Political Economy

 
 


Corporate tax evasion is big business for accounting firms

Max O.

Corporate tax evasion whistle blower, George Rozvany, revealed recently in July that the big four accounting firms - Deloitte, Ernst & Young, Price Waterhouse Cooper (PwC) and KPMG - engage in unethical, fraudulent and aggressive 'tax crimes'.

The 32-year corporate tax veteran pointed out that as a result of these giant firms aggressive tax minimisation scams, $50 billion in tax revenue is lost annually in Australia, and around $US1 trillion worldwide.

Rozvany ought to know, because he has impeccable credentials when it comes to the world of corporate tax avoidance. He spent 32 years working for the likes of Coopers and Lybrand (now PwC), Ernst & Young , the defunct Arthur Anderson, chemical giant ICI and the world's largest insurer, Allianz, providing corporate tax advice.

Rozvany was surprisingly quite candid when he remarked: "It's very clear to me that the big four accounting firms are the masterminds of international tax avoidance.

"They work with government to deliver what they want for their clients. It's not set in a social context; it's designed to deliver an outcome for their clients.

"The people who are most affected are the most underprivileged in our society, those without a voice. The homeless, foreign aid programs."

Big four accounting firms are "accountants of fortunes"
Being one of the most published authors in Australia on transfer pricing, Rozvany's texts explain how they work within the law but argues that it is a sham procedure that is out of control. Transfer pricing is a practice that multinational companies use increasingly to move profits from a high tax jurisdiction to a low tax one.

Accounting firms, with the big four in particular, parade themselves as 'the guardians of commerce', however their behaviour is unaccountable and unregulated, they conspire to infiltrate governments with the intention of manipulating taxation policies that favour corporate financial avarice. There is a massive conflict of interest when the big four accounting firms advise governments on tax reform and at the same time profit from profligate fees whilst assisting their multinational clients in avoiding paying tax.

As Rozvany explained, “The Big Four have, under a Rasputin-like cloak of illusion strayed from their original and critical role of verifying the accuracy of financial accounts for all stakeholders, to be “accountants of fortune” merely representing the accounting position for multinationals and developing aggressive international tax avoidance practices.”

"...service arrangements, intellectual property transfers, such as patents or use of patents, and perceived transfer of goods, sham loans between related parties, but in reality it's all about providing services at too high a price which then shifts income to a lower tax jurisdiction," are all part of accounting firm's arsenal  to dress up a sham transaction as a real commercial transaction.

The "Luxembourg Leaks", Rozvany pointed out, exposed the role of major accounting firms in global corporate tax minimisation as proof of their aggressive tax activities on behalf of their corporate clients. The International Consortium of Investigative Journalists leaked almost 30,000 pages of tax documents from Luxembourg that demonstrated how sham structures have been set up in that country posing as normal commercial transactions but in effect turned around a 29 per cent tax rate to 1 per cent or even to zero.

Rozvany equates the big four's aggressive planning for profit shifting as tantamount to corruption, Mafioso action and terrorism. The financial sore of tax evasion, Mafioso action and terrorism use structures set up by accounting firms to funnel their ill-gotten money into 'black-holes' where it is hidden for the purposes of the perpetrators.

“The global community must also recognise the links between aggressive taxation behaviour, money laundering, corruption, organised crime and terrorism, of which the Brussels bombings and 9/11 are chilling reminders. This, unquestionably, is the financial sewer of humanity where the purpose for such money, no matter how malevolent, is simply hidden until used”, Rozvany said.

The issue of taxation is a class question. In Australia the contest over who should pay tax goes back to the Eureka rebellion of 1854. The merchants and squattocracy (big pastoralists) made sure they evaded paying any tax and shifted the burden onto the biggest class in Victoria at the time, the miners who eventually rose up in revolt. 

Lenin on tax
Lenin examined the issue of taxation in 1913, looking in particular at indirect tax and income tax. His investigation of the statistics of the time showed that:  "Half a million capitalist families in the USA receive an income that is greater than that of almost 9,000,000 workers’ families."

Lenin argued, "We see that the demand put forward by the Social-Democrats (Communists)—the complete abolition of all indirect taxes and their replacement by a real progressive income tax and not one that merely plays at it—is fully realisable. Such a measure would, without affecting the foundations of capitalism, give tremendous immediate relief to nine-tenths of the population; and, secondly, it would serve as a gigantic impetus to the development of the productive forces of society by expanding the home market and liberating the state from the nonsensical hindrances to economic life that have been introduced for the purpose of levying indirect taxes."

He concluded, "The capitalists’ advocates usually point to the difficulty of assessing big incomes. Actually, with banks, savings societies,   etc., at their present level of development, this is a purely imaginary difficulty. The one difficulty is the class-avarice of the capitalists and the existence of undemocratic institutions in the political structure of bourgeois states."

The matter of tax has certainly advanced from what Lenin confronted back in the early 20th century. Capitalist corporations have now progressed, through sophisticated tax evasion scams, further from paying smaller amounts of tax compared to the working class, to virtually evading paying any tax at all.

Capitalism is eating its own economic base and propelling the working and under class to liberate itself from the moribund, parasitic and decadent social system that it entraps in servitude.

 

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