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December 11, 2014

As PwC grilled over Lux Leaks by UK gov’t fresh cases emerge

By Isabella Grotto

PwC has come under fire from MPs at a public accounts committee (PAC) meeting in the House of Commons this week over its role in allegedly "selling tax avoidance on an industrial scale" in Luxembourg, in the wake of the so-called "Lux Leaks" scandal.

On Monday Labour MP Margaret Hodge accused PwC head of tax Kevin Nicholson of having lied when he was giving evidence on tax avoidance practices in January 2013.

Nicholson denied he had lied and said he stood by his statement at the time, but Hodge said: "It’s very hard for me to understand that this is anything other than a mass-marketed tax avoidance scheme."

The exchange occurred in the context of the ongoing "Lux Leaks" scandal, where leaked documents exposed the aggressive tax planning policies of over 1,000 multinational companies operating in the Luxembourg.

They were described as proving the use of "webs of internal loans and interest payments" in an attempt to reduce their tax burden by many household names including Pepsi, IKEA, Burberry, Heinz, Amazon, Procter & Gamble and FedEx.

In many of the cases highlighted by the International Consortium of Investigative Journalists (ICIJ)’s investigation, the Luxembourg subsidiaries through which businesses channelled their profits had minimal presence and conducted little to no economic activity in the country. The ICIJ reports that a single address in Luxembourg hosted over 1,600 companies.

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Among the documents leaked, a significant number appeared to relate to clients of PwC.

Despite describing the information contained in the leaked papers as "outdated" and "stolen" in the wake of the leak, the Big Four network has been heavily criticised and remains under the scrutiny of both European and UK authorities.

In her criticism of Nicholson over the Luxembourg findings, 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.

"You might be saving some of these companies a few pounds or several hundred million pounds, but you are trashing their reputation," she added.

Nicholson defended himself by claiming that the UK government itself consented to "Luxembourg financing" systems through recent reforms on corporation tax.

"The coalition decided that this sort of structure – Luxembourg financing – was permissible in the new corporate tax regime," he argued. "In fact they went further and said you have to have an overseas financing company to qualify for the 5% regime."

"Parliament has looked at this area and decided that they want British businesses to be able to compete internationally," he added, "Politicians cannot duck the responsibility."

A trickle becomes a flow
Following the exchange between Hodge and Nicholson on Monday, this week the names of several other multinationals were leaked in relation to the Luxembourg tax scandal.

Among them were several high-profile US entities: Microsoft-owned communications platform Skype, mass media corporation Walt Disney and manufacturing, trading and investment business Koch Industries.

Leaked documents appeared to suggest both businesses had enacted a series of tax restructuring and profit channelling moves through their subsidiaries in the European Grand Duchy between 2009 and 2013, saving hundreds of millions of dollars in tax.

Throughout its investigation into the tax practices in Luxembourg, the International Consortium of Investigative Journalists (ICIJ) has called into question the role of the Big Four in helping businesses elude tax.

With the addition of the latest documents, all the Big Four have been implicated in the scandal.

The findings have re-ignited the ongoing debate over tax avoidance, sparked by the high-profile avoidance cases of multinationals including Starbucks and Google.

The low rates of corporation tax paid by the businesses on their profits sparked the outrage and prompted several reviews of tax regulation across Europe.

In the UK, last week the Chancellor of the Exchequer announced the introduction of a Diverted Profits Tax, the so-called "Google Tax" which will impose a 25% levy on profits generated in the UK but diverted abroad.

Related articles:

Leaked documents show aggressive tax planning practices in Luxembourg

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