KPMG have published a new paper called 'Developing the Concept of tax Governance'. Published yesterday, I think, I've now read all 31 pages of it. As a result, I've got to tell you my copy is covered in comments such as 'No', 'Wrong', 'Source?' 'Window dressing' and 'Come on!'. Put simply, I think this paper misses the mark by a mile. Why? Well, let's start with two quotes which tell you what KPMG really seem to think, despite all the discussion the present on ethics, morals and legality that precede them. They are:
Arguably, in the tax arena the desirable commercial outcome is to pay as little tax as legally possible. (p13)
and
In the case of employees, there is a requirement in s172(1)(b) to have regard to their interests per se rather than simply to the need to foster the company's relationship with them. In the tax arena this might involve, for example, ensuring that remuneration was paid in a tax-efficient manner. (p14)
It's staggering that these appear the clearest conclusions they come to. To put it another way, what does this document change? Despite all the caveats in the paper they can't avoid the argument that 'tax efficiency' is what it's all about. Indeed, having even shown that this cannot be legally required of companies, they then argue it is for employees - a point almost no one would agree with. Which makes me wonder what this paragraph is all about:
This paper adopts the view that if debate on these issues is to proceed in a helpful way, it is important that participants be careful not to impugn the motives of those with whom they disagree. Those who see certain forms of tax avoidance as clear moral evils may need to recognise that those who, by contrast, see those particular activities as perfectly acceptable do not necessarily do so because they lack ethical sense, or because they have deliberately disregarded what they know to be right. They may simply differ on how ethical principles which are held in common by all the parties, for example honesty and consideration for other people, apply to the particular circumstances. If they are happy to debate the issues on the basis of such a shared ethical framework then they are not enemies of the first group, but friends with whom they disagree.
No doubt this is addressed to the persons called 'some commentators' who appeared throughout the document, but who seem to have never expressed their opinion in an identifiable source so that substantiation of their view can be confirmed,. Let's suppose for a moment though that one of those referred to might be me. It's a long shot, I know, but just possible. The footnotes show that they've been here, which is no surprise.
What KPMG are asking me to do is assume that they KPMG have never deliberately disregarded what they know to be right. Well guys, that's what the US Senate found you did, not that long ago. And we're also asked to assume that KPMG is motivated in the same way as us, for example with regard to honesty and consideration for people. But candidly, that's absurd. KPMG's tax practice is riddled with what some see as dishonesty. Take this as an example, that's printed on every page of the report:
© 2007 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
I think that's disingenuous. I think KPMG is playing games by making that statement. It would have us believe that it's one international firm on the one hand, but a bunch of unrelated entities when it comes to liability on the other. That's not honest, not in common usage of the term. And those independent entities can still have a global head of tax practices, suggesting to me a unified command and control structure, which is in tax and governance terms in complete conflict with the stated independence of the individual entities. What's more, that control is hidden, secretively, in Switzerland where the impact it has on the transfer of wealth from those without to those with wealth cannot be assessed. Sorry - but all ethical codes that exist think that consideration for the poor is a fundamental part of ethical conduct, and it's not inherent in KPMG's approach to its work or the services it promotes.
So we don't share an ethical framework. As Senator Carl Levin, the senior ranking member of the US Senate said of KPMG:
Our investigation revealed a culture of deception inside KPMG's tax practice.
But we will talk, even so. I'll tell you I talk to some of the others in the Big 4, without difficulty. KPMG though, when I tried to engage with them, told me that until I played by their rules they wouldn't engage. They still are. That's not the way to find common ground. Surely they know that? I will talk to them - whenever they like. Off the record if they want (much of what I do is - which makes this blog less interesting than it might be, but advances issues more quickly than might otherwise be the case). But please KPMG don't set the pre-condition that I have to agree you're good guys before I and others like me can do so. That is not going to happen. Not when you're still on probation on some charges and the court cases are still rolling on others.
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Your comments on KPMG’s new report dismay me. By campaigning for higher taxes and more draconian enforcement you appear opposed to business, entrepreneurs and wealth creation. Like it or not, we all depend on wealth creation and damaging it is simply foolish. You only have to look at Zimbabwe to see what happens. High taxes are demanded in the name of the poor, yet experience tells us that it is the poor who suffer the most when an economy weakens or collapses.
In your socialist utopia as taxes tend towards 100%, individual freedom of choice would be eliminated. This would be bad for almost everybody and it would have a devastating effect on business. Individuals and business would have virtually no discretion to spend or invest their money as they choose. To fund all their needs or investments they would have to go cap in hand to some government official who would follow a procedure to determine who gets what. In most cases they would probably be turned down but even when the idea was supported they would often find the money has already been spent no doubt by cronies and there is a huge waiting list for funds.
The trouble with your utopia is that the enormous ingenuity, insight, experience and enthusiasm that individual decision makers can bring to bear on each spending decision is replaced by the dead hand of predetermined rules never tested in practice, merely debated in theory, and then passed by unqualified people (members of parliament or their whips) years previously who had absolutely no idea of the circumstances under which their rules might be applied. This situation existed in the Soviet Union. People had money, lots of it, because there was nothing to spend it on. Flats were allocated by the state, usually several families to each flat and cars were also allocated by the state, but there was a 10 to 20 year waiting list. The shops were empty of all but the meanest essentials, even food was scarce. Bribery and corruption were endemic, public officials of all kinds demanded payments. Gorbachev in his memoirs explained that despite 70 years of dedicated effort the Soviet System could not deliver the goods. They had a huge problem when ordinary citizens were allowed to see the prosperity in the west. Indeed we know the East Germans were forced to build a wall to prevent their citizens voting with their feet. Nobody in the Soviet block was allowed to leave without an exit visa. Gorbachev visited Italy frequently as a guest of the Italian Communist Party he was shocked at how much better the Italian economy performed and how much better Italian people lived compared to even the middle ranking elite in Russia. Sadly, the UK is a long way down this completely discredited path of the Soviet command economy.
I live part of the year in Colorado. I meet with English people out here and those without permanent residence status are all terrified that perhaps one day they might have to return to the UK. If that calamity were to befall them they simply can’t hope to match the living standards, the schools, the hospitals, the lack of crime, the shops and the convenience that an entrepreneurial society can offer. I hope you see the parallel. The extraordinary thing is that like the Soviet Union Britain is oil rich compared to most other countries, yet the population don’t appear to benefit.
The horizon doesn’t look too promising from the UK, instead of using the short term gains of North Sea oil to boost your economy and investment for the future, you allowed, indeed encouraged the pound to appreciate to control inflation as a result your export industries have massively shrunk or collapsed, now you have a massive trade deficit and it is not clear how you undo all this damage. One thing you can be certain of is that demoralizing with punitive taxes and other measures the small number of people who can and do really make a difference is as short sighted and as prejudiced as the policies of your fellow revolutionary socialist Robert Mugabe.
[…] Take this one from Paul Rogers, for example. I’ve no idea who he is, but he clearly believes that 1) I’m ant-business 2) I would like 100% tax rates 3) my approaches can be compared to those of Robert Mugabe. […]
[…] The Economist published a review of offshore finance as a supplement with last weeks edition (24 February 2007). Most is not available free on the web, but the lead article is, here. As with KPMG’s recent efforts, this is a poor piece of work. To put it another way, it’s quite clearly designed as an apology for the fact that the Economist carries advertising for the tax haven operators of the world. […]