Letters

Accenture's Bermuda HQ is about Tax Minimization, Not Tax Avoidance

Your October Editor's Note on "Accenture never was an American company" was very disappointing. I fully expect the Congressional and Administrative bodies to put their spin on the facts and the newspapers/magazines to duly report it. Since you and your magazine are in the business, I thought you would have made the effort to understand and report the real facts.
I do not question your premise that global consulting as we know it today has "flourished within American's late-20th century economic freedom." I do question your conclusions that "Accenture" was an American company that moved its parent company to Bermuda for purposes of tax avoidance.
Accenture's legal structure, prior to its reorganization under a Bermuda holding company so that it could go public in July 2001, was a mirror reflection of the legal structures of Arthur Andersen and the other Big Four accounting firms. Pursuant to the accounting regulatory bodies in each country, the entity in which the accounting firm conducts business in a country must be owned by partners who are qualified to practice within the country. Thus, the Japanese partners owned the Japanese firm, Canadians owned the Canadian firm, Spanish owned the Spanish firm, Americans owned the U.S. firm, etc. Each country firm of Accenture was legally owned by the local partners and operated globally through a worldwide contractual agreement.
This was the legal structure in which Accenture operated when it was part of Arthur Andersen and continued to operate after the arbitration until all the country firms reorganized under a Bermuda holding company. It was also the legal structure that allowed Accenture to prevail during arbitration in holding that Arthur Andersen had no legal ownership of any of the Accenture entities.
This matter of independently owned legal entities has become very important in the Arthur Andersen debacle. It is the U.S. Arthur Andersen partnership and the U.S. partners who have suffered from its problems within the U.S. The non-U.S. Arthur Andersen entities/partners, to date, have not been involved in the legal suits. The non-U.S. partners have not lost their capital or income and they have sold their interest for value to other competitors within the various countries.
The issue faced by the Accenture partners was how to legally reorganize 40-plus independently owned local country entities under one holding company in order to have a vehicle to take public. To make the task even more difficult, Accenture partners agreed that they would reorganize into a holding company and go public only if at least 70-plus percent of the worldwide business agreed to go forward, i.e., take the "global" Accenture business public.
This meant that no single country could force the reorganization. The U.S. firm owned by the U.S. partners represented approximately 55% of the global business. It also meant that a small number of countries could block the reorganization. This was not an American parent company merely reorganizing itself offshore.
The global debate within Accenture on whether or not we should go public and, if so, what holding company should be selected was long and heated. The European partners wanted an EU holding company. The American partners assumed that it would be a U.S. company. Bermuda was finally selected.
The long-term tax efficiencies of Bermuda were surely an important factor in this decision-making process. The tax efficiencies of an EU-country holding company, such as Ireland or The Netherlands, were very close to those of Bermuda. If an EU holding company had been selected, the U.S. tax environment of the U.S. subsidiary would have been much the same as it is with a Bermuda holding company.
Charges of "tax avoidance" and lack of "values" are hard to understand. We should begin with the following quote from one of the most brilliant and perceptive circuit court judges to issue opinions on U.S. tax laws, Judge Learned Hand:
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again, the courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for nobody owes any public duty to pay more than the law demands."
If a Bermuda holding company had not been selected, an EU holding company would have been the next choice. This is about tax minimization — not tax avoidance and lack of values. Tax minimization within the boundaries of the tax laws of all the countries in which a public company operates has and will continue to be the responsibility of the management to its shareholder.

Michael L. Emmons
Retired (8/31/01) Accenture Partner

Our Editor's Note did not in any way register an opinion on the subject of tax avoidance. However, it did take issue with the statement "Accenture never was an American company," as well as with the assertion that Arthur Andersen was never the parent of Accenture (formerly known as Andersen Consulting). No matter what recent contractual ties may reveal, history tells us otherwise. Accenture's roots can be traced directly to the birth of consulting services within Arthur Andersen. And as at most large accounting houses, the birth of consulting services at AA predated the audit firm's expansion overseas. At a time when industry leaders are shepherding the cause for renewed corporate transparency, Accenture's words seem to echo the opaque banter of an earlier age. Whatever the gains Accenture hopes to secure by obscuring the pioneer roots of its consulting business, one might guess that they would be eclipsed by what the firm would thus choose to lose — an esteemed and courageous history. —