“It is time to kick the 'Big Four' and other players in the tax avoidance industry out EU tax policy”. This is the conclusion of a report published on Tuesday 10 July by the organisation Corporate Europe Observatory (CEO).
The famous 'Big Four' – KPMG, PwC, EY and Deloitte – are four global audit and accountancy firms, described by the organisation as the “Goliaths of the tax planning world”.
The report examines their influence on the drafting of EU tax policies and highlights a paradox.
“Despite all the evidence – from tax scandals to Parliamentary enquiries – of the role the Big Four play as intermediaries that facilitate and profit from corporate tax avoidance, they continue to be treated in policy-making circles as objective and legitimate partners”, the report explains.
The many channels of influence of the 'Big Four'
They exercise their influence through many different means, the organisation notes, for instance through public procurement contracts.
Via public procurement, the report states, the ‘Big Four’ receive tens of millions of euros in funds from the European Commission in the form of contracts to carry out studies, assessments, impact analyses and the like.
The report reveals that in 2018, the Commission’s DG Taxation paid PwC, Deloitte and KPMG €10.5 million to carry out studies and comparative analyses in various tax and customs areas, without taking account of their conflicts of interest on the subject.
As well as belonging to several consultative groups set up by the Commission, the ‘Big Four’ are also a driving force in various lobbying structures, such as European Business Initiative on Taxation, European Contact Group, Accountancy Europe and American Chamber Of Commerce to the EU. CEO considers that these structures all seek to influence the way the EU responds to tax avoidance.
Another significant channel of influence highlighted is culture and ideology shared by the ‘Big Four’ and European Commission officials responsible for tax policy, thanks to the ‘revolving door’ career moves allowing players to move between the two spheres.
“Even a cursory search of professional networking site LinkedIn gives an indication of how common this is”, the organisation writes, referring to several examples of officials from DG Taxation originally employed by the ‘Big Four’, to say nothing of former European Commissioner for Finance, Jonathan Hill, who went on to become a senior adviser with Deloitte after he stepped down in 2016 due to the result of the British referendum.
This tendency can also be seen in the Permanent Representations of the member states to the EU. The attachés for taxation or financial questions for Ireland, Finland, Malta and Germany have backgrounds with PwC, Deloitte, EY and KPMG respectively.
To illustrate the phenomenon, the organisation looked at the case of country-by-country reporting, which has been on ice at the Council for a year (see EUROPE 12041). CEO notes aggressive lobbying by the ‘Big Four’ following the Commission’s announcement of the proposal in 2016, and then at the European Parliament.
The EU needs a firewall
The organisation considers that the existence of an “irreconcilable conflict between the commercial interests of the tax avoidance industry (…) and the public mandate of the EU to crack down on tax avoidance” should be officially noted and the EU should arm itself.
To do so, the organisation proposes a firewall that should be defined in the framework of a public debate.
According to CEO, this firewall should set out stricter rules for professional gateways between tax intermediaries and the European institutions, in the event of secondments or even professional training placements. It should also cut off the privileged access enjoyed by the ‘Big Four' to the institutions and no longer award them contracts to carry out tax studies and impact assessments.
The report can be consulted here: https://bit.ly/2uknpBw (Original version in French by Marion Fontana)