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PwC, Shire grilled by UK MPs as LuxLeaks response continues

UK MP Margaret Hodge

'Tax avoidance on an industrial scale'

The tax boss of audit firm PricewaterhouseCoopers’ UK operations was accused of lying to a British Parliamentary Committee about the company’s tax business during a tense hearing in the UK on Monday.

PwC UK’s Kevin Nicholson, along with pharmaceutical company Shire’s head of tax Fearghus Carruthers were called before the Public Accounts Committee to answer questions about their Luxembourg tax arrangements, following ICIJ's LuxLeaks investigation.

Referring to Nicholson’s 2013 appearance before the committee, when he denied that PwC sold tax avoidance schemes to clients, UK MP and Chair of the Committee Margaret Hodge accused Nicholson of lying to the committee, and demanded he explain the secret tax plans obtained and published by ICIJ and its media partners.

“It’s very hard for me to understand that this is anything other than a mass-marketed tax avoidance scheme,” Hodge said. “I think there are three ways in which you lied and I think what you are doing is selling tax avoidance on an industrial scale.”

But Nicholson again denied the accusations, and instead put the onus back on Europe’s politicians to implement tax reform.

“At the heart of the Luxembourg economy now is an economy that is based around businesses going there to finance [and] to hold investments,” he said. “The tax structure, the system that they have created, facilitates that happening, along with all the other infrastructure. I’m not here to change the Lux tax regime. If you want to change the Lux tax regime, the politicians could change the Lux tax regime.”

Shire’s Carruthers was not spared the harsh line of questioning. Quizzed on the company’s actual activities in Luxembourg, he told the committee that Shire had two employees in the duchy, at a cost of about €135,000 per year, who were in turn responsible for intra-company loans of around $10bn.

“I can assure you that the decision-making in respect of that Luxembourg company is made in Luxembourg,” he said.

Hodge, however, challenged Shire’s contention that their Luxembourg operations represented genuine productivity for the company.

“It is stretching our credulity in suggesting to us that these two employees, who are also directors of umpteen other companies, are seriously the guys taking the decisions on loans totalling $10bn,” she said.

“Let me put this to you, Mr Carruthers, because it is a very serious matter, because if the decisions in substance aren’t taken in Luxembourg, this isn’t just avoidance; for me, it’s fraud.”

UK proposes special ‘Google tax’ to curb tax avoidance

George OsborneThe hearing came less than a week after UK Chancellor George Osborne launched a crackdown on multinationals that “artificially” shifted profits out of Britain for tax purposes.

Osborne used his Autumn Address to announce the UK’s intention to pursue a new 25 percent tax aimed at technology companies like Google, to ensure profits generated by economic activity in the UK would be taxed in the UK.

Immediately following the announcement, Australian Treasurer Joe Hockey signalled Australia was also looking into a similar tax arrangement that would cut down on companies who shifted profits out of the country. 

Since then, Hockey has also confirmed that authorities had started auditing 10 multinational corporations to ensure they were paying the appropriate amount of tax in Australia.

Europe pledges reports but no inquiry

Back in Europe, the European Commission announced last week that two reports would be prepared to address the Luxembourg Leaks revelations, but a call from many MEPs for a full, stand-alone inquiry was denied.

The European Parliament will produce two reports – one focussed on the tax affairs of member states, and the other a proposal for tax reform legislation.

But leftist and Greens group said the decision not to order a full inquiry was “unacceptable” and criticised the non-binding reports as “a very limited tool”.

LuxLeaks controversy prompts action in Luxembourg

Meanwhile, in Luxembourg, the tiny country’s parliament is still formulating its own response to the LuxLeaks revelations, and last week pledged to take a closer look at tax rulings and how they are handled by authorities.

A parliamentary debate has not been ruled out, but Luxembourg MP Eugène Berger said the process would not be rushed through.

“We need to get a detailed picture of this very complex subject matter,” Berger said, according to the Luxemburger Wort. No action is likely before the end of the year.

Luxembourg to hand over tax rulings to Belgium

In the first such agreement between Luxembourg and another country, the Duchy has agreed to give Belgium details of all tax rulings related to Belgian companies and welathy families.

According to Belgium's finance minister Johan van Overtveldt, the deal covers not just the tax rulings published as part of the LuxLeaks database, but all of the agreements negotiated with Luxembourg.

The document exchange is expected to happen in early 2015, although the logistics have not yet been finalized, according to Belgian newspaper De Tijd.

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