The Big Four and their hidden role in the political arena in Europe

The Big Four and their hidden role in the political arena in Europe

The ’Big Four’ (Deloitte, EY, KPMG and PricewaterhouseCoopers) have influential roles in various lobby groups, including the European Business Initiative on Taxation and the European Contact Group, which try to influence EU policy responses to tax avoidance.

(EC-Audiovisual Service/Cristof Echard )

We all pay taxes, don’t we? At least this is the theory. But in the European Union, billions of euros are lost every year on tax avoidance and tax planning, depriving public budgets of much-needed resources to fund education, healthcare, social services and public infrastructure. A study for the European Parliament has estimated that corporate tax avoidance costs the EU between €50 billion and €70 billion a year – and could even be as high as €160-€190 billion. This isn’t taking tax fraud into account.

The tax avoidance industry consists of a web of organisations and individuals that facilitate corporate tax avoidance, including tax advisers like accountancy and auditing firms, tax lawyers and law firms, and financial institutions such as banks. The ’Big Four’ accountancy firms – Deloitte, EY, KPMG and PricewaterhouseCoopers (PWC) – are a key part of this process.

A new report by the Corporate Europe Observatory Accounting for influence - How the Big Four are embedded in EU policy-making on tax avoidance shows that the Big Four are omnipresent in the European Union’s policy processes for tackling corporate tax avoidance and they work through several channels of influence.

EPSU, a European trade union organisation, has been sitting in the high-level expert group of the European Commission for four years, the so-called Platform for Tax Good Governance, and what the report shows is that not much improvement has been achieved.

The Big Four’s footprint across European legislation

We can see their footprint across European legislation. In public procurement contracts, the Big Four receive tens of millions of euros from the European Commission each year, for studies and impact assessments that are then used to underpin policy decisions, including in the area of tax policy. Some of those companies accused of helping to avoid tax sit on the very same platforms that are meant to give advice. They are also members of the Joint Transfer Pricing Forum, another group that is supposed to help determine European Commission policy.

The Big Four have influential roles in various lobby groups, including the European Business Initiative on Taxation and the European Contact Group, which try to influence EU policy responses to tax avoidance.

Last but not least, revolving doors are also a part of their strategy. The Big Four have established a culture which enables high-ranking EU officials to join their staff, normalising the revolving door between the European Commission and the Big Four.

Just one example of this influence in action is the intensive lobbying by the Big Four and big business interests against public country-by-country reporting. This EU proposal dubbed “public CBCR” would require corporations to publicly report their profits in every country in which they operate, to avoid their use of loopholes to shift profits to tax havens.

Ahead of the Commission’s proposal, the Big Four lobbied fiercely to prevent the mandatory publication of this information, with EY citing “commercially sensitive information” and Deloitte pushing a ‘voluntary’ approach. Many big business lobbies repeated similar messages.

Now the public CBCR file is under discussion by the 28 member states in the EU Council, and there are concerns that it may be further weakened or even indefinitely delayed. While some states such as France, Belgium and the Netherlands have expressed support for the proposal, others including Austria, Cyprus and Luxembourg are opposed, with key countries like Germany yet to express a view.

Given all the evidence of the role that accountancy firms like Deloitte, EY, KPMG and PWC play as advisers that facilitate and profit from corporate tax avoidance, it is remarkable that they continue to be treated as objective and legitimate partners in policy-making circles. It’s time to kick the Big Four and other players in the tax avoidance industry out of decision-making processes for EU anti-tax avoidance policy. This must start with recognising the inherent conflict of interest that lies in allowing tax intermediaries to advise policy-makers on how to tackle tax avoidance. Only then can an effective framework emerge which ensures public-interest tax policy-making is protected from vested interests.