Guarding reputations: tax profession needs to clean up its act

Is the time approaching when tax practitioners, making small talk with strangers at parties, might be too embarrassed to reveal what they do for a living?

The image of the tax profession has taken something of a battering recently, with research reports and newspaper articles showing tax practices and tax advisers in an unflattering light.

One of the tax profession’s strongest critics is Richard Murphy, director of Tax Research LLP and founder of the Tax Justice Network. He believes practitioners need to make more effort to be seen to comply with the spirit of tax law, to ‘report transactions in the way they actually arise, and ensure that the value of the transaction is the one that really arose’.

‘Accountants have a choice,’ Murphy says. ‘What role do they want to play in society? Accountants can play an immensely positive role in society or they can play an immensely destructive role.’

If they are to play a positive role, Murphy believes the profession needs to think about what benefits society as a whole, not only the wealthy. It needs to provide services which support democracy and ‘high quality information on which people can take decisions’.

Murphy suggests there is a danger of young graduates being put off from joining the profession. He says he has spoken to recruiters in accountancy and banking who have admitted to ‘a serious image problem with regard to recruitment’. Many young graduates are concerned about ethics and corporate social responsibility, he says. ‘If what you are doing is promoting greed, avarice and the gap between rich and poor, they don’t think they want to work for you.’

Though practitioners themselves aren’t admitting to any problem attracting talent at the moment, Bill Dodwell, head of the tax policy group at Deloitte, thinks this is ‘more of a concern than it was 20 years ago’. He says: ‘The profession and the professional bodies need to get involved in trying to explain their massively complicated world to the general public, to show people what tax is about.’

PricewaterhouseCoopers tax partner John Whiting feels the reputation of tax advisers has actually improved, albeit only recently. ‘If you look at the last ten years, you have to admit that the standing, the reputation, of tax advice hasn’t been as good as it might be,’ he says.

‘We haven’t had a good press. But in recent years, with the complexity of the tax system increasing, it’s become more apparent that tax advice is necessary and we are doing a good job.’ A recent report into the role of tax intermediaries by the Organisation for Economic Cooperation and Development concluded that such intermediaries play a vital role in helping taxpayers comply with their tax obligations.

Whiting says: ‘There have been incidents where people haven’t complied. But that’s because they haven’t complied, not because their advisers have gone wrong. Tax advisers don’t have anything to do with evasion. The good adviser has good standing and is jealous of it. The thing I and my colleagues sell is fundamentally our reputation and we have to maintain that reputation.’

It remains the case, of course, that tax advisers are sometimes ‘aggressive’ in their tax planning advice. Mike Warburton, tax partner at Grant Thornton, says he will take the lead from his client. ‘Some of my clients take the view that they don’t want to minimise their taxes if it means going into schemes,’ he says. Some businesses, perhaps supplying services to government and with a strong interest in keeping a good relationship with the authorities, don’t even mind overpaying. ‘At the other end of the spectrum, some people say they will do what they can within the law to save tax,’ Warburton reports.

At the moment, tax practitioners aren’t feeling embarrassed about their work.

However, Warburton says he uses the potential for personal embarrassment when deciding whether a particular avoidance scheme should be pursued. He imagines that the scheme would be challenged and go to court.
‘I will stand in the witness box in front of a judge. Will I feel embarrassed about it? I don’t want to be in a position that would be embarrassing. That’s what stops me doing blatant artificial avoidance.’
In the end, tax and ethical issues affect many of us. Dodwell notes: ‘There’s a lot of people out there who pay cash for building work. Are they encouraging tax evasion? They probably are. We all have to look in the mirror and think, are we doing the right thing?’

Avoidance: the issues

At the beginning of February a research report published by the TUC, The Missing Billions, claimed that the public purse loses £13bn a year through tax avoidance by the wealthy and £12bn through tax avoidance by corporations. The report’s methodology has been criticised, however. Bill Dodwell, head of the tax policy group at Deloitte, describes the report as ‘just rubbish’. He says: ‘Essentially the things it claims are tax avoidance are current tax policy of the government.’ These include companies claiming relief on plant and machinery, and the independent taxation of spouses, which enables legitimate income shifting.

Also in February, the Guardian published articles about Tesco’s tax practices which, although containing some errors and triggering a libel writ, highlighted the company’s use of offshore companies and related potential tax savings.

Most recently, in May, Christian Aid published Death and taxes: the true toll of tax-dodging, a report claiming that governments in the poorest countries are losing out on $160bn (£80bn) a year in corporate tax revenues due to tax evasion.

The report says that avoidance has ‘a sliding scale of legitimacy’. It states: ‘In the corporate world, avoidance often involves the use of tax havens to shelter and boost profits. This gets increasingly aggressive as ever more ingenious and complex instruments are peddled by the tax industry, with the sole purpose of getting around laws and regulations.’ It also mentions the Big Four, ‘who specialise in exploiting the existence of havens to minimise the tax liability of their clients, impervious to the social consequences’.