PriceWaterhouseCoopers chief Kevin Nicholson denies lying over tax deals

Nicholson stands by previous testimony to MPs, as accountants are accused of mass-marketing tax avoidance schemes

• Simon Goodley
• The Guardian, Monday 8 December 2014 22.42 GMT

Nicholson again denied that the tax services sold by PwC were mass-marketed schemes. Photograph: Chris Robbins / Alamy/Alamy

The head of tax at one of the UK’s top accounting groups was accused of lying to parliament about his firm’s role in devising controversial tax deals for clients in Luxembourg.

Kevin Nicholson, PwC UK’s head of tax, who worked as an HM Revenue and Customs tax inspector in the early 1990s, was in front of the Commons public accounts committee for the second time in two years, following last month’s revelations of aggressive tax avoidance by PwC clients published by the Guardian and more than 20 other international news outlets.

In a series of fractious exchanges on Monday, the committee’s chair, the Labour MP Margaret Hodge, said: “We’ve asked you to come back to see us because we’ve reflected on the evidence that you gave us on 31 January 2013, and tried to relate that to the revelations around the Luxembourg leaks that have been in the press. I think I have a very simple question for you: did you lie when you gave evidence to us?”

Nicholson responded: “I didn’t lie and stand by what I said.”

Hodge’s anger stemmed from Nicholson’s previous evidence that PwC did not “mass market” tax products or sell tax avoidance “schemes” to clients, when set against the new evidence of 548 letters – relating to 343 companies – showing how PwC wrote to Luxembourg tax authorities to agree on how their clients structured their businesses for tax purposes.

“It’s very hard for me to understand that this is anything other than a mass-marketed tax avoidance scheme,” Hodge said. “I think there are three ways in which you lied and I think what you are doing is selling tax avoidance on an industrial scale.”

Nicholson again denied that the tax services sold by PwC were mass-marketed schemes and said that around 80 of the Luxembourg rulings related to UK companies, which were all distinct and had been disclosed to HMRC.

He said: “At the heart of the Luxembourg economy now is an economy that is based around businesses going there to finance [and] to hold investments. The tax structure, the system that they have created, facilitates that happening, along with all the other infrastructure. I’m not here to change the Lux tax regime. If you want to change the Lux tax regime, the politicians could change the Lux tax regime.”

Last month’s analyses of the way multinational companies establish businesses in Luxembourg were based on a leaked cache of hundreds of tax rulings secured by PwC Luxembourg that showed major companies – including drugs group Shire Pharmaceuticals and vacuum cleaner firm Dyson – using complex webs of internal loans and interest payments, which have greatly reduced tax bills.

The exposure of these arrangements – signed off by the grand duchy and all perfectly legal – have triggered an emergency debate in the European parliament focusing on the track record of the new European commission president, Jean-Claude Juncker, who had dominated Luxembourg politics as prime minister between 1995 and 2013. Juncker has sought to brush aside criticisms, insisting: “I am not the architect of the Luxembourg model because this model doesn’t exist.” However, Hodge added: “Since I have uncovered all this, I have questions about if Mr Juncker is fit to be the president of the European commission. I think if this had been around during the period of his appointment, it might well be a different decision.”

Appearing alongside Nicholson was Shire’s head of tax, Fearghus Carruthers, who explained how the group had two full-time employees in Luxembourg, who earn a total of €135,000 (£106,200) a year and handle intra-company loans of around $10bn (£6.4bn).

Hodge said: “It is stretching our credulity in suggesting to us that these two employees, who are also directors of umpteen other companies, are seriously the guys taking the decisions on loans totalling $10bn. Let me put this to you, Mr Carruthers, because it is a very serious matter, because if the decisions in substance aren’t taken in Luxembourg, this isn’t just avoidance; for me, it’s fraud.”

Carruthers responded: “Madam chair, I can assure you that the decision-making in respect of that Luxembourg company is made in Luxembourg.”

The executive was also repeatedly asked to explain the commercial rationale behind Shire establishing companies in Luxembourg and his answers included: “The commercial purpose is to allow us to have a treasury operation in Luxembourg which finances our activities”; and “the commercial purpose is for us to reinvest our cash appropriately and efficiently.”

When asked what Shire could do more efficiently in Luxembourg, Carruthers said: “It is not necessarily a question of comparative efficiency, we could have this lending in and lending out in all sorts of other jurisdictions. It’s just a good location.”

Well-known buyout firms such as Blackstone and Carlyle also appeared in the leaked documents, and Luxembourg investment vehicles are commonplace in such investment firms. A 2008 joint venture between private equity group Apax Partners and Guardian Media Group, which owns the Guardian, used a Luxembourg structure after it invested in the magazine and events group Emap, now called Top Right.

When the leaked documents were published, a GMG spokesman said: “We partnered with a private equity company which regularly used such structures. A Luxembourg entity was used because Apax already had that structure in place. The fact that the parent company is a Luxembourg company does not give rise to any UK corporation tax savings for GMG.”

Last year, PwC made revenues of £2.81bn, of which £714m came from its tax advisory practice. PwC Luxembourg had turnover of €276m for the year to June 2013, up more than 12% on the previous 12 months. Tax advice accounted for 29% of revenues, up from 24% two years ago. The Luxembourg partnership employs about 2,300 staff – equivalent to one in every 240 people resident in the small country. New offices for the fast-growing practice were officially opened last week at a ceremony attended by the duchy’s prime minister, Xavier Bettel.

Britain could end these tax scams by hitting the big four accountancy firms

The spiders spinning the web of avoidance are the major accountancy firms who make billions from the public purse

• 
• • Polly Toynbee
  • The Guardian, Monday 10 December 2012 21.00 GMT

A Starbucks protest on 8 December. ‘A clever protest on the right issue can catch public imagination and media attention.' Photo: Antonio Olmos for the Observer

Sometimes it only takes a spark. Never imagine nothing can be done: UK Uncut packs a punch far above its weight, as did the suffragettes, slave trade abolitionists and most causes great and small. A clever protest deftly done on the right issue can catch the public imagination and the media's attention: now the public accounts committee investigates and the government is obliged to pledge action.

At Saturday's Starbucks occupation of 40 coffee shops, the point was easy to explain to passers-by: companies massively avoiding tax help to cause the cuts that shut libraries, Sure Starts and women's refuges. This short occupation with an orderly exit and loud chants causes Starbucks deep reputational damage. Costa, nearby, does pay its taxes, while Starbucks avoids its duty to the civilised society it depends on.

Take note, all other corporate avoiders: Manchester Business School estimates that Starbucks will see a 24% drop in sales over the next year, from the experience of reputational crises in 50 other companies. The eye-popping stupidity of choosing this same week to cut its staff's paid lunch breaks and sickness and maternity pay suggests a company whose only efficiency is in tax-avoiding. The £20m it offers as a "donation" to HMRC may even be tax deductible: it can offset this "overpayment" against future tax, once public attention has drifted elsewhere, adding to the phenomenal recent drop in corporation tax receipts, as companies copy one another's avoidance schemes.

In 2009 the Guardian's tax gap series kicked off this debate, exposing devious but legal devices such the "double Luxembourg", the "Dutch sandwich" and Roger the Dodger of Barclays. This is the most dangerous kind of investigation, where any mis-step risks lethal lawsuits from those with deep enough pockets to kill: it cost us £100,000 in lawyers' fees alone, plus months of journalists' time digging into opaque company accounts. We told how Boots, bought by private equity firm KKR, abandoned its Nottingham home to put its HQ in Zug, the Swiss tax haven. By loading the company with debt, its tax bill dropped from £606m to £74m – and Barclays lent them billions to do it. GlaxoSmithKline and Astra Zeneca moved to Puerto Rico and Shell took its trademark to Switzerland. Diageo transferred brand names to a Dutch subsidiary, so Johnnie Walker whisky paid just 2% tax.

How did they put the profits from a whisky blended in Kilmarnock into low-tax Amsterdam? Deloitte did it, reportedly so proud they broke open champagne when it went through. And that is the crux of the matter. At the heart of almost every tax-avoiding scheme is one of the big four accountancy firms – Deloitte, PricewaterhouseCoopers (PwC), KPMG and Ernst & Young.

Tax campaigner Richard Murphy, whose razor-sharp work with the Tax Justice Network fuels so much of this campaign, says these four are at the heart of the worldwide web of avoidance, with offices in all the main tax havens. PwC explained on the radio last week that the reason it had large offices in Bermuda was to audit the local hospital. Few clients could use these havens without one of the big four as auditor: virtually no business happens in havens, but bankers, lawyers and accountants need to be located there.

The four have a grip on the auditing of many major firms. The dogged work of accountancy professor Prem Sikka shows how they work, cold-calling to offer elaborate tax schemes. They hardly ever give bad audits to companies hiring them, and despite grave failures in auditing banks, they are not disciplined by professional accountancy bodies. Nor does the Treasury recover costs, even when successfully challenging their elaborate scams.

The public accounts committee last week gave a satisfying roasting to three boutique tax-avoidance firms. Margaret Hodge tore a strip off them, as one admitted that all his schemes had been declared illegal and shut down. But now the committee needs to go after the big four: none of this could happen without them. In his autumn statement George Osborne declared – as chancellors always do – that he would pursue avoiders. But he replaced only a fraction of the Revenue's cuts, with another 10,000 staff still to be lost.

If Osborne were serious, stern regulation could stop all this. As it is, companies that pay their auditors £700 an hour will sometimes undeservedly get a clean bill of health, as did Northern Rock, HBOS, Bear Stearns and the rest. One radical suggestion is that the National Audit Office should take charge of all big company auditing itself, paid by a levy according to company size: it would protect shareholders from inadequate audit and taxpayers from avoidance. Banks are still receiving clean audits, despite the governor of the Bank of England declaring them to be zombies paralysed by undeclared bad debt.

So far attacks on tax avoidance focus on the web, but now it's time to go for the spiders that spin it. The same firms that conspire to deprive the state of revenues are paid large sums as consultants by the very government they weaken. KPMG, along with McKinsey, is conducting much of the sale of the NHS to private contractors. If you want to see this curious contradiction, look no further than PwC's website, which blends its contrary functions in one sentence: "Our Government and Public Sector practice comprises over 1,300 people, more than half of whom work in our consulting business, with the remainder in assurance and tax."

Osborne has announced a consultation on making honest tax payment a condition of winning government contracts. But these companies are woven into every aspect of government and business. The chair of the NAO, Sir Andrew Likierman, is a director of Barclays and past president of the Chartered Institute of Management Consultants. The NAO auditor general, Amyas Morse, was previously global managing partner at PwC. Meanwhile, accountancy firms are major donors to the Conservative party.

With political will, all this can be cleaned up. However remiss in office, Labour should seize the initiative. The OECD is urging the G20 to agree on a fair system for taxing companies according to where profits arise – though countries are locked in cut-throat corporation tax competition. However, the UK controls most tax havens and could shut them down overnight if it copied Charles de Gaulle: angered by tax scamming, he once surrounded Monaco and cut off its water supply until it relented.