The Big Four accountancy firms have long pushed tax avoidance. It’s time for regulation

Complex tax dodging schemes by the 'Big Four' are constantly being thrown out by the courts. But why is nothing done to penalise them?

This week I am in Brussels – discussing with Members of the European Parliament and EU trade unions how to rein in the tax avoidance industry.

The Big Four accountancy firms – Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young and KPMG – have long been major players in this landscape.

Time and time again, consultancy firms have been shown to have developed methods which undermine the public purse – and with it the government’s ability to invest in social infrastructure and redistribute wealth.

Checking their destructive capacities should be an urgent task for governments. Here is a glimpse of their handiwork.


Last year, a PwC scheme was declared to be unlawful by the courts, in the case of  Development Securities (NO 9) Ltd & Ors v Revenue and Customs [2017] UKFTT 565 (TC). The scheme was designed to shift apparent management control of some UK entities to Jersey – and gain tax advantages by claiming that the entities were outside the scope of UK taxes.

Another mass-marketed PwC scheme relied on complex paper financial transactions to eliminate taxable profits/gains. The matter eventually went to the UK Court of Appeal, and the judges in the case of Vocalspruce Ltd v The Commissioners for HMRC [2014] EWCA Civ 1302 described the scheme as “fiction” – and declared it to be unlawful..


And the UK Supreme Court heard the case of Commissioners for Her Majesty’s Revenue and Customs v Pendragon plc and others [2015] UKSC 37. It related to a VAT avoidance scheme marketed by KPMG, which would have enabled car retailing companies to recover VAT input tax paid – while avoiding the payment of output tax. The court declared the scheme to be unlawful and said that the KPMG scheme was “an abuse of law”.

Another KPMG scheme to enable P&O to artificially generate a tax credit of £14m was thrown out by the tax tribunal in the case of Peninsular & Oriental Steam Navigation Company v HMRC [2013] UKFTT 322 (TC). The judges said that the “scheme was designed and implemented for no reason other than tax avoidance” and contrived transactions were “all part of an elaborate trick designed to exploit [tax legislation]”.


An Ernst & Young scheme involved loans between companies in the same group: the ultimate aim was to enable the company making the interest payment to claim tax relief on this expense, whilst enabling the company receiving the interest to avoid tax.

This scheme was sold to Greene King, a leading pub retailer and brewer. Tax relief on payments of £21.3 million was at stake and the agreement, as the tax tribunal noted, required that Ernst & young would take a percentage of the tax saved by adoption of its scheme. The scheme was declared to be unlawful by the court judgment in Greene King Plc & Anor v Revenue and Customs [2016] EWCA Civ 782.


A Deloitte scheme was sold to Ladbroke Group International (LGI), the betting company. The key idea was for two subsidiaries to deliberately transact with each other in order to generate a tax loss in one of them. The group suffered no real loss overall. A Ladbrokes tax director told the court that he had “been approached by Deloitte with a proposal for a tax planning opportunity”. The scheme was thrown by the courts in the case of Travel Document Service & Anor v Revenue & Customs [2017] UKUT 45 (TCC) (07 February 2017).

A Deloitte scheme to enable bankers to avoid income tax and National Insurance contributions on their bonuses via offshore entities was declared unlawful in the case of UBS AG v HMRC and DB Group Services v HMRC [2016] UKSC 13. The judges said that the scheme “had no business or commercial rationale beyond tax avoidance”.

What now?

Yet despite all the above and other judgements, there have been no investigations, fines or prosecution of any of the big four accounting firms by the Financial Reporting Council, professional bodies, HMRC or any other regulator into these schemes. 

Action against the big firms and their partners is long overdue – and should ensure that the firms face the consequences of their predatory practices:

1. There should be fines equivalent to the tax revenues which would have been lost by their predatory practices, in respect all schemes declared to be unlawful by the courts. Those fines should come out of the partners – personal wealth rather than out of any professional liability insurance.

2. Firms repeatedly marketing unlawful avoidance schemes and playing cat-and-mouse with tax laws should be shut-down.

3. Firms engaged in the tax avoidance business should not receive any publicly funded contracts.

4. The tax returns of large companies, together with advice from tax advisers, if any, should be publicly available. This would enable the general public to see the practices of big accountancy firms and exert pressure on regulators to act. Public disclosures may also deter the firms from developing avoidance schemes.

The above proposals, together with independent and effective regulation of accountancy firms, should exert pressures on the firms to abandon their tax avoidance business.

Prem Sikka is Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex. He tweets here.

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