A panel of UK legislators has scolded PwC for its promotion of alleged tax avoidance schemes on an "industrial scale".

A panel of UK lawmakers last week attacked the global professional services firm PricewaterhouseCoopers for the company’s “promotion of tax avoidance on an industrial scale”. PwC has defended its conduct.

The House of Commons Public Accounts Committee singled out PwC in a report looking at how companies have funnelled money via jurisdictions such as Luxembourg to minimise tax bills, even though they have hardly any substantive economic activity in such places. Under European Union law, this behaviour, it should be noted, is legal.

A few weeks ago, a group called the International Consortium of Investigative Journalists, headquartered in Washington DC, obtained almost 28,000 leaked documents on nearly 340 firms it said secured secret deals from Luxembourg allowing the companies to slash tax bills. Organisations such as Deutsche Bank and Credit Suisse were among the firms in question. The group has also obtained leaked data from the BVI and Channel Islands, concerning corporate and private accounts. (The group has also acknowledged that such use of IFCs is not illegal.)

“This is the second time we have had cause to examine the role of large accountancy firms in advising multinational companies on complex strategies and contrived structures which are designed for no purpose other than to avoid tax,” Margaret Hodge, MP, chair of the PAC, said in a report on Friday.

“We believe that PricewaterhouseCoopers’ activities represent nothing short of the promotion of tax avoidance on an industrial scale,” she said.

“Contrary to its denials, the tax arrangements PwC promotes, based on artificially diverting profits to Luxembourg through intra-company loans, bear all the characteristics of a mass-marketed tax avoidance scheme,” Hodge added.

PwC issued a blunt response: “We stand by the evidence we gave the Public Accounts Committee and disagree with its conclusions about the work we do. But we recognise we need to do more to explain the positive role we play in the tax system and in helping businesses to operate successfully. We agree the tax system is too complex, as governments compete for investment and tax revenues. We take our responsibility to build trust in the tax system seriously and will continue to support reform.”

The issue is controversial because while governments rage against companies for registering in certain locations for tax purposes, such actions are not illegal under the rules of the European Union’s single market. In the US, meanwhile, there has been controversy about the practice, known as “inverting”, of corporations buying non-US businesses and moving tax domiciles abroad to avoid US corporate taxes, which are significantly higher than the OECD average. At the same time, the UK government has pushed for the idea of publishing a record of beneficial owners of companies, a move causing considerable angst in the global trusts sector, where concerns have been raised about the loss of legitimate financial privacy.

While the attack on PwC and companies using Luxembourg is a corporate, not individual, story, the lawmakers’ attack highlights how the function of tax planning has been put under pressure in recent years.

In its comments, the PAC’s Hodge said: “We consider that the evidence that PwC provided to us in January 2013 was misleading, in particular its assertions that `we are not in the business of selling schemes’ and `we do not mass-market tax products, we do not produce tax products, we do not promote tax products’.

“In our view these are in fact marketed tax avoidance schemes and we are also sceptical that HM Revenue & Customs was kept fully informed of PwC’s activities. We believe there is no clarity about the boundary between acceptable tax planning and aggressive tax avoidance. Multinational companies do not need to conduct any business of substance in the countries where they shift profits to in order to avoid tax,” Hodge said.

Hodge gave the example of evidence the PAC took from Shire Pharmaceuticals, which has arranged its affairs so that “interest payments on intra-company loans worth £10 billion reduce significantly its overall tax liabilities”. She said the company paid tax of only 0.0156 per cent on its profits to the Luxembourg tax authority.

“The `substance’ of Shire’s business in Luxembourg, used to justify these arrangements, consists of two people out of the 5,600 staff the company employs globally. Neither PwC nor Shire could demonstrate that the company’s presence in Luxembourg was designed to do anything other than avoid tax,” Hodge said.

“Unless HMRC takes urgent action, this irresponsible activity will go unchecked, causing harm to both the public finances and the reputations of the companies involved,” she said.

The report was produced, the PAC said, on the basis of evidence from Kevin Nicholson, head of tax, PricewaterhouseCoopers, and Fearghas Carruthers, head of tax, Shire Pharmaceuticals.