The Wealth Defence Industry: A large-scale study on accountancy firms as profit shifting facilitators

Abstract

A large-scale study on accountancy firms as profit shifting facilitators Corporations increasingly engage in innovative 'tax planning strategies' by shifting profits between jurisdictions. In response, states try to curtail such profit shifting activities while at the same time attempting to retain and attract multinational corporations. We aim to open up this dichotomy between states and corporations and argue that a wealth defence industry of professional service firms plays a crucial role as intermediaries. We investigate the subsidiary structure of 27,000 MNCs and show that clients of the Big Four accounting firms show systematically higher levels of aggressive tax planning strategies than clients of smaller accounting firms. We specify this effect for three distinct strategies and also uncover marked differences across countries. As such we provide empirical evidence for the systematic involvement of auditors as intermediaries in corporate wealth defence.

Assets in Periphery, Agents in the Core: Mapping the Micro Structures of International Tax Planning

“…Tax advisors are lawyers, wealth managers, consultants and accountants with an expertise in the highly technical fields of international tax law, corporate taxation and accountancy, and wealth protection (OECD, 2008;Harrington, 2016;OECD, 2018;Mulligan andOats, 2016, Wójcik, 2020). They advise corporations and individuals, devising financial products that allow their clients to move assets offshore and escape taxation (Sikka & Willmott, 2013;Jones, Temouri and Cobham 2018;Ajdacic, Heemskerk and Garcia-Bernardo 2019;OECD, 2008;Russell & Brock, 2016;Wójcik, 2013). As such, they "hold considerable power, which they exercise by operating legal and financial vehicles designed to escape the control of governmental or intergovernmental organizations through the use of offshore jurisdictions" (Wójcik 2013,330).…”

“…The idea of advisors being central to tax planning and holding power over some portion of capital flows is widely established. Their role in tax planning has been conceptualized in the literature (Wójcik, 2013), demonstrated empirically (Poon, Tan, & Hamilton, 2019;Wainwright, 2011;Harrington, 2016;Beaverstock, Hall and Wainwright, 2013;Jones, Temouri and Cobham 2018;Ajdacic, Heemskerk and Garcia-Bernardo 2019), and acknowledged by international organizations (OECD, 2008). The power of tax advisors as intermediaries and suppliers of tax and business services has been conceptualized in two strands of the literature on tax and offshore finance.…”

“…If the number of employees found on LinkedIn and the official websites on LinkedIn is similar, this strongly indicates that most tax advisors do register on LinkedIn. Given the pivotal role of the Big Four accountancy firms in the tax planning of multinational corporations (Jones, Temouri and Cobham 2018;Ajdacic, Heemskerk and Garcia-Bernardo 2019) and the role of the Big Four on training tax advisors (Christensen, 2020), we assume that tax advisors outside the Big Four will also have LinkedIn profile. To collect data from Deloitte, we created a targeted advertisement towards employees in all Deloitte entities available on LinkedIn.…”