Luxembourg Tax Leaks Put PwC On The Defensive

The International Consortium of Investigative Journalists (ICIJ) and its media partners released 28,000 Luxembourg tax ruling documents on November 5. These documents were all prepared by global audit firm PricewaterhouseCoopers (PwC) for 340 corporate clients – 548 comfort letters issued from 2002 to 2010.  The ICIJ and several other newspapers and magazines all over the world reported on the stories embedded in these documents.

(The hashtag for Twitter for the ICIJ series is #LuxLeaks.)

I was quoted in one of the stories that was translated to several languages for media outlets in several countries, “Big 4 Audit Firms Play Big Role in Offshore Murk”.

“These firms are supposed to be built on honor and integrity and being a watchdog, but they’re so big now it’s all about making money,” says Francine McKenna, an accountant who has worked for PwC and KMPG and now writes a blog, re: The Auditors, about big accounting firms’ misbehavior. “They’re not worried about reputation, because all of this stuff has not affected their ability to get bigger and bigger and bigger.”

I published a rebuttal at yesterday to PwC’s main defenses:

1) The documents were obtained illegally.

2) The advice PwC provided was legal.

I also raised serious issues of auditor independence violations. PwC provided tax avoidance advice to many, many, many audit clients during the post-SOx period covered by the documents.

You may think that tax avoidance advice, as the most highly contentious auditor services prohibition that was watered down in Sarbanes-Oxley, is free for the making.  The phrase the firms like to use to disguise the true nature of the legally dubious tax avoidance schemes they design, market and implement is “tax efficient”.

It’s true that the loophole for auditors and tax advice left in SOx is big enough to drive your entire diverse staff through in a rainbow colored double-decker bus. However, PwC and others crossed the line by designing and mass-market selling speculative, aggressive tax avoidance schemes to audit clients, too.  That’s prohibited by SOx and by general auditor independence principles, for sure.

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From my column at Medium, “Luxembourg Tax Document Leak Leaves PwC and its Multinational Clients Vulnerable”:

PwC is also asking for big trouble from the SEC and PCAOB in the US by providing “novel and debatable tax strategies and products that involve income tax shelters and extensive off-shore partnerships or affiliates” to its own audit clients.

PwC audit clients make up a very large portion of the 340 Luxembourg tax advice clients on the ICIJ list. PwC must comply with US SEC auditor independence rules under the Sarbanes-Oxley Act of 2002 for US-listed audit clients.

PwC sold, and the audit committees approved, non-audit tax services for “transaction[s] initially recommended by the accountant, the sole business purpose of which may be tax avoidance and the tax treatment of which may be not supported in the Internal Revenue Code and related regulations.”

That’s prohibited by the Sarbanes-Oxley Act of 2002.

Wait until you see the long list of PwC audit clients that bought these tax dodger deals!