The leak that puts a multibillion-dollar industry at risk
The Senate is inquiring into the billions the government spends on financial services, after a former PwC partner was banned from practice for attempting to profiteer from confidential information about government plans to combat tax avoidance.
By Colin Kruger
A foolish attempt to help multinational companies avoid paying tax in Australia has spectacularly backfired on the multibillion-dollar professional services industry, infuriating Canberra and potentially costing these high-profile firms billions in fees.
A recent ban on PricewaterhouseCoopers’ former head of international tax, Peter Collins, acting as a tax practitioner – for attempting to profiteer from confidential information about government plans to combat tax avoidance – has achieved the rare feat of uniting Australia’s warring political parties.
On Tuesday, public hearings will commence in the Senate inquiry into the billions the federal government spends with these financial services firms and how to ensure the integrity of the providers.
Meanwhile, the government is mulling options that include banning tax advisory firms from tendering for contracts if they do not curb this kind of misconduct.
Collins was banned for two years by the Tax Practitioners Board (TPB) for integrity breaches after leaking confidential government tax plans to other staff and partners at his firm.
The TPB report on his ban said: “Some of the confidential information was disclosed by Mr Collins with other PwC personnel who, in turn, disclosed to clients or potential clients of PwC.”
The inquiry into consulting services was sponsored by Greens senator Barbara Pocock – and supported by the Liberals – in response to the uproar over the tax leak.
The inquiry will be chaired by Liberal senator Richard Colbeck and Labor senator Louise Pratt will act as deputy.
“It’s hit a bit of a nerve, hasn’t it?” Pocock says.
“The PwC tax issue gives it a real salience, but I think there’s interest in the longer term, and larger picture, about how dependent the advisory structures have become on consultants.”
There is also the question of whether PwC is the only shocking example out there.
“We’re interested in what else is there, and hoping that the inquiry will flush out any other examples, and how we need to think about responding when things go off the rails,” Pocock says.
This includes the $1 million robo-debt bill, also from PwC, for a damning report which was not delivered, to a Coalition government that did not want to receive it.
“I’ve had a lot of very lively conversations with people who say, you’ve got to be kidding. When they hear about a million dollars, I mean, a million dollars is a lot of money.”
While the Liberals and Greens sift through the consulting wreckage in public, Labor has already planted the seeds for significant change – and not just the legislation recently introduced to beef up the powers of the Tax Practitioners Board, which banned PwC’s Collins late last year.
In February, Treasury secretary Steven Kennedy responded to a letter from Treasurer Jim Chalmers outlining more measures to ensure the integrity of any further consultation with private consultants.
“Treasury is working with the Australian Tax Office to prepare advice for government on further options, beyond TPB sanctions, to penalise tax advisory firms which do not put in place appropriate government arrangements to curb misconduct,” Kennedy said in his letter to Chalmers.
This includes new conditions to the statement of tax record that firms must hold in order to bid for Commonwealth government contracts valued at more than $4 million.
Keep in mind The Australian Financial Review report last year saying the five biggest consulting firms, PwC, EY, Accenture, Deloitte and KPMG, were paid $2 billion in 2021-22 alone.
This was not the only bombshell.
Treasury is also contemplating deeds of confidentiality with entire organisations rather than individuals, meaning these firms could be held responsible when staff such as Collins misbehave.
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The PwC example provides plenty of evidence as to why this is considered necessary. Accountability still appears to be a sticking point.
Last month, PwC’s local chief executive, Tom Seymour, made the claim that other employees were not implicated in the sharing of confidential information that got Collins banned.
“There was no findings at all” that up to 30 staff were giving advice using the confidential information, he said.
It appeared to directly contradict what another Senate estimates hearing had been told about the matter.
“Mr Peter-John Collins of PwC took that information back to his company and shared it with colleagues, who then monetised that for profit. Is that it, in a nutshell?” Senator Deborah O’Neill asked TPB chairman Ian Klug just weeks earlier.
“In a nutshell, that’s correct,” he replied.
TPB chief executive Michael O’Neill offered more detail, when questioned.
“There was confidential communication and information from Treasury and the board of tax to Mr Collins. Mr Collins, as we said in our public entry on our register, shared that information with PwC personnel, both in Australia and overseas, who, in turn, shared that with clients. That was part of the monetisation, as you said.”
At the time of the ban, where TPB had also found that PwC had failed to properly manage conflicts of interest, PwC said “we deeply regret” the failures.
‘Doubling down on denial is a sign that PwC still refuses to be accountable.’
Senator Deborah O’Neill
But Seymour’s attempt to play down the issue has not won him any fans in government.
“It is astonishing that the CEO of PwC would openly contradict the direct evidence of the Tax Practitioners Board during Estimates to minimise the appalling conduct of Mr Peter-John Collins,” Senator O’Neill told this masthead.
“Doubling down on denial is a sign that PwC still refuses to be accountable.”
And it certainly has not helped their clients, with the Australian Tax Office reacting quickly when it became apparent that multinationals had responded with extraordinary speed to anti-avoidance measures under the Multinational Anti-Avoidance Law (MAAL).
The tax office issued a series of alerts in 2016, soon after the law was introduced, after it became aware that, in its words: “Some taxpayers were using contrived and artificial arrangements to circumvent the impact and intent of the MAAL.”
There was a lot at stake.
The ATO estimates that the law collected an additional $8 billion in revenue for the 2018-19 year, compared with the year preceding its introduction.
This collected more than $100 million in additional income tax that year and another $80 million in GST.
The tax office would not comment on what it did to combat this potential tax avoidance, but pointed to its 2016 tax alerts where it said it would scrutinise and investigate potential tax avoidance schemes. It also specified the extensive tools at its disposal.
“Where the ATO identifies that a particular firm has likely been involved in the marketing or propagation of an arrangement, the ATO will use its formal powers to seek information from the firm including details of relevant clients and targets. This enables us to readily identify the possible taxpayer population and engage directly with those taxpayers to identify and address any areas of concern.”
The ATO said it was hard to say how many companies would have adopted these schemes if it had not acted swiftly. “However, it is reasonable to assume that if the scheme were effective, this would have been adopted more broadly, putting that additional tax [$100 million per annum income tax and $80 million per annum net GST] at risk,” a spokeswoman said.
In a statement on Friday, Seymour said PwC was “deeply disappointed that in this government consultation process we failed the high standards we set for ourselves as a firm”.
“We recognise and understand the need for our tax system to operate with integrity and deeply regret confidentiality in this matter was not maintained,” the statement said.
In consultation with the regulator, PwC had taken actions to protect against this happening again, he said. These include maintaining a central confidentiality agreements register and strengthened controls and policies, and a comprehensive education program to help staff avoid any conflict risks.
Collins, who was named tax adviser of the year by the Tax Institute of Australia in 2016, and left PwC in October last year, will be allowed to practise again just before Christmas next year.
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Terms of reference released for senate probe into use of consultant accounting firms
By Tom Ravlic
March 14, 2023
The terms of reference for the senate inquiry into the government’s use of consulting practices, such as the major accounting firms, have been released.
The inquiry, which has been referred by the senate to the Finance and Public Administration References Committee, will examine a range of associated issues.
This includes the management of conflicts by consulting firms, what measures exist to prevent breaches of contracts and other unethical behaviour by consultants, and the management of risks in the public sector that arise from engaging consultants.
The inquiry was called following revelations that a former partner at PricewaterhouseCoopers (now PwC), Peter Collins, lost his tax registration for breaching confidentiality agreements that required him to not disclose the details of government consultations on multinational tax law changes.
An investigation by the Tax Practitioners Board (TPB) into the Collins case found information obtained during consultations conducted by government bodies on tax matters was shared with partners and staff within the tax division.
TPB representatives told senate estimates that there may have been between 20 and 30 people involved — domestically or internationally — in the discussions related to confidential information.
TPB chief executive officer Michael O’Neill told senate estimates that other people involved have not been sanctioned.
“The action by the TPB is based on the facts and the evidence we have available to us,” O’Neill said during the estimates hearing in February.
“As we mentioned before, there are certain sanctions that are available to us in the Tax Agents Services Act, and, based on the evidence, the board has made the sanction decisions it had available to it.”
PwC was also hit with a disciplinary sanction that requires it to upgrade internal tracking of conflicts of interest as well as ensure people are trained on how best to manage conflicts.
Interested stakeholders have until April 21 to lodge submissions with the committee secretariat. The committee has a reporting deadline of September 26.
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It’s worse than you think. Whenever there’s a Pandora/Panama/Paradise Papers drop, our most cynical suspicions are exceeded. The world is divided between ordinary schmucks paying tax and the ultra-wealthy, who will do anything not to. But how do they do it? Taxtopia by The Rebel Accountant promises to expose the mechanics of tax avoidance and help us schmucks save some money.
The author’s anonymity is to avoid legal repercussions. Given how candidly he describes his extensive career in Britain and Australia, it’s a wise move. Clients run the gamut of the ultra-wealthy: a Russian oligarch with a $1.1 million bathtub, Succession-like playboys on yachts, plummy-mouthed English prats and a boorish Aussie who tears off his shirt in a casino.
Most schemes are a form of white-collar three-card monte that rely on dizzying circularity. But instead of cards, it’s loans, dividends and shares shuffled through loopholes into shelf companies and tax havens. One example, “The Dutch Sandwich”, is named after Starbucks, which split itself into two companies – one domiciled in the Netherlands, the other in Britain. The first owns the brand, the other makes the coffee, and the coffee-maker leases the brand to operate at a deductible loss. As a result, Starbucks paid no tax in Australia for 12 years.
Sardonic humour softens Taxtopia, but the implications are infuriating as the cost-of-living squeezes ordinary people ever harder. London mansions owned by shelf companies help oligarchs escape stamp duty. This has hoovered up so much real estate that house prices soar even for normal people.
While the author wrestles with the ethics of helping the rich get richer, his colleagues never seem to care. Some excuses, such as a company’s fiduciary duty, are old hat. Others involve academic shadow play such as modern monetary theory, which claims that state taxes aren’t actually for building hospitals or paying teachers but for managing inflation. This book shows how accountancy is byzantine by design and how its complexity justifies the fees. Accountancy also obscures how even progressive taxes are gamed to hit the poor the hardest. The author’s solution is simplification. Scrap all taxes except those on individuals’ increasing wealth, offshoring and products that are bad for health or the environment. This is his Taxtopia.
If you hope to join the ultra-rich by reading this book, forget it. It’s a small club with huge bouncers and an eye-watering admission price. It is, however, a fascinating tour from a masked insider. Just have a punching bag handy, if you can afford one.
Hachette, 368pp, $34.99
