Widespread distrust among tax officials of Big Four, says OECD survey

A majority of tax officials believes the Big Four accounting firms try to exploit loopholes in laws to help clients at least some of the time, with only a quarter believing they consistently follow the spirit of the law, a study by the OECD has found.

Tax authority employees also believed the Big Four — Deloitte, EY, KPMG and PwC — were more likely than local accounting firms to advise clients to use aggressive tax strategies, underlining a lack of trust between the firms and government administrators.

The study found a widespread belief within state tax bodies that the Big Four promote artificial tax planning structures. A significant minority of officials said the firms use their lobbying power illegitimately.

The Big Four dominate the global accounting and tax advisory industry, winning work from the world’s largest companies. Their tax departments, some of which include income from their smaller legal services functions, reported combined global revenues of $37bn in their most recent annual results.

Much of the public scrutiny of the Big Four in recent years has focused on their oligopoly power and the quality of their audits of large companies after scandals such as Wirecard in Germany, 1MDB in Malaysia and Carillion in the UK. But some partners at the firms believe their tax advisory and lobbying activities have a far greater impact on the global economy than their audit functions.

The Big Four were generally seen as formally co-operative by officials but the findings, published on Monday, suggest a large proportion believe the firms try to exploit loopholes to help clients.

The OECD report is based on a survey of more than 1,200 tax officials from 138 countries.

About a quarter of those surveyed said the Big Four follow the spirit of the laws in the majority of cases. In Latin America and the Caribbean, 45 per cent said the firms never do so or do so in only a few cases. The equivalent figures in Africa, Asia and the OECD countries were 40 per cent, 29 per cent and 30 per cent, respectively.

The number of respondents who said the firms were transparent with tax authorities in the majority of cases, providing all relevant information when requested, ranged from 18 per cent in Latin America and the Caribbean to 31 per cent in the OECD.

The proportion who believe the Big Four sometimes or often use their power illegitimately to lobby on behalf of clients to influence tax policy and laws varied from 26 per cent in Asia to 37 per cent in Latin America and the Caribbean.

While many of the findings exposed mistrust of the Big Four among public sector employees, in most regions the number of respondents who believed the firms encourage clients to be less compliant and to pay less tax was heavily outweighed by those who said they encouraged increased compliance.

PwC said it did not agree with all the views expressed in the report but added that it agreed “trust is a key component to the effective operation of tax systems around the world”. It said its code of conduct “clearly acknowledges the importance of the public interest in any decisions”. 

EY said it welcomed the OECD’s work “as well as . . . work to remove misconceptions and strengthen the constructive dialogue between taxpayer and tax authority”. It said it was “committed to complying with all laws and regulations in all jurisdictions; and abides by the highest standards of professional conduct”.

Deloitte and KPMG declined to comment.