By Ali Qassim
Dec. 1 – The U.K.’s tax authority, Her Majesty's Revenue and Customs, has taken one of its most high-profile enforcement actions to date with the arrest of four partners from KPMG LLP's offices in Belfast, Northern Ireland.
The move could indicate that the British government is intent on publicizing its tougher approach to tax evasion, according to an attorney based in County Down, Northern Ireland.
“It's highly unusual in this small jurisdiction, that the action taken should have been so deliberately publicized,” Kevin Neary, a principal at Donnelly Neary and Donnelly Solicitors' Newry office, told Bloomberg BNA in a Dec. 1 telephone interview.
Even though HMRC in the past “identified members of each profession—lawyers, accountants—to make examples of them, it has never done so in such a high-profile way,” he said. “It's remarkable that it couldn't have been done in a more conventional manner, but maybe this is the new convention?”
The arrests could be “seen in the context of” U.K. Chancellor George Osborne's “professed policy of budget deficit” and attempts to tackle “tax leakage,” Neary said. “We could assume there is more to come.”
On Nov. 25—the day of the arrests at KPMG's Belfast offices—Osborne announced the U.K. government's plans to legislate in 2016 on new criminal offenses for tax evasion and avoidance .
Asked whether the arrests formed part of a wider push to crack down on tax evasion, Martin McDonnell, HMRC's senior press officer for Scotland, Wales, North West England and Northern Ireland, in a Nov. 27 e-mail to Bloomberg BNA, said only that the arrests were “in connection with suspected tax evasion.”
Dave Deighan, KPMG Ireland's head of communications, said in a Nov. 27 e-mail that “it is important to emphasize that we do not have any indication that this investigation relates to the business of KPMG or the business of our clients.”
Neary said the auditing firm's suggestion that the arrests may not directly involve KPMG-related activity was borne out by widespread news reports suggesting that the “tax evasion” could be related to the four partners' activities as directors and shareholders of a property investment company, Jeap Ltd.
“It's hard to tell” until further details of the arrest and the investigation are revealed, but Neary said the investigations may be primarily linked to the KPMG partner's personal business activities.
Atul K. Shah, a senior lecturer at Suffolk Business School, University Campus Suffolk, questioned whether the fact that the arrests concerned a separate business should necessarily detract from a focus on KPMG as a business.
Shah, who also authored a case study of KPMG's audit of HBOS Plc, a U.K. banking and insurance company, told Bloomberg BNA that “what's interesting about this is that these people are senior figures at KPMG so they are leaders.”
This raises two important questions, he said. “Firstly, were they allowed to conduct outside business and why? And secondly, what does this say about the leadership culture at KPMG?”
Asked if the arrests could reflect a new step in HMRC's enforcement approach, Shah said that historically, “unlike the case of America, you can count the number of cases in the U.K.” that have involved such high-profile auditing firms.
“For a long time, the HMRC's board of governors—including the chair—have included ex-partners from the four large accountancy firms,” he said. “HMRC has been slammed for being too friendly with Big Four for a long time, especially on media, and rightly so.”
“It's premature to comment on this case,” said John Christensen, director of the advocacy group Tax Justice Network, but “if this is an early sign of key action being taken” by HMRC, “it's welcome, but the action would have to be very prolonged to counteract this deeply rooted culture” of tax avoidance and evasion.
In the U.K., tax evasion is “endemic through the entire industry and goes beyond accounting. Bankers and lawyers are also involved,” Christensen told Bloomberg BNA Dec. 1.
“I've spoken to many former HMRC staffers and it does seem there is a sense that the U.K. is lax” in its combat against enablers of tax evasion compared to France, Germany, the U.S. “and certainly in comparison with Sweden and Denmark,” he said.
Global accounting firms EY and PwC told Bloomberg BNA Dec. 1 they were unable to comment on the specific case or on the wider implications.
According to EY's Investigations Index dated Nov. 30, U.K. regulators have been issuing tougher punishments, including higher penalties, to companies found guilty of wrongdoing.
The study was based on data from regulatory bodies including the Financial Conduct Authority, Serious Fraud Office, Competitions and Markets Authority and the Office of Fair Trading.
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