Monday, January 30, 2023

PwC tax leak‘once-in-a-lifetime’ chance for crackdown: former ATO exec

 

PwC tax leak‘once-in-a-lifetime’ chance for crackdown: former ATO exec

Edmund Tadros and Neil Chenoweth

Jan 30, 2023 – 5.00am

The man who led the Tax Office’s crackdown on multinational profit shifting says revelations about the PwC tax leak offer a “once-in-a-lifetime” opportunity for the agency to “get rid of the drivers of tax planning” by targeting accounting firms that provide aggressive taxation advice.

As the former longtime Australian Tax Office deputy commissioner charged with dealing with multinational companies, Mark Konza was on the front line of the battle to stop aggressive tax advice by big four firms that was costing the taxpayer billions in lost revenue.


Former ATO deputy commissioner Mark Konza says the big four accounting firms must prove they are trustworthy partners. 

He said the major accounting firms needed to win back the ATO’s trust by helping officials identify loopholes rather than advising clients on how to exploit these gaps.

The revelation last week that some PwC partners and staff had leaked confidential information obtained while advising the government on measures to combat tax avoidance has sent shockwaves across the government and within the big four accounting firms.

A furious Federal Treasurer Jim Chalmers accused PwC of a “shocking breach of trust” and vowed to beef up the powers of the body that polices tax advisers, the Tax Practitioners Board (TPB), and put at risk the established practice of government consulting business experts when developing policy.

The TPB terminated the registration of PwC’s former head of international tax, Peter Collins, as a tax agent for sharing secret information about the government’s tax plans to other staff at PwC, and ordered the firm to run additional training after it failed to regulate other partners and staff who knew the confidential information was going to be used to help clients sidestep new tax laws.

Firms must rebuild trust

“The TPB report and its findings will likely result in even more scrutiny of the tax advice provided by the big four. It’s up to the big four to rebuild trust by showing the ATO how their business models for tax advice work in the absence of edgy tax planning,” Mr Konza said.

“The big four have framed themselves as ‘partners’ in the tax system. The Tax Commissioner, Chris Jordan, can only be sure that the big four have changed when he sees them acting like true partners; that is, working with the ATO to close the loopholes they identify, not marketing them for commercial gain.”

The activity came to light only because the ATO used special powers to obtain emails sent between PwC advisers. Mr Konza, who now consults to law firm MinterEllison on tax issues after more than four decades at the Tax Office, said advisers would now probably avoid using emails to discuss aggressive schemes.

“This is probably a once-in-a-lifetime opportunity – now tax planners are on notice to be more careful in the communications channels they use,” he said. “It’s clear to the ATO that they need to get rid of the drivers of tax planning, not just the symptoms.”

When the multinational anti-avoidance laws were introduced in 2016, Mr Konza accused some tax advisers and their clients of “gaming the system” to sidestep the new rules.

Last week, he told The Australian Financial Review that consultation with industry experts on tax policy should continue but said the ATO and Treasury would be “more selective as to who they involve in sensitive discussions”.

“We’re seeing the implications of this crackdown on the ground. Even ordinary arrangements are now being subjected to extraordinary levels of scrutiny by the ATO,” he said.

PwC clients targeted

PwC CEO Tom Seymour, the firm’s former tax leader, apologised last week and said the firm had updated its policies to “protect against this happening again”.

The firm argues the investigation did not find that any client arrangements or structures were affected in connection with the leak. However, PwC leaders know they will struggle to win back the trust of the ATO and the government.

The TPB investigation is a new low point in the relationship between Australia’s largest accounting firm and the ATO, and raises extra risks for clients who use the firm for tax advice.

Multiple sources have told the Financial Review that it appears the Tax Office has continued with its tough approach to PwC, targeting the firm’s tax clients with reviews even when the arrangements are considered standard by multinational corporations.

For more than a decade, tax officials have scrutinised the firm over its advice to multinational companies including miner Rio Tinto, meat giant JBS, energy company Chevron and explosives maker Orica.

In 2018, the Tax Office also targeted clients who had used the firm for advice on the research and development incentive application.

Read more about the PwC tax leak

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