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’.