Rich people and companies have all manner of ways to avoid paying any taxes at all, let alone their fair share, all because of so-called ‘loopholes’ in the tax laws. These tax evasions are facilitated by giant accounting firms, especially the largest known as the Big Four: Deloitte, Pricewaterhouse Coopers (PwC), Ernst & Young (EY), and KPMG. These accounting firms are not just passively looking after the books, they are often key to setting policies.

The International Consortium of Investigative Journalists (ICIJ) reveal one such massive loophole that is being exploited and how Deloitte played a leading role in doing so.

Late last year, the Internal Revenue Service notched a significant win in its fight against high-end tax dodging when a federal judge in Colorado upheld the agency’s challenge to a $2.4 billion tax deduction claimed by Liberty Global, a multinational telecommunications firm. The case, which centered on a complex offshore tax maneuver that generated the huge write-off for the corporation, was described by one industry observer as the “worst nightmare for tax planners” who seek out vulnerabilities in federal tax law. Yet the role of Liberty Global’s own tax advisor — the accounting giant Deloitte — has received little scrutiny, despite U.S. authorities describing the firm as playing a key role in designing the scheme.

Liberty Global’s controversial tax maneuver, code-named “Project Soy,” shuffled assets between the firm’s companies in countries such as Belgium, the Netherlands and Slovakia in order to exploit a loophole in a landmark Trump-era tax law, according to court filings. The Justice Department asserted that Deloitte had approached Liberty Global with the original idea for Project Soy, a claim Liberty Global has denied in multiple court filings.

If Deloitte did market the loophole, as the Justice Department suggested, it could add to a rich history of Big Four accounting firms selling their well-heeled clients on complex and aggressive ways to avoid tax. It would also raise questions about whether other multinationals received the same advice as Liberty Global — and whether additional challenges could be coming.
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Deloitte did not respond to ICIJ’s repeated questions about whether it advised other clients on the same type of tax maneuver that landed Liberty Global in court. Several Deloitte tax advisors named in the court records as having worked on Project Soy declined to comment or did not respond to questions from ICIJ about how widely the loophole was used.

“I think it’s quite likely this was used by other firms as well,” Reuven Avi-Yonah, a tax law professor at the University of Michigan said of the tax maneuver after reviewing the case. “It’s sophisticated and aggressive, but it’s easily replicable. The vast majority of American multinationals could have benefited from this.” Avi-Yonah added that many firms may have shied away from the maneuver due to fears of it being challenged by the IRS.

Note that Deloitte is said to have ‘taken advantage’ of a loophole, suggesting that they discovered this after the law was passed. But when it comes to complex tax legislation, these giant companies with powerful lobbyists who give big donations to politicians are often at the table with legislators, crafting and designing the wording. So often these loopholes are not a bug that got overlooked, they are features that have been deliberately inserted into the law to be taken advantage of later.

As has been often said, in the US what is scandalous are not the things that are done that are illegal but those that are legal.