Investigating the central role played by major accountancy firms in tax avoidance Essay

The article ‘The function of accounting houses in revenue enhancement turning away: Some grounds and issues ‘ was published on accounting forum journal volume 29 issue 3 in September 2005. There are two writers who wrote this article: Prem Sikka, a Professor of accounting at University of Essex, and Mark P. Hampton, a senior lector in economic at University of Kent. The article discusses the cardinal function played by major accounting houses in international revenue enhancement turning away. As portion of originative accounting, revenue enhancement turning away is non illegal but it places the credibleness of the accounting profession at hazard and it could easy fall down to illegal ( revenue enhancement equivocation ) .

Article Review

The article chiefly argues that in chase of private net incomes, accounting houses have diversified from their traditional trade of selling auditing and other accounting services into a extremely moneymaking concern of selling aggressive revenue enhancement turning away strategies to transnational corporations and affluent persons. It provides some grounds of the schemes and tactics deployed by accounting houses to sell such strategies that lead their clients to avoid corporate, gross revenues and paysheet revenue enhancements. The article point out that the unprecedented graduated table of selling revenue enhancement turning away strategies, particularly by the ‘Big Four ‘ accounting houses, has resulted in a cardinal displacement revenue enhancement burdens from nomadic capital and well-off persons to less nomadic capital and less well-off citizens, which could do some societal effects like endangering the legitimacy of the province, assailing the footing of the province ‘s whole being and disputing the hereafter of broad democracy.

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Harmonizing the position of the writers, the neo-liberal economic theories facilitate globalization that capital roams the universe looking for high net income, low revenue enhancement and minimum societal duties legal powers. This tendency may bring forth great economic benefit and may besides bring forth utmost poorness and immense inequalities in the distribution of societal wealth. The dismantlement of exchange controls and trade barriers has encouraged the development of a predatory revenue enhancement turning away industry. Accountancy houses act as a major function in the revenue enhancement turning away industry. The article provides some grounds to demo how accountancy houses devise, implement and mass market their revenue enhancement turning away strategies to corporation and affluent persons. Ideally accountancy houses distinguish their adept labor from rivals by appealing to claims of professionalism and ethical codifications, but they are capitalist administrations excessively whose success is measured by growing in fees and net incomes. Since doing net incomes by “ flexing the regulations ” is a outstanding characteristic of enterprise civilization, accounting houses ‘ “ accent is really steadfastly on being commercial and on executing a service for the client instead that on being public spirited on behalf of either the populace or the province ” ( Hanlon, 1994, p.150 ) .

Accountancy houses has involved in revenue enhancement turning away industry for a long period, as the president of Coopers & A ; Lybrand ( now portion of PricewaterhouseCoopers ) put it, “ there is an industry development, and we are portion of it, in criterions turning away ” ( Sikka & A ; Willmott, 1995 ) . Major accounting houses have built webs and organizational presence in every major state and metropolis paralleling the enlargement of transnational corporations. The web allows the houses to run into local capital demands with planetary solutions, and enables the houses generate immense planetary income. The major beginning of gross is selling revenue enhancement turning away strategies ( Mitchell et al. , 2002 ) .

The writers besides provides other grounds to indicate out the assortment of revenue enhancement turning away strategies created by accounting house and the schemes and tactics used by the houses to sell. The article uses Enron and WorldCom dirts to demo how deep major accounting houses have involved through planing some extremely complex revenue enhancement turning away strategies to enable the companies to avoid corporate revenue enhancements. Particularly put KPMG as an illustration. “ Although KPMG denies being a revenue enhancement shelter booster, the grounds establishes that KPMG has devoted significant resources to, and obtained important fees from, developing, selling, and implementing potentially opprobrious and illegal revenue enhancement shelters that U.S. taxpayers might otherwise hold been unable, improbable or unwilling to use, bing the Treasure one million millions of dollars in lost revenue enhancement grosss ” ( US Senate Permanent Subcommittee on Investigations, 2003, p.25 ) . “ KPMG used aggressive selling tactics to sell its generic revenue enhancement merchandises by turning revenue enhancement professional into revenue enhancement merchandise sales representatives, coercing its revenue enhancement professionals to run into gross marks, utilizing telemarketing to happen clients, developing an internal revenue enhancement sale force, utilizing confidential client revenue enhancement informations to happen clients, aiming its ain audit clients for sale pitched, and utilizing revenue enhancement sentiment letters and insurance policies as selling tools ” ( US Senate Permanent Subcommittee on Investigations, 2005, p.6 ) . Furthermore, The KPMG revenue enhancement professional calculated the punishments for disobedience compared to possible fees from selling one of their 500 active revenue enhancement merchandises OPIS: “ based upon our analysis of the applicable punishment subdivisions, we conclude that the punishments would be no greater than $ 14,000 per $ 100,000 in KPMG fees. aˆ¦For illustration, our mean [ OPIS ] would ensue in KPMG fees of $ 360,000 with a maximal punishment exposure of merely $ 31,000. ” Such political orientations encourage accounting houses to rapacious sell revenue enhancement turning away strategies without constrain any codification of moralss, claims of societal duty, professional subject or self-regulation. Furthermore, the article provides some other grounds to uncover the schemes used by KPMG in selling VAT turning away strategies and the tactics used by other major accounting houses like Ernst & A ; Young and PricewaterhouseCoopers in selling paysheet revenue enhancements turning away schemes both based on the instance in UK. Through those publically available grounds quoted in the article, the writers summarise that: For the intent of addition net incomes, major accounting houses mobilise individualist discourses and promote their clients to describe higher gaining with disregard the societal effects. They have created luxuriant corporate constructions, and marketing techniques to sell revenue enhancement turning away strategies. The extremely commercialized revenue enhancement turning away industry deprives the critical grosss for societal investing and which could do many human existences are unable to procure the basic necessities of health care, instruction, conveyance, clean H2O and other public goods. Through revenue enhancement turning away, accounting houses bring them into direct struggle with the province and civil society and dispute the hereafter of democracy.

Decision and Deduction

In decision, this article provides qualitative grounds about the engagement of accounting houses in developing and selling revenue enhancement turning away strategies. Such grounds could assist in understanding the flights in the enlargement of entrepreneurial accounting houses, conflicting with their expressed claims of ethical behavior and societal duty. The article particularly emphasises that the major function played by accounting houses in revenue enhancement turning away industry straight erodes the societal investing to make all sorts of societal jobs. Effective Torahs, ordinances and enforcement are the lone manner to look into the houses. However, effectual ordinances are improbable because accounting houses use their fiscal might to colonize policymaking through lobbying, the facade of professional ordinance, funding for political parties. Furthermore, repeated mulcts and warnings from regulators did non control the revenue enhancement turning away activities by accounting houses. The regulators suspended or restricted the operations of some house, but even that seems to hold small consequence as accounting houses seems to be acute to prosecute higher net incomes and net incomes at about any cost. “ Possibly, this is an inevitable characteristic of capitalist economy distinguished by oligopolies where single houses and corporations are so large that it produces a certain sort of haughtiness and makes the senior people believe that they are someway beyond the range of the jurisprudence, regulators and public sentiment ” ( Sikka, 2008 ) .

The article focal point on revenue enhancement turning away industry which provides a window for analyzing some of the major issues raising the universe today and broadens fresh positions on the function of accounting, comptrollers, hearers, flights of entrepreneurial civilization, corporate societal duty, moralss, bounds of ordinance, hereafters of the province, democracy and much more.


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