The “Lux Leaks” documents confirm that PwC marketed tax avoidance schemes and reveal that statements made by PwC’s UK head of tax during a parliamentary hearing were “lies,” UK lawmakers charged at a House of Commons Public Accounts Committee (PAC) hearing on the role of accounting firms in multinational tax avoidance.
PwC’s Kevin Nicholson was recalled before PAC MPs on December 8 to explain his January 31, 2013, testimony before the PAC. At the earlier hearing, Nicholson had insisted that PwC does not market tax avoidance schemes to clients but instead provides bespoke tax advice.
According to PAC chair Margaret Hodge, though, Nicholson’s earlier testimony does not square with recently released “Lux Leaks” documents. The documents — confidential tax information of PwC clients, including 548 Luxembourg comfort letters and tax returns — were published on the Internet by a journalist group on November 5.
“Mass marketing means that you have a scheme that you market to a whole lot of companies — that is what you have been doing,” Hodge said. In each of the 548 rulings provided to PwC clients, the recommendation was to set up a subsidiary in Luxembourg, to obtain a tax ruling, to provide a financing arrangement, and to structure affairs to avoid tax, she said.
Hodge said that Nicholson lied at the 2013 hearing and that PwC is “selling tax avoidance on an industrial scale.”
Nicholson’s response was to again deny that PwC sold mass-marketed schemes. He added: “I didn’t lie and stand by what I said.”
Responding to MPs questions, Nicholson said that PwC did not disclose the Luxembourg rulings relating to British firms under the UK’s Disclosure of Tax Avoidance Schemes (DOTAS) rules. “The DOTAS regime refers to the hallmarks around secrecy [but] if it was a UK company, it would be disclosed anyway to HMRC — discussed either up front or as a part of a negotiated settlement as part of an agreement, so nothing is hidden from them,” he explained.
MPs also took aim at the tax dealings of Shire, a pharmaceutical company and PwC client. Shire’s tax information was published on the Internet as a part of Lux Leaks.
Fearghus Carruthers, the company’s head of tax, said Shire’s Luxembourg unit was run by only two employees that were paid a combined salary of €130,000. These employees were responsible for a loan book of $10 billion dollars and were also charged with handling royalties income streams.
MPs said that there was no substance to Shire’s Luxembourg financing operations and said it was not credible that decisions of any substance were being made in Luxembourg. “We feel such huge offense at the way you scam the British public,” Hodge said.
According to Nicholson, though, not much is required to prove substance for a financing company under UK law.
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