Tuesday

17th Jul 2018

Opinion

Reining in the 'Big Four' accountancy giants

  • The 'Big Four' multinational accountancy giants are KPMG, EY, PwC, and Deloitte (Photo: Elliott Brown)

The unchecked power of the 'Big Four' accountancy firms is causing increasing unease among policymakers worldwide.

The focus of much of this concern has been the role played by Deloitte, PwC, EY and KPMG in the global tax avoidance industry.

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But at the same time as they advise their corporate clients on how to shift profits offshore, the Big Four are involved in auditing the books of these same corporations – and all the while they are consulting for governments and public institutions on important policy issues.

Over the past several years, members of the European Parliament have examined the role of the enablers in the global tax avoidance industry through the special committees set up to investigate the LuxLeaks, Panama Papers and Paradise Papers data leaks by whistleblowers.

These enablers of the offshore industry include corporate law firms, banks, company service providers and tax advisers.

The Big Four are always there, involved up to their necks in every tax-dodging scandal – from the role of PwC in designing sweetheart tax deals for major multinational corporations in Luxembourg, to all four audit firms being named as major players in the Paradise Papers.

The four firms have an annual combined turnover of €120bn and 750,000 employees.

Who polices the police?

They are crucial regulators of the global economic system – with the unique role of both regulating multinationals through their auditing role and simultaneously advising these same companies on how to abuse the legal system in order to avoid paying taxes – yet they are subject to minimal public scrutiny and regulation.

A new report released this week by Corporate Europe Observatory (CEO) examines the Big Four's channels of influence exerted through public procurement contracts, lobby vehicles, advisory groups, and their shared culture and personnel.

This report comes on the heels of research from the Tax Justice Network last year that found not only correlation between Big Four representation of multinational corporations and tax avoidance, but causation.

In other words, it found evidence that multinationals who engaged one of the Big Four firms became far more aggressive in their tax avoidance strategies.

A report commissioned by the GUE/NGL group last year, co-authored by Professor Richard Murphy, also found that the Big Four are heavily over-represented in tax havens, where they make exceptional profits.

This new report by CEO goes beyond examining the services these four firms provide to their corporate clients to looking at their role in influencing public policy in the European Union – and the findings are alarming.

The report reveals layers upon layers of conflicts of interest inherent in the Big Four's activities.

Contracts from the commission

Most alarming, from my perspective, is the massive amount of public money provided to the Big Four through public procurement contracts awarded by the European Commission, not to mention national governments.

In 2016 alone, these firms received €105m in commission contracts to carry out evaluations, impact assessments and consultancy services on EU legislation.

One example highlighted by CEO is the €800,000 contract awarded by the Commission to KPMG in 2016 to examine state-owned enterprises and encourage "the adoption of best practices regarding the management (including the restructuring and/or privatisation)".

The conflict of interest inherent in such a contract is glaring – the same multinational companies who would profit from the privatisation of publicly owned enterprises are the clients of the firms making the recommendation to governments.

The conflict of interest inherent in the Big Four advising the commission and national governments on corporate tax policy is even more glaring. The commission regularly grants public procurement contracts to the four giants for advice on tax policy issues, including awarding €10.5m to PwC, Deloitte and KPMG in January this year for studies on various unspecified "taxation and customs issues".

PwC even has a seat at the table in the commission's Platform for Good Tax Governance.

Why do we allow these firms to dictate public policy when they clearly have a commercial interest in ensuring tax legislation lets multinational corporations off the hook, and ensuring governments privatise state-owned enterprises to the benefit of their clients?

Why do we give them public money when we know they are facilitating tax avoidance by their corporate clients, which reduces the amount of funds made available to governments?

It's time to rein in the unchecked power of the Big Four and ensure they are regulated and scrutinised.

This means, at the very least, splitting up their auditing and advisory services, and reviewing the public procurement practices of the Commission and national governments as well as the lobbying activities of these firms.

I fully agree with CEO's recommendation that we must ensure there is a firewall in place between the tax avoidance industry and EU policymakers on tax issues, following the example of the steps taken to rid public policy of the influence of the tobacco lobby.

Matt Carthy is an Irish MEP for Sinn Fein and the GUE/NGL group in the European Parliament

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