Treasury defends PwC audit work Lois MaskiellBreaking news reporter
Tax Office sought AFP advice on PwC breach in 2018
The Tax Office shared information with federal police in 2018 about former PwC partner Peter Collins leaking confidential Treasury documents, Commissioner Chris Jordan told a parliamentary committee on Wednesday.
This means the decision by Treasury head Dr Steven Kennedy to refer the PwC tax leaks scandal to the AFP is the second time the police have been called in over the matter.
Commissioner of Taxation Chris Jordan during a Senate estimates hearing at Parliament House on Tuesday night. Alex Ellinghausen
Federal Police commissioner Reece Kershaw made no reference to the earlier consultation when questioned about the PwC matter at estimates last Thursday. The federal police decided to take no further action in 2019.
AFP sources say that the agency received the Collins emails but because of tax secrecy laws cited by the ATO it was instructed not to distribute the material nor to investigate it.
The force’s position was made more difficult because the Tax Office had no standing in the matter to make a complaint, as the breach of confidence related to Treasury, not the ATO. And the ATO considered it was unable to share the information with Treasury.
Later, in July 2020, the Tax Office formally referred the matter to Tax Practitioners Board, which investigates members of the tax profession.
In his opening statement, Mr Jordan told the committee that the ATO became aware of a handful of multinationals trying to avoid the new laws in early 2016, which triggered audits.
“In January 2016, we became aware of a handful of multinationals suspiciously and quickly attempting to restructure their affairs upon the introduction of the Multinational Anti-Avoidance Law (MAAL),” Mr Jordan told estimates.
“Within days of becoming aware, we commenced reviews and audits of those multinationals and issued three Taxpayer Alerts in 2016, putting all significant firms and taxpayers on notice.
“Our immediate action prevented any loss of revenue to the Commonwealth from a scheme to avoid the MAAL. We estimate the revenue at risk was $180 million annually.
Mr Jordan also provided a timeline that showed that the ATO obtained a cache of PwC internal emails in late 2017, which showed that PwC partner Peter Collins had shared confidential Treasury documents that he received with other PwC partners, who then used the information to target new clients.
It’s not clear which part of the ATO first obtained the emails, but their existence appears not to have been widely known in the tax regulator.
As a result, Mr Collins – who signed his first confidentiality agreement with Treasury in 2013 – continued to act as an adviser to Treasury on plans for new anti avoidance laws.
Mr Collins signed a third confidentiality agreement on February 19, 2018 – at a time when the Tax Office had already obtained the emails detailing his breach of confidentiality.
Earlier on Wednesday, Treasury told the committee it first learnt of the PwC leaks in September 2018 when the Tax office sought information about a possible breach of confidentiality relating to the development of the Multinational Anti- Avoidance Law, which was introduced in January 2016.
PwC made ‘false claims’ for legal privilege
Treasury officials said that the Tax Office was prevented by secrecy provisions from disclosing what it knew about the PwC matter.
Mr Jordan said the ATO’s investigation was delayed by “false claims” for legal privilege, when such privilege would not apply to internal firm emails.
“Another major concern was the issue of Legal Professional Privilege (LPP) where it appeared our investigation was being frustrated through false LPP claims. We had to issue further notices to obtain information that was clearly not subject to LPP such as internal PwC emails,” Mr Jordan told estimates.
“Despite our best efforts, due to the obstacles placed in our path, it took a long time to obtain the information requested. The content received from late 2017 raised a range of significant concerns about artificial schemes being marketed by PwC. A significant concern also uncovered was the Collins matter: a potential breach of confidentiality in a Treasury consultation process.
“Unlike many revenue authorities in other countries, we do not have criminal investigative powers. As the confidentiality breach was not a tax offence, we were unable to investigate the matter further and from 2018 we sought to refer this matter to the correct authority.
“After sharing information with the Australian Federal Police over the 2018 – 2019 period, we ultimately formally referred the matter to the Tax Practitioners Board (TPB) in July 2020,” he said.
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Consulting giant PwC blocked the Australian Tax Office’s attempts to garner more information about its involvement in the tax leak scandal at least six years ago, prompting the ATO to report its “significant concerns” to federal police in 2018.
ATO Commissioner Chris Jordan told a parliamentary committee on Tuesday afternoon his office noticed that a few multinational companies had “suspiciously and quickly” tried to rearrange their affairs after the Multinational Anti-Avoidance Law was introduced in January 2016.
In December, the Tax Practitioners Board found Peter Collins, PwC’s former head of international tax, shared confidential government briefings on multinational tax reform with PwC partners and clients to help them sidestep the laws.
Jordan said swift action in 2016 from the tax office saved the federal government from losing about $180 million a year, but the ATO’s investigations into what had occurred were frustrated by false claims of legal professional privilege.
“We had to issue further notices to obtain information that was clearly not subject to [legal professional privilege] such as internal PwC emails,” he said.
Despite our best efforts, due to the obstacles placed in our path, it took a long time to obtain the information requested.”
Serious concerns were raised once the ATO started receiving that content in late 2017, Jordan said, about schemes being marketed by PwC.
“A significant concern also uncovered was the Collins matter: a potential breach of confidentiality in a Treasury consultation process,” he said.
Jordan said that unlike other revenue authorities overseas, the ATO does not have the power to launch criminal investigations.
“As the confidentiality breach was not a tax offence, we were unable to investigate the matter further and from 2018 we sought to refer this matter to the correct authority,” he said.
“After sharing information with the Australian Federal Police over the 2018-2019 period, we ultimately formally referred the matter to the Tax Practitioners Board (TPB) in July 2020.”
An AFP spokesperson said the ATO sought advice from the service about the potential misuse of government information by PwC, and provided some sample documents to police.
“The ATO sought advice on whether there was sufficient information to make a formal referral of the matter to the AFP for investigation,” the spokesperson said.
“The AFP assessed, based on the material that the ATO provided, was that there was insufficient information in the material, to support a formal referral.
In consultation and agreement with the ATO, the matter was closed in 2019.”
Australian Federal Police launched a “priority investigation” into a person over the leak of confidential federal government tax plans last week, after Treasury secretary Stephen Kennedy asked the police to investigate.
Treasury first became aware of the issue in 2018 when the ATO asked for information about a possible breach of confidentiality, Treasury deputy secretary Diane Brown confirmed on Tuesday.
“We could not get further details of their concerns, because the ATO is subject to strict secrecy provisions.”
When asked by Senator Deborah O’Neill why the matter was not immediately referred to the Tax Practitioners Board, Brown said the department was constrained by those provisions.
Because of the operation, those secrecy provisions, we weren’t able to ask for further elaboration or reasons for why they were asking for that information. So we left it with the ATO to undertake the investigation.”
The acting head of PwC, Kristin Stubbins, apologised on behalf of the firm Monday for betraying trust and doing “too little, too late” to reform the governance and culture within the consulting giant, and said nine partners have been stood down pending the outcome of its investigation.
Kennedy said more work was being done to prevent another tax leak scandal, after Greens senator Barbara Pocock expressed disbelief that it took eight years for the problem to come to light.
“The transgression occurred eight years ago, the day after Joe Hockey presented his budget on the 11th or 12th of May in 2015. And PwC took action within minutes,” she said in estimates.
“For eight years, nothing happened. In three months, senators have asked questions to reveal that this is on the nose, and must stop.”
Pocock said the emails from within PwC, tabled earlier this month in estimates, did not reveal a company assisting the government in good faith.
“I see a case of aggressive harvesting of confidential information and relationships by a predatory group of tax avoiders salivating at the way in which they can make money out of these very large tax-avoiding multinational companies,” she said.
Kennedy acknowledged it has taken some time for this issue to come to light.
“Do we have cause to read to more carefully look at these issues, to review and reform the Tax Practitioners Board, to increase the penalties available, to do all those things? The answer to that is clearly yes, and that’s what the government has asked us to do and we’ve begun to do that,” he said.
“But I just want to leave you with some confidence, this matter is far from over from our perspective.”
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The ATO boss said the regulator did not have the power to launch a criminal investigation and instead referred the matter to the federal police in 2018.
It then formally referred the matter to the Tax Practitioners Board in July 2020, which terminated Mr Collins’ tax agent registration for two years.
“My main messages are to reassure the community that we got on top of this early and stopped any tax loss to Australia from this egregious behaviour,” Mr Jordan said.
The commissioner said the investigation took such a long time because the consultancy firm issued false claims of legal professional privilege, which protects communications between a professional legal adviser and their clients.
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