The first-ever major report looking into the secretive workings of the Big Four accountancy firms that assist individuals and companies to evade taxes has been released by members of European Parliament from the European United Left-Nordic Green Left (GUE/NGL) who sit on the European Parliament’s Panama Papers inquiry committee.
Co-authored by Professor Richard Murphy — founder of the Tax Justice Network — and Saila Naomi Stausholm from the Copenhagen Business School, The Big Four – A study of opacity is an in-depth study on how KPMG, Deloitte, EY and PricewaterhouseCoopers (PwC) operate.
The study analyses the size, scope and location of the activities of the Big Four accounting firms. Its findings include that these firms are heavily over-represented in tax havens when compared with the population size and GDP, where they make exceptional profits.
The Irish state is once again identified as a tax haven, or secrecy jurisdiction, in this report.
Some of the practices uncovered by the study include deliberately obscuring the links between their numerous offices in dozens of countries by claiming they are separate legal entities.
The findings, which have been reported by media outlets around the world, show that while each firm claims to consist of networks of legally independent companies, in reality they all have central management organisations under common control.
The report’s authors suggest this structure has been adopted because it reduces the level of legal risk and scrutiny from regulators for them and their clients. It ensures secrecy on the scale of their operations and the rewards flowing from them.
The report also identifies that the Big Four often conceal data on profits earned, as well as the number of staff working in various jurisdictions globally.
Sinn Fein MEP Matt Carthy, part of the GUE/NGL group on the Panama Papers committee, said: “Over the past year of our work on the Panama Papers inquiry in the European Parliament, we have examined in great detail the role that enablers and promoters of tax avoidance and tax evasion schemes play internationally.
“The Big Four auditing and accounting firms are central players in this ecosystem of tax avoidance. Yet they are allowed to operate in secrecy, with no measures in place to deal with obvious conflicts of interest between their provision of both auditing and tax services.
“They are crucial regulators of the global economic system — with the unique role of both regulating multinationals through their auditing role and simultaneously advising these same companies on how to abuse the legal system in order to avoid paying taxes. Yet they are subject to minimal public scrutiny and regulation.
“This situation, and the outcomes it leads to, is entirely unacceptable. This report calls for the separation of the auditing and tax service roles of the Big Four — basically a kind of Glass-Steagall Act for these firms.”
The report proposes that the fiction of “independent” networks of companies be rejected and that each of the Big Four be acknowledged as single corporations under common control, which must apply for a single licence to operate in the EU.
It calls for the Big Four to publish worldwide group financial statements that include full country-by-country reporting on the public record.
A new proposal from the European Commission for an EU regulation on enablers and promoters of tax evasion (including lawyers, banks and accountants) would require that advisers report tax schemes that may potentially abuse tax laws.
The proposal does not, however, recognise networked firms as single entities or extend the obligations of firms in EU member states to include their network partners beyond the EU’s territorial limits. The report suggests these measures are essential if the new regulation is to be effective.
[The report can be read at guengl.eu. Emma Clancy is a member of Sinn Fein and a policy advisor for the GUE/NGL in the European Parliament on the Economic and Monetary Affairs Committee and the Panama Papers Committee of Inquiry.]