There was drama in the halls of Westminster yesterday, as the Public Accounts Committee chair Margaret Hodge unleashed her ire on PwC’s tax head Kevin Nicholson over the firm’s practices in Luxembourg. Nicholson was summoned after letters from PwC about the tax arrangements of hundreds of firms in the Duchy were leaked last month.
The letters appeared to reveal how PwC helped 343 companies reduce their bills using complex tax structures such as ‘hybrid loans’, where profits are funnelled to subsidiaries in Luxembourg and ‘converted’ to non-taxable interest.
Hodge was not impressed. ‘It’s very hard for me to understand how this is anything other than a mass-marketed tax avoidance scheme,’ she said to Nicholson, asking whether he had lied when he denied PwC’s involvement in such schemes before the committee last January.
‘No, I didn’t lie,’ Nicholson replied. ‘I stand by what I said at the meeting’. The leaks, he said, were looking through ‘a narrow lens’ by focusing only on Luxembourg. There would be equivalent letters advising US firms to invest in R&D in the UK, he suggested, were that the focus instead.
Hodge, who's tipped to be Labour's candidate for London Mayor, wasn’t having any of it, insisting that PwC was mass marketing a product in Luxembourg designed to reduce companies’ tax bills. ‘You’re selling a product that helps a business. That’s what you’re doing, isn’t it? Just be honest!’
Nicholson, who previously told MT that the government tinkers too much with the tax system, maintained his calm and denied PwC was selling anything other than advice. ‘This is not, madam chair, like buying a dress in Marks and Spencers’.
This back and forth went on for a while, but there was little agreement and Nicholson was told he would be summoned again. The committee’s attention then went to pharma giant Shire, which has two of its 5,600 employees in Luxembourg, handling billions of dollars of financing.
In something of a repeat of the Nicholson exchange, Shire’s tax chief Fearghas Carruthers defended the firm’s employment policies and the existence of its Luxembourg subsidiary despite suggestions that it was 'a scam' and potentially 'fraud'. Carruthers denied these accusations.
The matter eventually settled on its crux – that companies like PwC advised on, and companies like Shire made use of, legal tax arrangements devised by politicians in various countries. As Nicholson put it, the arrangements had 'been agreed and settled with HMRC - they were happy the main purpose of them wasn't tax avoidance'.
This, of course, led Hodge onto a certain Jean-Claude Juncker, European Commission president for a month, and prime minister of Luxembourg for 18 years.
‘Since I have uncovered all this, I have questions about if Mr Juncker is fit to be president of the European Commission’, she said. Given the theatrical exchanges that would surely follow, it’s a shame she can’t summon him to Westminster too.
If you ever find yourself summoned before a Parliamentary committee, take a look at MT's Hodge-proof survival guide to see you through to the other side.