Firms braced for tax protests

IN THE PLUSH lobbies of Big Four firms across London, there is chaos as young activists protesting against tax avoidance blow whistles, chant and glue their hands to the office windows.

Offices are shut as protestors target the people they see as being the highly-paid accountants who construct elaborate tax avoidance schemes to help clients pay less tax, costing tax authorities billions each year.

The scenario may sound far fetched – so far campaigners at UK Uncut have targeted high street retailers such as Vodafone and Topshop, which is owned by Monaco-based billionaire Sir Philip Green.

But some tax experts reckon that as public spending cuts bite, and public anger grows over companies avoiding billions in tax , it can’t be ruled out that Big Four firms may be targeted by protestors, as well as governments and regulators.

Previous protest

The big firms have already been targeted in campaigns by pressure groups. In 2009, the charity Christian Aid encouraged its supporters to contact the heads of the Big Four firms as part of a campaign against corporate tax avoidance and to encourage companies to be more open about how much tax they pay in each country – particularly poor countries.

Deloitte staff were targeted by anti-animal cruelty protestors SHAC as auditors of Huntington Life Sciences, which led to the firm stepping down from its role. Company law was changed to protect audit partners and firms from being identified in certain companies’ accounts in exceptional circumstances.

“The Big Four firms are now on the radar of lots of people,” said Prem Sikka, professor of Accounting at the university of Essex and a long-standing critic of the Big Four firms and the tax avoidance industry.  “The firms are at the heart of the global tax avoidance industry. The NGO (non-governmental organisation) community is already onto the Big Four firms and I think it’s only a matter of time before you see demonstrations outside their offices.”

UK Uncut, whose activists use social media technology such as Twitter to organise protests, is currently planning the next stage of its campaign. A spokesman for the group told Accountancy Age last month that it was focusing on well known high-street retailers based in London rather than the big accountancy firms, which are have a lower public profile.

The group has encouraged young people to take to the streets over tax – something that last happened in the Poll tax riots in 1990 – but will it succeed in changing the tax system?

Aside from getting large companies and the rich to pay more tax, the policy goals of UK Uncut are unclear.
“If you’re angry that the government is cutting services for the poorest and most vulnerable while letting the rich avoid billions in tax, then please join us, even if you have never been on a protest before,” UK Uncut said on its website.

Protests by UK Uncut are set to gain plenty of media coverage this year, but campaigners will find it hard to enact major reforms to the tax system.

One possible reform being considered is “country-by-country” reporting, whereby multinational companies would disclose profit and loss accounts, including how much tax they pay, for each country they operate in.

“No one is asking companies to pay tax that they don’t owe, just for companies to be more open about the tax they do pay,” said tax expert and anti-poverty campaigner Richard Murphy, director of Tax Research UK. He stressed that he is not a member of UK Uncut and notes that the group’s goals seem quite vague.

The European Commission is considering making country-based reporting mandatory for listed companies in the EU, while Dave Hartnett, HMRC’s permanent secretary, has expressed interest in this tax reform.

Taking it seriously

Some industries are attempting to make their financial reporting and tax arrangements more transparent after fierce criticism from poverty and human rights campaigners.

Around 50 of the world’s largest oil, gas, and mining companies, including BHP Billiton, Shell and DeBeers, have signed the Extractive Industries Transparency Initiative (EITI).

The EITI is a voluntary initiative designed to establish greater transparency through standardised reporting requirements for the proceeds companies and governments obtain through natural resources.

The EITI has been welcomed by tax reform campaigners, but attempts to use this voluntary code as model for countering corporate tax avoidance may be of limited use if companies still use financial reporting sleights of hand to lower their tax bill, according to some experts.

“Companies may start publishing more information on the tax they pay but they can still cook the books by using things like transfer pricing to shift assets from high-tax countries to low-tax countries,” said Sikka.


FURTHER READING: Trouble on the line

Vodafone’s ten-year tax dispute with HMRC over complex tax rules for foreign subsidiaries helped to galvanise activists to form a protest movement over corporate tax avoidance.

In July last year, the telecoms giant paid £1.25bn in a settlement with the taxman. Vodafone had originally set aside £2.2bn in its accounts to cover the potential costs of the legal battle relating to how UK income is used in overseas divisions based in low-tax jurisdictions. Some tax avoidance campaigners alleged that Vodafone has avoided paying out an extra £6bn, although both Vodafone and HMRC deny the claim.

The tax dispute related to a Luxembourg subsidiary of Vodafone created following its acquisition of Mannesman in 2000. Vodafone argued that its subsidiary should not have to pay UK corporation tax as UK rules on taxation of profits on controlled foreign companies (CFCs) were incompatible with European Union law. An initial court ruling said that Vodafone would not have to pay corporation tax on a holding company owned in Luxembourg but, in 2009, this decision was overturned by the Court of Appeal, which said that Vodafone was liable for £2.2bn in tax.

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