

Matt Carthy said: 

“Over the past year of our work on the Panama Papers Inquiry in the European Parliament, we have examined in great detail the role that enablers and promoters of tax avoidance and tax evasion schemes play internationally. 

“The Big Four auditing and accounting firms are central players in this ecosystem of tax avoidance, yet they are allowed to operate in secrecy with no measures in place to deal with obvious conflicts of interest between their provision of both auditing and tax services.

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“They are crucial regulators of the global economic system – with the unique role of both regulating multinationals through their auditing role and simultaneously advising these same companies on how to abuse the legal system in order to avoid paying taxes – yet they are subject to minimal public scrutiny and regulation. 

“This situation, and the outcomes it leads to, is entirely unacceptable. This report calls for the separation of the auditing and tax service roles of the Big Four.”

The report proposes that the fiction of “independent” networks of companies be rejected and that each of the Big Four is acknowledged as being single corporations under common control (which must apply for a single licence to operate in the EU). It calls for ‘The Big Four’ to publish worldwide group financial statements that includes full country-by-country reporting on the public record.

A new proposal from the European Commission for an EU regulation on enablers and promoters of tax avoidance (including lawyers, banks and accountants) would require that advisers report tax schemes that may potentially be abusive. The proposal does not, however, recognise networked firms as single entities or extend the obligations of firms in EU member states to include their network partners beyond the EU’s territorial limits. 

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The Murphy/Stausohlm report suggests these measures are essential if the new regulation is to be effective.

Matt Carthy added:

“I will be working with others in the European Parliament to ensure that these important recommendations on improving the accountability and transparency of ‘The Big Four’ are taken into account when the Panama Papers inquiry produces its recommendations, and also when the Parliament considers the Commission’s current proposal around regulating enablers and promoters of tax avoidance schemes.”

The report is available to upload from www.guengl.eu under “Publications”.

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