The world’s four biggest accountancy firms have each been fined millions of dollars in the US. In the EU, they do what they want...

When only capitalism counts...

WORKERS, JUNE 2011 ISSUE

Some two-thirds of the world’s cross-border trade actually happens within multinational enterprises. Through transfer pricing, these firms shift around where profits are generated to the most advantageous jurisdictions in order to slash or even wipe out their tax bill. Transfer pricing accounts for more than half the illicit capital flows around the world (an estimated $1.26 trillion in 2008, the latest year for which there are figures), robbing countries of billions of pounds a year in lost revenues.

Google cut its taxes by $3.1 billion from 2007 to 2010 by a trick known as the “Dutch Sandwich”, in which the bulk of foreign profits go through Ireland and the Netherlands to Bermuda, slashing its overseas tax rate to 2.4 per cent.

Now the European Commission has set up an advisory group on transfer pricing. Every single one of the independent “non-governmental experts” on the panel comes from a multinational firm that engages in the practice, including Shell, BAE Systems and Unilever, or from the four biggest accounting firms in the world, KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers, which advise these firms on how to do it.

Deloitte’s offices in downtown Los Angeles (KMPG’s are in the building behind).

KPMG had to pay a $456 million fine in the USA after admitting criminal wrongdoing by “designing, marketing and implementing illegal tax shelters”. It was the “largest tax case ever filed” in US history. Senator Carl Levin said, “Our investigations revealed a culture of deception inside KPMG’s tax practice.”

Deloitte paid $50 million after the US Securities and Exchange Commission found it committed “improper professional conduct” by failing to spot a massive fraud perpetrated by a company it audited.

PricewaterhouseCoopers paid the US government $41.9 million to “resolve allegations” that it defrauded numerous federal government agencies over a 13-year period.

Ernst & Young paid the US government $15 million for failing to register tax shelters or properly maintain lists of people who bought them. In Britain, a Treasury spokesman called a tax scheme sold by Ernst & Young “one of the most blatantly abusive avoidance scams of recent years”. He added, “If unchecked, it would have cost our public services at least £300 million per year.”

Shell in 2005 shifted its main tax-residence from Britain to the Netherlands, where companies can receive foreign dividends tax free, while shifting the ownership of its trademarks to a subsidiary in a village in the Swiss canton of Zug, where corporation tax is as low as 8 per cent. (The Alpine hamlet is also home to 18,000 other companies.) Unilever intends to redomicile in Switzerland.

In October last year, regulators in the Accountancy and Actuarial Discipline Board said they were investigating KPMG over audits performed for arms manufacturer BAE Systems, in particular commissions paid by the firm and “professional advice, consultancy and tax work”.

European Commission spokesman David Boublil rejected calls to expand representation beyond firms engaged in transfer pricing, saying: “Apart from multinationals and the accounting firms, the expertise in this area is very limited.” ■