Expert calls on 'Big Four' accountants to take lead on tax planning standards

Jason Collins of Pinsent Masons, the law firm behind Out-Law.com, was speaking as representatives of the firms appeared before the House of Commons Public Accounts Committee (PAC) to answer questions on tax planning. The Big Four are KPMG, Deloitte, PWC and Ernst and Young.

"It's time for a 'kitemark' to identify responsible tax advisers that meet certain standards," Collins said. "It would be good to see the Big Four get behind this, and it's certainly something we'd like to see MPs support too."

"A 'kitemark' would make it easy for businesses and consumers - and government - to identify the advisers that engage in responsible tax planning where all the risks and benefits are properly communicated to the client, and also to be aware of those whose business model is to push ideas to clients primarily to generate sales. The kitemark would not endorse the quality of the advice, but the way in which it is delivered," he said.

Today's evidence session comes as part of the PAC's work on tax avoidance, which can involve the use of contrived and artificial arrangements to gain a tax advantage that the Government never intended. Unlike tax evasion, which involves fraud or deliberate concealment, tax avoidance is not illegal. However "immoral" tax planning practices, particularly allegations of 'profit shifting' used by multinational companies, have been the focus of negative press attention in recent months.

Collins said that part of the problem with the tax advice market was that there was currently no requirement for formal legal regulation. As a result, advisers can be regulated by a range of organisations across fields such as accounting, taxation and the law, while many smaller advisers managed to escape regulation completely.

As Big Four firms provide auditing as well as accountancy services to companies, Collins said that there was the potential for conflicts of interest should a particular firm provide tax advice to a company that it also audits. If this was to happen, the Big Four firm would be responsible for auditing the results of its own tax advice, with the danger that that advice "might not be sufficiently tested or challenged", he said.

"It's very important that the board of a company understands the risks of pursuing certain tax planning strategies, so advice needs to be as objective as possible," Collins said. "The issue is one mainly of perception: namely that a firm that doesn't want to jeopardise either its audit or tax advice work with a company might find its objectivity compromised."

"There is certainly a perception that it costs more to take tax advice from another firm because there is greater challenge by the audit team of external advice. This might tend to encourage taxpayers to favour their auditor as the preferred provider of tax advice. That said, many large businesses have adopted a policy of not taking tax advice from their auditors. It may be worthwhile to make this a formal requirement, at least for large listed or public interest companies," he said.

Collins said that it was "misleading" to portray the Big Four firms as "a big engine driving the creation of aggressive tax avoidance schemes", citing a recent report by the National Audit Office on tax avoidance. The report said that larger accountancy firms were responsible for a declining part of the tax planning market, he said. However, he said that a planned ban by the Government on awarding public contracts to companies who use reportable tax avoidance schemes could pose a challenge to those firms if the ban was extended to advisers of companies suspected of tax avoidance.

"Government work makes up a large part of the Big Four's revenues," he said. "It has been reported recently that 10% of schemes still emanate from the Big Four and magic circle law firms."

The Government announced in December that it would consult on using the procurement process as a way to deter tax avoidance and evasion. Details of the changes, expected to come into force from April this year, have yet to emerge however it is anticipated that the Government will expect companies to have policies in place preventing an aggressive approach to tax planning.