In a keynote speech at the AICPA's National Conference on SEC and PCAOB developments, Chairman […]
IRS Commish: There’s a Big Difference Between Hiding Money Offshore and Sophisticated International Tax Planning
In a speech before the 23rd Annual Institute on Current Issues in International Taxation, Washington, DC, Doug Shulman (link not yet available on the website) explained how rich dudes schlepping money to Switzerland (but not any more!) or Hong Kong is not even close to the same thing as “Google’s Irrationally Exuberant Tax Strategy.”
As I have said before, I draw a sharp distinction between rooting out individuals hiding their money in foreign tax havens and the IRS and Treasury creating ground rules for multinational corporations operating in a global environment.
It’s no secret that multinational corporations engage in sophisticated international tax planning. We recognize that much of this is perfectly legal and many businesses are trying to get it right. Of course, some are pushing the envelope too far and it’s here that we have issues. Our goal is to differentiate between the two; to be on top of our game in this analysis; and to ensure corporations are compliant with the tax law and stay compliant.
Yesterday, the Accountancy and Actuarial Discipline Board (AADB) in the UK announced that they would be reviewing a decade’s worth of audits performed by KPMG for BAE Systems, the British Defense Contractor.
You see, the defense industry revels in some dark corners of the business world and BAE is no exception. The company plead guilty back in February that involved some “commissions” (some may call them “bribes”) paid to “third party agents” (some may call them “arms dealers”) to secure some business in various countries. Even though this was all settled recently the company was probably hopin forgotten about the whole thing:
The accounting probe threatens to reopen a damaging chapter in BAE’s history, eight months after the company paid almost $450m to settle a high-profile, transatlantic bribery investigation by the US Department of Justice and the UK’s Serious Fraud Office.
Right. So now, presumably because they thought it would be fun, the AADB is curious about what KPMG knew about these “commissions” and “third parties”:
AADB said it would investigate KPMG’s advice to BAE on the operations of three of its offshore companies, Red Diamond Trading, Poseidon Trading Investments and Novelmight.
“The regulator is looking specifically at the audit of commissions paid by BAE to outside agents, any tax advice given by KPMG on commission payments and the status of three offshore companies linked to BAE … penalties could include an unlimited fine for KPMG,” said Credit Agricole analyst Thomas Mesmin.
Well! The prospect for unlimited fine is interesting, to say the least. For their part, KPMG is cooperating with the investigation because, well, what else are they going to do? A spokesman told Reuters, “[T]he firm does not believe there has been any act of misconduct [and that] it will be cooperating fully with the AADB to ensure that the matter is brought to a swift conclusion,” which, as we all know, runs on an audio loop on the firm’s automated press inquiries line.
Meanwhile, some people are just tickled pink with these developments:
Campaign Against the Arms Trade spokeswoman Kaye Stearman told the Star: “We are delighted to see that the AADB is investigating KPMG audits of BAE, even so belatedly. These subsidiary companies were crucial in channelling so-called commission payments. It is vital that this investigation is done thoroughly and well and that any fraud and collusion uncovered is severely punished.”
The thing is, KPMG’s (or any accounting firm) involvement with BAE (or any defense contractor) has to be one of mixed feelings.
On the one hand, you’ve got extremely profitable international businesses that build all these cool toys that fly, blow things up and go into space.
On the other, a lot of their customers are the shifty type, they probably keep lots of secrets and – OH YEAH – their products are designed to kill people.
But once you get passed all that, you realize it’s simply a business needing professional services and who better to provide it than a Big 4 firm, amiright?