Public Accounts Committee plans for tighter regulation of tax scheme promoters a 'distraction', expert says

Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that recent major national and international initiatives to tackle tax avoidance had already had an effect on the number of artificial tax arrangements promoted by advisers. The arrangements criticised by the PAC in its latest report, focusing on accountancy firm PwC and its promotion of schemes involving corporate structures in Luxembourg, dated back to before 2010 and had been in line with the relevant laws at the time, she said.

"Unfortunately, by dwelling on historic tax matters, the PAC has come up with a solution to yesterday's problem," she said. "There is a host of international initiatives – much more powerful precisely because they are international efforts – that will deal with the promotion of artificial or aggressive tax structures far more effectively than by HMRC dipping its toes into the regulation of the accountancy profession."

"Ultimately, it is tax law that regulates the advice that any tax adviser gives. It's absolutely right that parliament scrutinise whether UK laws deliver what it considers to be the right amount of tax, and that parliament holds HMRC to account on enforcing those rules. If we get the law and its enforcement right, there is no need for HMRC to take on a new role for which it has no obvious experience or suitability," she said.

The PAC's latest report, which follows on from its 2013 investigation into the practices of tax advisers, followed the publication in November of 548 leaked rulings issued to clients of PwC by tax authorities in Luxembourg between 2002 and 2010. In its report, the PAC accused PwC of "nothing short of the promotion of tax avoidance on an industrial scale" through "a mass-marketed tax avoidance scheme" that allowed multinational companies to reduce their corporation tax liabilities in the countries that they made their profits.

The new report builds on the PAC's 2013 recommendation of a formal code of conduct for tax advisers, by recommending that the government consult on industry regulation and enforcement of the code. Enforcement measures should include financial sanctions that could be imposed in the event of non-compliance, the PAC said. HMRC should also set out how it plans to take a more active role in challenging the advice being given by accountancy firms to their multinational clients, in particular the mass marketing of schemes designed to avoid tax, it said.

"The fact that PwC's promotion of these schemes is permitted by its own code of conduct is clear evidence that government needs to take a more active role in regulating the tax industry, as it evidently cannot be trusted to regulate itself," said PAC chair Margaret Hodge. "Unless HMRC takes urgent action, this irresponsibly activity will go unchecked, causing harm to both the public finances and the reputations of the companies involved."

PwC's internal code of conduct, which was similar to that applicable to other major accountancy firms, did "little more than shroud the way PwC exploits flaws in international tax law to devise and offer aggressive tax avoidance schemes to its clients", the PAC said in its report. According to PwC's code, a scheme set up solely for tax avoidance, and with no other commercial purpose, could still comply provided one of two other conditions were met, it said.

Tax expert Heather Self said that in the time since the last of the arrangements set out in the leaked documents were entered into, governments around the world had participated in several major initiatives to minimise the use of artificial tax structures. These included the OECD's work on tax avoidance through base erosion and profit shifting, and the EU's own investigations into whether certain tax rulings by Luxembourg amounted to illegal state aid.

"We can already see that these initiatives are having an effect: for example, there has been a big drop in the number of schemes disclosed by major firms under the Disclosure of Tax Avoidance Schemes requirements," she said. "Their large corporate clients have a heightened awareness of the reputational risks around tax, so there is much less demand."

The introduction of an industry 'kitemark' to identify responsible tax advisers that meet certain standards would be a far more effective means of ensuring that tax advisers provided their clients with appropriate advice, she said.