Estación Faisanes

The accounting profession worldwide is dominated by four big firms now known as the “Big Four”. The firms have amassed huge powers and are using it to undermine democracy, law and welfare of the public, (Mitchell and Sikka, 2011: 3). The general living standards of societies are being compromised and their social rights are violated by the accounting profession through tax avoidance and evasion. According to Mitchell and Sikka (2011: 3), “people are either paying more in taxes for diminishing social rights, pensions, education and health, or foregoing them altogether." This is because big corporations and wealthy individuals who are collaborating to dodge taxes that are used by government to alleviate poverty. It is sad to imagine that the accounting profession is at the forefront in fighting white-collar crime while on the other hand they have become big players in the same crime. It seems the accounting industry has adopted a position of taking pride in undermining society as Mitchell and Sikka did quote a partner in one of the accounting firms declaring that, “no matter what legislation is in place, the accountants and lawyers will find a way around it. Rules are rules, but rules are meant to be broken”. This is evidence enough to

120

confirm that accountants deliberately, as noted by Mitchell and Sikka, (2011: 4), “engage in tax avoidance/evasion, bribery, corruption and cartels to inflict enormous harm on society”. They labelled accountants as the new mafia that has assumed the role of terrorising the whole world in the name of working for the public interest.

6.2.1 Tax Avoidance

The practice of tax avoidance and evasion has been in existence for a long time that can be traced, “back to the seventh century to the extent that it is said that some Maltese males became clerics exclusively to benefit from tax exemption” (Xuereb, 2015: 217). These practices have been in existence for such a long time and this supports the fact that the accounting function have been capitalistic and furthering self-interested objectives of shareholders for a long time. Tax avoidance was defined by Filho, (2014: 8) when he writes that, “Tax avoidance can be understood as a lawful scheme managed by an individual or by a company to reduce its tax liability”. This is prudent because it is only normal for one to act in a way that reduces costs on their part. This implies that accountants are not committing any crime as long as they engage into their tax avoidance business without violating the law. But one can argue against tax avoidance by saying that being a responsible citizen implies a sense of care for others. Being a responsible citizen encompasses how much one cares for others. Tax avoidance means a reduction in the social welfare function and consequently such a scenario inflicts suffering to the majority of the members of the society who rely on welfare. This therefore means that tax avoidance, the individual /or the corporation is committing a social sin. It also follows that the accountants are committing such a sin when they sell their tax avoidance schemes to the rich elite and other businesses. What makes it even more worrisome is that, the accountants are defrauding the public when they assist shareholders to dodge their social responsibilities which is supposed to be fulfilled through payment of taxes.

121

Tax avoidance as Filho commented, “… is considered as a misemployment of the law, and abuse of the spirit of the legislation.” (Filho, 2014: 9)

It is an exploitation of loopholes in the law which were not expected when that piece of law was put in place. It is normal for a piece of legislation to have loophole because sometimes a watertight law can attract more costs than benefits. Agnar Sandamo, notes that, "… one of the demands that we should make a good tax system is the cost of administration are low" (2005: 644). A watertight piece of legislation can be costly and defies the objective of the law but it is unethical for an individual or group to exploit such loopholes. The accountants are exploiting the loopholes in the tax legislation and this has undermined the public social welfare efforts. Despite tax avoidance being illegal, most governments have discouraged the manipulation of the law and have made efforts to eliminate or minimise the exploitation of the loopholes in the law. This has not stopped the practice. The accountants are always ready to subvert the efforts of eradicating tax avoidance (Mitchell and Sikka, 2014: 3, also see Sikka, 2012: 5). The big four accounting firms namely Ernst & Young (E&Y), Deloitte Touche Tohmatsu Limited (Deloitte & Touche), Klynveld Peat Marwick Goerdele (KPMG) and PricewaterhouseCoopers (PwC) have been pointed at as taking the leading role in engaging into and marketing tax avoidance schemes. They have done this in collaboration with lawyers and financial consultants and as a result they have amassed huge wealth from their clandestine activities (Sikka 2012: 6).

Accounting firms have taken the same attitude as any other business organisations in that they have commercialised the practice making profits their main objective (Sikka. 2012: 7). Their emphasis is rested on retaining clients, pleasing the customer and promoting business virtues that increase profits. Sikka and Hampton (2005: 7) observe that, “to sell tax avoidance and other services, firms need to develop culture and practices that increase emphasis upon the commercial acumen of their staff and it is this commercial acumen … that is increasingly

122

promoted as the primary measure of their trustworthiness". As discussed in the last chapter, once a firm has taken profit maximisation as its primary objective, it ceases thinking ethically and has no regard for the plight of other individuals or organisations. The accounting professions have lost morality and it seems will not stop at anything other than the law in their endeavour of obtaining as much profits as they can. This fuels suspicion on their professional codes of ethics and conduct which gives a picture that the profession is socially oriented and is there to serve the public. Evidence has shown that the claim of the profession of serving the public interest does not exist. The profession is guided by the shareholder approach as discussed in chapter 5. The accounting profession has been commercialised as it is influenced by changes in contemporary capitalism, “where traditional values are being increasingly eclipsed by search for higher earnings and financial reward” (Sikka and Hampton 2005: 8).

The accounting professionals have joined the contemporary business band whose chorus is ‘bending the rules for personal gain is a sign of business acumen'. This is responsible for the ever-increasing income disparity across economies. Accountants, in my opinion, must the custodians and watchdogs of business ethics but instead, they have taken a leading role in inflicting pain to the public through crafting complicated tax avoidance schemes that are threatening revenue collection base of treasury. Sikka and Hampton (2005: 8) stated that, “… business acumen is increasingly accompanied by cynical disregard of laws and regulations”. The business of today is now obsessed with seeking profits and developing complex structures every day and are rewarding those advisers who can invent smart ways of beating the regulatory framework and increase earnings. Accountants have assumed that role of being advisers who work in cahoots with other professionals such as lawyers to exploit the weakness of the regulatory environment for self-interested objectives. Accountants are having sleepless nights creating efficient systems in cutting business operating costs (Mitchel

123

and Sikka 2011). Their easy target is the tax system through reducing or avoiding the tax burden of their clients. They promote tax avoidance schemes as natural, inevitable and a desirable pursuit. The big four have established networks across the world to sell services, including tax avoidance schemes. This unethical phenomenon has sustained the existence and growth of the accounting firms (Mitchel and Sikka 2011). Vast networks that have been established by the profession have enabled them to meet demand for their unethical services and their clients are able to choose from a variety of tax avoidance and other related packages that may have been developed for other clients, (Sikka and Hampton, 2005: 9). The sale of tax avoidance is not a new thing. Of concern is the magnitude at which it is accelerating and the variety of schemes and the tactics that are being employed by the accounting firms such as the use of tax havens.

There is no precise definition of tax haven, (Gravelle, 2015: 3). Tax havens are defined by the Organisation for Economic Co-operation and Development (OECD) as to mean, “no or low taxes, lack of effective exchange of information, lack of transparency, and no requirement of substantial activity”. Tax havens distort investment and generally undermine the trust in tax systems since they offer low tax rates or even no taxes at all for foreign investors. Big companies and the rich are escaping taxes through hiding billions of dollars offshore using a variety of tax avoidance and evasion schemes with the help and advice of the accounting professionals, (Farny, 2015: 2, also see Mitchell et al, 2002: 4). Accountants working in collaboration with lawyers have assisted the rich and multinational companies in the setting up and fronting of bank accounts, shell and nominee companies in tax havens. Tax havens are interested in registering wealth individuals and companies for a nominal fee so that they can dodge taxes from their countries or from countries where they are making wealth from.

Poor countries have for a long time been lamenting under limited revenue. They have failed to raise sufficient tax revenues. Their tax revenue bases have failed to grow. Instead, the tax

124

bases are shrinking with time. This has been attributed to the presence and tolerance of tax havens among other vices. The accountants have helped in eroding the tax bases when they advise owners of capital to maximise their wealth by reducing their tax liability through the use of tax havens. As taxes on the profits of business, on the earnings of wealthy individuals and on trade have diminished, governments usually increase unavoidable taxes on goods and services in trying to cover the gap. This is regressive and shifts more of the burden of taxation onto the shoulders of poorer people. It is therefore not clear why tax havens have continued to exist given the burden it brings to the ordinary people. It is argued that the tax havens are a creation of the accountants who want to hide their loot from selling tax avoidance schemes at the expense of poor citizens (Sikka and Hampton 2005). Tax havens have allowed multinational companies, the rich elite, corrupt leaders, criminals and terrorists to keep their wealth away from the prying eyes of national tax authorities(Sikka and Hampton 2005). This is because accountants deliberately manipulate tax law. This leaves the ordinary people as major causalities of the presence of tax havens. It seems they will be in existence for a long time to come because accountants are taking a big role in advising government departments on tax legislative design and enforcement (Mitchell et al, 2002: 4). Because of that, the accountants will offer advice that will not threaten their new line business that is selling tax avoidance schemes through the use of tax havens. Governments are voted into power through persuasion of voters by promising them to invest public funds in education, healthcare and other services that benefit the public. This will not come to pass because the accounting profession will always exercise the final veto and shrinks the tax base and erode tax revenues through their tax avoidance industry.

Legally it has been understood that tax avoidance practices are legal, unlike tax evasion. Tax evasion was defined by Slemrod, (2007: 26) as a case in which a taxpayer unlawfully fails to honour a lawful tax liability through commission of fraud. It is, therefore, an illegal practice

125

to escape from paying taxes. Tax evasion causes a reduction in a country's economic growth. The growth of an economy is depended on the level of income the government has as one of the variables. Therefore, the non-remittance of taxes will slow down the economic growth of the particular country. The citizens of that country are also denied a better social welfare resulting in deteriorated general living standards especially to those that are already poor and the underprivileged. This practice also results in the widening of the income disparity gap. It is common that when a tax authority fails to collect taxes from the rich elite and big companies it will increase taxes on basic consumption goods which is easy to collect with a view to cover up for the revenue that has been lost through tax evasion. This has the effect of increasing the prices of the affected goods and exerts more pressure on the poor who have a limited income and leaving them worse off. Tax evasion works on the same principles as tax avoidance. The only difference is that tax evasion is an outright violation of the statutes with a view of running away from honouring one's tax liability. Vincent Maposa et al, (2012: 284) referred to the two as tax, tax avoidance and tax evasion, as the twin devils. Another fraudulent practice that is committed by accountants’ profession is called creative accounting.