MPs criticise accounting firms on tax avoidance

By Tom Bergin

LONDON (Reuters) - MPs criticised the role of accounting firms in helping big companies avoid paying tax and said in a report on Friday that close corporate relationships with government raised concerns about undue influence on tax policy.

Corporate tax avoidance has risen to the top of the political agenda in Britain in the past year following reports which showed some major companies paid little or no tax in the country by shifting profits to tax havens.

While the four biggest accounting firms, KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers said they no longer advised on aggressive tax avoidance plans, the Public Accounts Committee said: "They are still devising complex schemes that look artificial".

It went on to say the accounting firms were still prepared to recommend tax arrangements which had as little as a 50 percent chance of being successful if challenged in court.

The report also questioned the way staff from the "Big Four" were seconded to the government to help draft tax rules.

"The large accountancy firms are in a powerful position in the tax world and have an unhealthily cosy relationship with government," Committee chair Margaret Hodge said.

But the firms said they behaved ethically and that the complexity of tax law was largely to blame for any appearance to the contrary. They welcomed the committee's calls for the rules to be simplified.

"We perform an essential function in the UK economy by helping our clients navigate this complexity," Bill Dodwell, Head of Tax Policy at Deloitte said.

The committee called on companies to disclose more information about their tax affairs. The government has also called for more disclosure but has said it wants this to be done on a voluntary, rather than a mandatory, basis.

(Reporting by Tom Bergin; Editing by Elaine Hardcastle)

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Speedier loans draw small UK firms to online financing - report

By Kylie MacLellan

LONDON (Reuters) - Small British businesses have turned to seeking funding from members of the public online because of the slow speed at which banks process loan applications, a report showed on Friday.

Peer-to-peer lending, which allows small investors to earn interest from loaning money to individuals or businesses, is one of several alternative sources of finance that have grown up as banks ration credit in response to tougher capital rules and the economic slowdown.

This week the British government gave banks greater incentives to lend to small firms in a bid to inject new life into the country's stagnant economy.

The report, produced by innovation charity Nesta using data from Britain's largest peer-to-peer business lending website Funding Circle, found the length of time it takes to secure a bank loan, rather than the availability of loans, was the most common reason given by firms for choosing the online route.

More than 75 percent of the 89 companies surveyed also said they would go to Funding Circle first for future funding.

"Coupled with the recession, it's the explosion of social media and the use of (the) Internet that has made it easier and cheaper to connect those who want to invest with the businesses that need finance," said Stian Westlake, executive director of policy and research at Nesta.

British and U.S. authorities are working out how best to regulate the wider crowd funding industry, which also includes sites that enable individuals to buy small equity stakes in companies or fund creative projects in return for non-financial rewards, such as a copy of an album.

Crowd funding websites helped companies and individuals worldwide raise $2.7 billion (1.7 billion pounds) from members of the public in 2012, an 81 percent increase on the previous year, data showed earlier this month.

Regulators are keen to make sure investors are aware of the risks and ensure the sites vet firms adequately to avoid scams.

Nesta said 88 percent of the 630 lenders surveyed had other investments such as stocks or bonds, while 38 percent had more than 10 years experience working with small- and medium-sized firms.

On average, Funding Circle lenders had invested a total of 7,983 pounds and 75 percent said they expected to increase the amount of money they put in over the coming year.

(Editing by David Holmes)

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UK firms see more jobs but no economic growth - survey

LONDON (Reuters) - British businesses expect to increase hiring over the next six months but given falling confidence among manufacturers, they do not anticipate overall growth in the nation's economy, a survey showed on Monday.

An optimism index from accountancy firm BDO, which measures business performance expectations two quarters ahead, rose to 92.2 in March from 90.6 in February.

But both the optimism and output indices compiled by BDO remained below 95 which marks the dividing line between growth and contraction for the survey, BDO said in a statement.

BDO's employment Index, which measures UK businesses' hiring intentions over the next two quarters, reached 96.0 in March, the highest since August 2011.

The British economy could already be in its third recession in five years although the strength in the labour market has surprised economists.

Service sector confidence rose substantially in March but optimism in the manufacturing sector deteriorated sharply - falling to 88.2 in March from a reading of 94.5 in February, according to BDO.

A falling pound, which makes imported components more expensive, and weak demand for British exports from struggling euro zone economies were among the factors weighing on manufacturers' confidence, BDO said.

"It was disappointing to see little action taken in last month's budget to help this beleaguered sector," Peter Hemington, partner at BDO said of manufacturing.

Manufacturing activity, which accounts for around a fifth of the economy and is at the forefront of the government's recovery efforts, fell for the second consecutive month in March.

The indices are calculated from data including purchasing managers' surveys and surveys by the Confederation of British Industry and the Bank of England.

(Reporting by Dasha Afanasieva; Editing by Ruth Pitchford)

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Reformer's drive to change Indonesia state firms hits roadblocks

JAKARTA (Reuters) - On an overcast Saturday in early January, the man in charge of modernizing Indonesia's state companies suddenly lost control of his prototype electric sports car and ploughed into the side of a mountain in East Java.

State-Owned Enterprises Minister Dahlan Iskan was unhurt, but the $300,000 bright red "Tucuxi", dubbed "Indonesia's Ferrari" by local media, was a write-off.

It looks like his chances of pulling off an ambitious reform of the bloated state sector are heading the same way.

More than a year after his appointment, most of Iskan's initiatives to fix state firms have either been revoked or blocked by parliament or remain stuck in ministries, according to government and parliamentary documents obtained by Reuters.

"The political challenge is still huge," said Iskan, who started his career as a journalist and still writes a regular column in his newspaper, in an interview. "Life is like that. It's difficult to make this country better."

Iskan has abandoned plans to start mass production of the privately funded Tucuxi, named after a type of dolphin.

But criticism over the crash -- he is being investigated by police for driving an unlicensed car on public roads, although no charges have been filed -- dented his reputation and further sapped his political capital, making it even tougher for him to battle powerful vested interests.

It is a frustration that, according to those close to him, is motivating the media mogul to consider standing as a candidate in next year's presidential election despite being viewed as a rank outsider.

"I would lie if I say I don't want to, I want to," Iskan said, when asked if he wanted the presidency.

He conceded he held only a small chance of winning, and declined to discuss his reasons for running because he was still a serving minister. But several people close to him said he saw the presidency as the only way to achieve change.

"Iskan is impatient over the lack of action just like any private sector guy. He's frustrated with the political pressure especially from the parliament," said a source close to Iskan who declined to be named due to the sensitivity of the issue.

REFORM PRIORITY

President Susilo Bambang Yudhoyono, two-thirds of the way through his second and final five-year term, has made reform of state companies a priority in developing the G20 economy.

Yudhoyono turned for help to Iskan, who made his reputation turning the near-bankrupt Jawa Pos Group into one of Indonesia's biggest media companies.

Just over a year since his appointment in late 2011, Iskan has struggled to implement any of his ambitious plans. On January 23, he announced that he might have to cancel all his planned initial public offerings (IPOs).

It is not the first time Yudhoyono has picked a reformist and then failed to give them protection. His highly respected finance minister, Sri Mulyani Indrawati, became so exhausted by relentless politically motivated criticism she left in 2010.

Indonesia's 140 state-controlled firms account for a huge chunk of Southeast Asia's biggest economy -- their total revenues are estimated to have hit 1,500 trillion ($155 billion) last year, or nearly a fifth of gross domestic product.

Several of the companies have complete or near control of key industries such as energy, power and agriculture that underpin Southeast Asia's biggest economy.

"There is an ownership fetish -- the state wants to act as a entrepreneur," said James Castle, chairman of CastleAsia, one of Indonesia's leading consultancies for foreign firms.

"They are everywhere, acting like private companies, and they crowd out the private sector."

ALL THE PRESIDENT'S MEN

Even Iskan's attempt to take control of the appointment of senior state company managers has largely failed.

In November 2009, Yudhoyono, criticized over repeated power cuts, gave Iskan the job of heading state electricity monopoly PT Perusahaan Listrik Negara (PLN) and agreed to allow him to choose his own board. The appointment was seen as a success.

As state-owned enterprises minister in 2011, he wanted similar freedom to make appointments free of political considerations. He discovered quickly that wasn't so easy.

Executives connected to political party chiefs and the presidential palace are on the board of more than half of the top 25 state firms, according to state-owned enterprises ministry data and the companies documents from 2012.

Two presidential decrees, issued in 2005 a year into Yudhoyono's first term, gave the authority to choose top managers of state firms to a "Final Assessment Team" (TPA) led by the president.

"These are, of course, assignments ... they are missions from the government," Firmanzah, a special advisor to the president with responsibility for administration and financial matters, said in defense of presidential staff appointments.

"This is to push for good governance."

ENEMY OF THE HOUSE

Iskan has also antagonized members of two parliamentary commissions with oversight of state companies.

"He is not an expert in bureaucracy, politics and lobbying. He's a businessman," said Muhammad Said Didu, chief commissioner of state planter PT Perkebunan Nusantara IV.

He faced a setback only a few months into the job when he was forced to revoke his first decree to give more flexibility to executives in state firms to take major business decisions.

Parliament warned Iskan the decree, which gave his ministry such powers as deciding share buy backs, was illegal.

"My questions are: Does he have the authority to do that? And is it in line with the state-firms law?" said Benny K. Harman, vice chairman of one of the parliamentary commissions overseeing state firms, who is from Yudhoyono's party.

Differences of interpretation and overlapping, sometimes conflicting, laws also hinder Iskan's attempts at major reform and can make executives afraid to act for fear of prosecution.

In 2012, he planned five state firm initial public offerings. Only one, builder PT Waskita Karya, went to the market and that had already been approved by parliament back in 2008, before he came into office.

Last month, he announced that all IPO and rights issue plans by state firms would probably be postponed because of technical and regulatory issues.

He declined to discuss a plan to create one of the world's largest palm-oil and rubber firms with $5.6 billion in assets, which had once been set for completion in March 2012.

"Changing the law in this country is like changing the Koran," senior Iskan aide Wahyu Hidayat told Reuters. "Next to impossible." ($1 = 9,680.5 rupiah)

(Additional Reporting by Fathiya Dahrul and Neil Chatterjee; Editing by Jonathan Thatcher and Alex Richardson)

(This story was refiled to correct the first name of parliamentarian in paragraph 31

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