Tax dodging by corporations is a major cause of inequality and poverty. It deprives governments of badly-needed revenues which could otherwise be spent on public services, on job creation or on tackling climate change. For instance, for every $10 given in aid to poor countries in the Global South, $15 is lost to tax dodging. However, big business does not succeed in dodging so much tax all by itself. It is aided by governments which enact complex tax arrangements which minimise corporate tax liabilities yet which are entirely legal.
Big accountancy and auditing firms also play a critical role in helping corporations to avoid tax. This was starkly highlighted in a recent scandal known as ‘Luxleaks’. Luxleaks, which is short for ‘Luxembourg Leaks’, is the title of a report published in November 2014 by the International Consortium of Investigative Journalism. This report is based on documents which were leaked by Antoine Deltour, an ex-employee of Price Waterhouse Cooper (PWC) in Luxembourg.
PWC is a global accountancy firm with offices in 157 countries. The leaks revealed that PWC had facilitated over 300 multinational companies in avoiding their tax liabilities. Among the companies to benefit were Irish corporations such as Glanbia and Sisk which had been using Luxembourg and Irish tax loopholes to save millions in tax.
More confidential tax rulings secured by other accountancy firms, namely Ernst and Young, KPMG and Deloitte, have since been revealed. The government of Luxembourg had put in place a system which allowed PWC to do so legally.
Foreign corporations started coming to Luxembourg in large numbers in the 1990s, when Luxembourg adopted an EU directive that allowed companies to pay taxes in a European headquarters country other than where their subsidiaries operated. Luxembourg is of course not the only government fostering those types of schemes. In Ireland, for example, state-sanctioned tax arrangements have enabled companies such as Apple to amass billions of offshore profits which are barely taxed at all.
LuxLeaks is a scandal It is a scandal that multinationals should not pay their fair share of taxes. They depend on good infrastructure and services for their operations, yet they expect it to be provided from the taxes paid by working people and small and medium enterprises which cannot avail of the same tax avoidance mechanisms. An army of well-paid lawyers and accountants, often involved in lobbying for the introduction or retention of tax exemptions and loopholes or even in drawing up the tax code, reap rich rewards from advising their clients on how to benefit from it.
While PWC and the other large accounting houses may feel that they have a duty to serve their clients’ best interests, they cannot ignore the effects of tax avoidance on society at large and are as morally compromised as the multinationals who employ them to reduce their tax bills.
The only person pursued by the courts in the LuxLeaks scandal is Antoine Deltour, the whistleblower who revealed the whole affair. Deltour is on trial in Luxembourg, charged with theft and violation of trade secrets. He faces a 5-year prison sentence and a fine of €1,250,000 even if, by shining a light on highly objectionable practices, he has done us all a great service for which he should be rewarded rather than punished.