In a cramped and drab committee room four highly-compensated tax partners from the world's largest accounting firms looked like they would rather be mopping floors than answering the questions of Committee Chair Margaret Hodge. The senior UK legislator did a good job of expressing the frustration of the British public with multinational corporations--like Starbucks, Google, and Amazon--that have shifted taxable profits out of the UK and into tax havens. But she did little to shed light on the real cause of the problem much less set the stage for the development of any meaningful solutions. Mrs. Hodge did her best to paint the Big Four firms as manipulative, greedy, clever, connivers who show clients how to plunder the UK Treasury. Whether or not that is true is besides the point. The world's international tax regime is fundamentally flawed. As PriceWaterhouseCoopers' Kevin NIcholson said at the hearing:
- 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.
To-date UK laws have allowed many foreign multinationals to pay little or no tax. That will be easier now that under Cameron's leadership the UK has relaxed its laws even further. With a little skilled help from tax professionals like those at the Big Four, it is standard practice --by adjusting prices that different parts of a multinational charge each other or having one part of a multinational charge interest on a meaningless loan to another--to shift profits out of the UK directly or indirectly into low-tax jurisdictions like Ireland, Luxembourg, and Bermuda. Like the unhappy quartet who took the heat in front of the committee, the overwhelming majority of practitioners will tell you it is their duty to minimize clients taxes as long as it does not violate the law. Even if you agreed with Mrs. Hodge and Prime Minister David Cameron that "aggressive" tax avoidance raises "ethical issues," how in the world are practitioners and businesses to know when acceptable tax planning becomes unethical avoidance?
But accounting firms and their clients are hardly blameless. Guess who relentlessly pressures the politicians that make those laws? Accounting firms and their clients cannot act as though tax laws and regulations are like the tablets Moses brought down from the mountaintop unless Moses had with him a dozen Gucci-clad lobbyists handing out $2,500 checks.