The UK’s Parliamentary Accounts Committee (PAC) has issued a report entitled “Tax avoidance: the role of large accountancy firms” criticizing the close relationship between accountancy firms and the tax authorities. The practice of seconding staff from accounting firms to the government to assist in drafting tax legislation has been criticized on the ground that it gives the impression that the accounting firms have undue influence on the tax system. The report suggests that the four largest accounting firms can use their insider knowledge to give clients advice on how to pay less tax. The report highlights the case of an accountancy firm mentioning in its marketing literature that its staff had been seconded to government to give advice on legislation including the controlled foreign companies (CFC) rules and the patent box legislation.
The report mentions the complexity of UK tax law and the opportunities that this gives for tax avoidance. The UK Treasury has established an office of tax simplification but this is under-resourced and has fewer than six full time staff. The large accountancy firms have also seconded staff to this office. The office has so far only looked at eliminating tax reliefs that are under-used, rather than looking at more ambitious ways of simplifying the tax system. Â The PAC report also highlights the large difference in resources between HMRC and the large firms, pointing out for example that HMRC employs 65 transfer pricing experts compared to 250 in the large accountancy firms.
The argument put forward by accounting firms is that their input of technical expertise and commercial experience into government tax strategy does not extend to drafting legislation. They also note that government needs to consult representatives of business when deciding on tax legislation. They point out that professional bodies representing accountants and tax experts make an effort to ensure that the government takes into account the views of small business when drafting legislation.