Big Four’s Sway Over EU Tax Policy Is Unjust: Report

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By Ali Qassim

EU lawmakers should stop relying on policy advice from the world’s four largest accounting firms, given their status as “goliaths of the tax planning world,” according to an independent Brussels-based watchdog.

Far from being “objective and legitimate” advisers on tax avoidance, the Big Four accounting firms—Deloitte LLP, EY, KPMG, and PwCcq—are helping major corporations avoid taxes, while also directing the European Union on its policy decisions, the Corporate Europe Observatory said in a July 10 report. Corporate Europe Observatory, a nonprofit, focuses on the power of corporate lobbying in the EU.

The report focuses on corporate tax avoidance, a major flashpoint in the bloc. The Big Four get special access and hold significant influence within the bloc, though their interests are self-serving, the report said.

Corporate tax avoidance costs the EU between 50 billion euros ($58.9 billion) and 70 billion euros each year, the report said. The report flagged the influence the firms hold with lawmakers, such as when the top four accounting firms pushed back on EU proposals to require companies to publicly release global tax reports.

“If we want corporations to pay their fair share of taxes, we must create a firewall between policy-makers and the tax avoidance industry,” Vicky Cann, a campaigner at the Corporate Europe Observatory said in a statement. “There is an inherent conflict of interest when the Big Four sell corporate tax avoidance schemes and simultaneously get to advise on the EU’s fight against tax avoidance.”

The report’s publication comes just over a month since EU finance ministers formally approved controversial rules that will require accountants and other tax professionals to report certain aggressive tax planning arrangements to national revenue authorities. The tax intermediary reporting legislation is slated to take effect July 1, 2020.

PwC and KPMG declined to comment. EY and Deloitte didn’t respond to requests for comment.

Influence Isn’t Benevolent

The European Commission continues to hand the Big Four millions of euros in public money for tax advisory services, the report said. This is despite the fact that leaks like LuxLeaks, the Panama Papers, and the Paradise Papers revealed the scope of multinational tax avoidance, the report said.

“Their channels of influence are many and deep. Yet policy-makers seem blind to their conflicts of interest, unable to see the Big Four as vested interests with private agendas, even when this is apparent from the positions of the lobby vehicles they use,” the report said.

The companies “sell and profit” from schemes that deprive the government of tax revenue, the report said.

They “have flourished in a policy-making culture that allows them an opaque but pervasive presence. They are behind-the-scenes, seemingly omnipresent, but certainly not benevolent,” the report said.

A European Commission spokeswoman said the organization regularly asks for research from consultancies all over the world. “Writing a study for us does not make any one company our adviser — if that were the case we would have many advisers. These are just four out of thousands of companies carrying out studies for us,” she said.

The Big Four’s activities don’t allow them any “additional access” to the public consultation process, and the European Commission treats the firms “the same way as any other organization that can apply for tenders, without exception,” the spokeswoman said.

Firewall Against Harm

The report calls for EU policymakers to create a firewall to protect themselves from the “harmful influence of the vested interests of the tax avoidance industry.”

Protections should include: no longer giving the Big Four public contracts for tax-related studies and introducing tougher rules on the revolving door between tax intermediaries and the European institutions.

“The idea that a constant swapping of personnel between private mega-firms that actively engage in selling tax avoidance structures and the institutions responsible for tackling tax avoidance might breed conflicts of interest just doesn’t seem to be recognised,” the report said.

To contact the reporter on this story: Ali Qassim in London at correspondents@bloomberglaw.com

To contact the editors responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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