The UK head of tax at Ernst & Young, the accountancy firm that audits Google, Amazon and Facebook, has admitted that international guidelines that allow online firms to pay much lower corporation tax than their rivals are outdated and in need of urgent reform.
John Dixon told a committee of MPs that the Organisation for Economic Co-operation and Development (OECD), which drafts the politically contentious rules, was facing a "difficulty … [it] needs to address" because the codes established decades ago never envisaged an explosion in online commerce.
Confronting Britain's top four tax experts at Thursday'shearing, Margaret Hodge, chair of parliament's public accounts committee, said: "What really depresses me is you could contribute so much to society and the public good and you all choose to focus on working in an area which reduces the available resources for us to build schools, hospitals, infrastructure."
She joins a long list of top politicians around the world prepared to publicly attack the tax industry. Last week David Cameron joined in, using a speech at Davos to rail against "an army of clever accountants … [helping] companies navigate their way around legitimate tax systems". However the prime minister has also expressed enthusiasm for taking UK corporation tax to "the lowest rate of any major western economy".
While he declined to comment specifically on Amazon or any other client, Dixon told the committee: "In modern parlance, the way contracts are usually made is online … If the contract is made online, and the server is based outside of the UK, that is not creating a taxable liability in the UK."
In a thinly veiled reference to Amazon, Richard Bacon MP asked if this could be true even if a UK consumer buys goods from a ".co.uk" website and the product is delivered from a warehouse in Britain. "Absolutely," said Dixon. "In the context of corporation tax, it is the location of the server [that matters] … The effect of the OECD principles … is that as far as the inbound part of the supply chain is concerned – into the UK – a small amount of the profit is currently allocated to that activity. And that is what the OECD needs to address."
In the meantime, suggested Hodge, "you have exploited the loophole". Dixon replied: "Sorry, I don't agree."
Dixon's comments contrast with those of Google boss Eric Schmidt, who recently brushed aside criticisms of the group's elaborate corporate structure, which involves an international company in Ireland and a parent company in Delaware and has seen it shift revenues of about $9.8bn (£6.2bn) into a shell company in Bermuda, where they are sheltered from tax. "It's called capitalism. We are proudly capitalistic. I'm not confused about this," said Schmidt.
Dixon appeared alongside counterparts from PricewaterhouseCoopers (PwC), Deloitte and KPMG – each of them stoney-faced while taking a volley of brickbats from angry MPs of all parties for two and a half hours.
All the tax experts from the big four agreed the OECD rules governing how multinational firms were taxed in different jurisdictions were outdated and needed changing – though each denied accusations that they had helped clients exploited the weaknesses at the expense of the UK taxpayer. Proposals for reform are expected from the OCED later this month.
Hodge – who once worked for PwC, though not in tax – noted that between them, the big four make almost £490m annually from public sector work. "I think it is questionable whether you should get public contracts," she said. Dixon disagreed, claiming the four companies were "one of the biggest contributors to tax in the UK."
The MPs grew increasingly frustrated as the accountants attempted to explain some of the arcane and linguistically perverse tax concepts at the root of some the controversy. "A warehouse is not a 'permanent establishment'," explained Dixon at one point. "An internet-based business, where essentially the website and the server are based outside the UK, is also not a 'UK permanent establishment'."
Internationally, Dixon said the accountancy group employed 29,000 people offering tax advice, for which E&Y receives revenues of $6bn – just over a quarter of group revenues. As well as advising Google, Amazon and Facebook – each with controversial tax structures that result in little UK tax – E&Y are auditors to pub group Greene King, which was named by MPs because of an avoidance scheme defeated at tribunal by HMRC.
E&Y is also the auditor to Hewlett Packard, which was recently savaged at a US senate committee hearing for its aggressive approach to tax avoidance. Parliamentary committees in Australian and New Zealand are now expected to launch their own inquiries into multinational taxation.
PwC's Kevin Nicholson attacked the complexity of tax rules and suggested it was up to politicians to change the 1970s and 1980s guidelines on so-called "transfer pricing" – OECD principles governing where economic value is said to have occurred in cross-border trading within a multinational group.
"One of the challenges now is we're seeing a lot of discomfort, unrest and unhappiness around the fact that businesses are selling a lot in the UK but they are not seeing the profit [in the UK]. And part of the reason for that is the way the international rules were designed puts the value in different places. One of the debates we need to have now is how do you get tax and profits in the right places."
But Hodge challenged all four tax experts on their firms' relationship with government, waving two brochures from KPMG that she said offered advice on minimising tax. She noted that the tax experts cited in pamphlets entitled Controlled Foreign Company Reform and Patent Box: What's in it For You named KPMG tax experts Robert Edwards and Jonathan Bridges respectively, both of whom had previously worked on secondment at the Treasury, advising on the relevant legislation.
Hodge said this was "inappropriate and wrong … It is poacher, turned gamekeeper, turned poacher again." KPMG's head of tax, Jane McCormick, denied this characterisation, saying advice had been offered to government. Bill Dodwell, head of tax at Deloitte, noted experts from his firm were frequently seconded to government without payment.
Separately, Oxfam published a report on Thursday suggesting tax evasion – illegal non-payment of tax due, as opposed to tax avoidance was depriving the UK economy of at least £5.2bn a year, or almost £200 for every household. The charity said the unpaid tax could go a long way towards helping "rescue millions from the poverty trap"
Friday, 1 February 2013
The chief executive of Barclays bank, Antony Jenkins, is to waive his bonus for last year
He said it would be wrong for him to receive a bonus, given what had been a "difficult" year for Barclays.
It is thought Mr Jenkins was in line to receive about £1m of a potential maximum entitlement of £2.75m.
Mr Jenkins took over as chief executive last August, just as Barclays was being rocked over mis-selling scandals and other issues.
He said in a statement: "To avoid further unnecessary public debate on this matter, I wish to make clear that I concluded early this week that I do not wish to be considered for a bonus award for 2012 and I have communicated that decision to the board.
"The year just past was clearly a very difficult one for Barclays and its stakeholders, with multiple issues of our own making besetting the bank.
"I think it only right that I bear an appropriate degree of accountability for those matters and I have concluded that it would be wrong for me to receive a bonus for 2012 given those circumstances."
Mr Jenkins' total potential pay package, including pension, basic salary, and incentives, was £8.6m.
Banks are currently reviewing the size of bonuses for senior staff, and there were reports this week that Royal Bank of Scotland will set aside £250m for payments. Last year, RBS's chief executive, Stephen Hester, waived his bonus.
Sign up, or resign
Barclays hit trouble last June, when it was fined £290m by British and US regulators for attempted manipulation of Libor and Euribor interbank rates between 2005 and 2009.
The scandal sparked the resignations of three Barclays senior board members, including ex-chief executive Bob Diamond. He was replaced by Mr Jenkins, who was formerly head of retail and business banking.
Barclays has also set aside £2bn to compensate customers for the mis-selling of payment protection insurance.
On Friday, Barclays faced new claims that UK financial regulators were investigating the bank over money received from Qatar.
The Financial Times alleged that Barclays lent Qatar money to invest in the bank in 2008. Barclays was not immediately available for comment.
Last month, Mr Jenkins ordered all Barclays staff to sign up to a new ethical code of conduct or quit.
Thursday, 31 January 2013
Business Secretary Vince Cable has called on the chairman and CEOs of the last seven FTSE 100 firms with all-male boards, urging them to increase the number of women in the boardroom.
The Business Secretary penned a letter asked the remaining companies Antofagasta, Croda, Glencore, Xstrata, Kazakhmys, Melrose and Vedanta, to explain what steps they have taken to up their female board representation and how they plan to make engender greater boardrooms diversity.
‘Over the last two and a half years we have seen real progress in the number of talented women reaching the boards of our top companies. During that time the number of all-male boards has fallen from 21 to the last seven remaining today, with the welcome news from mining giant Randgold being the latest step. My vision by 2015 is that Britain will not have a single FTSE 100 board without a significant female presence.’
‘Businesses should be making sure they have the right people around their top table. This is not about equality, this is about good governance and good business. The international evidence supports this: diverse boards are better boards benefiting from fresh perspectives, opinions and new ideas which ultimately serve the company's long term interests.’
‘I do recognise that for some businesses, like those in the mining and extractives industry in particular, there are unique challenges in diversifying their boards with the right experience. The frequent travel and project based work in remote areas of the world have all been cited as barriers to appointing more women in the past. However, successful modern companies learn to adapt and survive and doing nothing is not an option anymore. We've seen examples again today that this can be done and I am determined to see further action.’
Mining giant, Randgold Resources recently announced that Jeanine Mabunda Lioko has joined its board as a non-executive director.
In line with the efforts to increase boardroom diversity, last week Vince Cable announced that three of the five appointments to the Business Bank Advisory Group will be female.
In addition, he also announced that Dale Murray was the latest female non-executive appointment to the Department for Business, Innovation and Skills’ Departmental Board. Seven of the 21 attending the Departmental Board, and four of the nine attending the Executive Board, are female.
The number of all-male FTSE 100 boards has fallen from 21 in 2010.
In early January, Cynthia Carroll announced that she will step down from her role as Anglo American’s chief executive after six years at the helm.
Her exit left just two female bosses in the FTSE 100.
Carrol argued against the 'tokenism' of female CEO’s stressing the need for companies to 'develop' women so that they are 'capable of delivering and doing the job effectively'.
The latest Cranfield School of Management report (March 2012) into female executives showed an increase in the number of female-held directorships after a three-year plateau.
Released a year after the publication of the Davies report – which recommended at least 25% of board roles in FTSE 100 companies by 2015 should be held by women - the findings saw current figures at 15.6%.
Should that trend continue, the report predicts the minimum recommendations set by the Davies report, will be achieved with 26.7% of directors being female by 2015, and 36.9% five years further down the line.
The Financial Reporting Council (FRC) has decided to drop the investigation against members of the ICAEW and Ernst & Young over the audit of Lehman Brothers International (Europe).
Following the conclusion of the investigation, the FRC’s executive counsel, Gareth Rees QC, has decided that no action should be taken against E&Y or any individuals in connection with their conduct in this matter.
This matter was referred to an expert to consider the case. Following this, executive counsel decided that there was no realistic prospect that a tribunal would make an adverse finding against E&Y in the UK or members within that firm. The FRC has confirmed that the investigation will now be closed and no further action taken.
The scope of the FRC investigation covered the ‘conduct of members and a member firm in relation to the preparation of reports to the Financial Services Authority (FSA) in respect of Lehman Brothers International (Europe)’s compliance with the FSA’s client asset rules for the year ended 30 November 2007’.
The focus of the investigation was the audit by E&Y of Lehman Brothers International (Europe) and its compliance with the CASS rules. E&Y audited client money opt out arrangements, client classification and the segregation of client money post MiFID.
In the course of the investigation, the investigation team obtained and reviewed E&Y’s audit files and hard copy documentation. The team also interviewed E&Y audit team staff.
The Accountancy and Actuarial Discipline Board (AADB) started the investigation on 9 September 2010 and decided, pursuant to paragraph 5(8) of the AADB Accountancy Scheme, that the matter should be investigated.
Further details are available from the FRC.
With time running out for tax payers, HMRC is still on course for a £130m windfall in late-filing fines despite 150,000 completed returns so far having been received today alone.
According to HMRC, in just the hour between 11 and 12 this morning, more than 43,000 Self Assessments were received before the deadline of midnight tonight (31 January 2013) is reached.
An HMRC spokesperson said:
‘We have so far received more than 150,000 tax returns today, and we expect that to increase significantly. Last year there were over 445,000 completed on deadline day alone, but currently there are still close to 1.3m as-yet still outstanding.’
Should the 1.3m who have not filed their tax returns fail to do so before tonight’s cut-off point, HMRC would be owed £130m in late-filing fines – compared to the eventual £85m taken last year.
Christopher Clark, operations director, at Boox, said:
‘The £100 fine will hit tomorrow morning and hurt a lot of families struggling with the impacts of the economic downturn. Tax returns needn't be complex but can present a challenge to many people not familiar with these types of forms and procedures.’
Tony Bernstein, tax partner at HW Fisher & Company, said:
‘Filling in a self-assessment form can be a time-consuming process, but by working efficiently in the final hours before the deadline you can give yourself a fighting chance of getting it done in time. Finally, check everything carefully before pressing submit - and make sure you do so before midnight!’
Although the deadline for filing a paper return has already passed, tax returns for 2011/12 can be filed on the HMRC website before midnight tonight.
Further details are available from HMRC.