Off the record’: Other PwC partners also shared tax information Neil Chenoweth Neil Chenoweth
KEY POINTS
A partner at accounting giant PwC shared confidential information with others at the firm about a 2015 government requirement for multinationals to disclose key tax details, while discussing with them how to influence the Tax Office to gain benefits for PwC’s clients.
The unnamed partner spoke to a senior tax officer in July 2015 on a confidential basis, and minutes later emailed details of the conversation to all PwC’s Australian tax partners and tax directors.
The partner described it as “an opportunity to feed in suggestions [to the ATO officer] which may help influence definitional/interpretation aspects and/or free or defer certain clients from some or all” of the new measures.
“Most off the record so pls [sic] be discreet,” the partner said of the tax officer’s briefing.
This exchange – part of 144 pages of internal PwC emails that were released by the Senate last month – related to the government’s plan to introduce country-by-country reporting laws as part of a global initiative led by the Organisation for Economic Co-operation and Development against multinational tax avoidance.
It shows that another partner at PwC had breached confidentiality at the same time that the firm’s former head of international tax, Peter Collins, was leaking Treasury documents.
PwC has continually insisted that Mr Collins was the only one to breach confidentiality in sharing government plans about new tax laws. But in this exchange, Mr Collins was a recipient of the emails, not the sender.
Last month, the Albanese government wound back its plans to build on the 2015 country-by-country reporting laws by making disclosures publicly available, after strong opposition from industry, the OECD and the big four accounting firms, including PwC.
Confidential document forwarded
In addition to the exchange about country-by-country reporting in 2015, the internal emails released by the Senate suggest a PwC partner forwarded a copy of a confidential OECD briefing document in 2014 to other partners in the UK and the US, warning that it was confidential and would embarrass PwC Australia if it was released outside the firm.
Both PwC and the Tax Office have insisted that Mr Collins was the sole source of any leaks of confidential government information and that his behaviour was a one-off.
“This is the only time we have seen anything like this sort of behaviour,” Tax Office second commissioner Jeremy Hirschhorn told Senate estimates on May 30. “Ordinarily, we would be talking with Treasury about potential legislative change if something is systemic rather than a one off,” he said.
It is unclear – and PwC did not comment when asked – whether these two new exchanges, contained in the emails, involved partners who had signed formal confidentiality agreements with either the Tax Office or the OECD.
‘Most off the record pls be discreet’
Australia legislated country-by-country reporting, (known as CbCR), in 2015 as part of the OECD’s Action 13 in its list of measures to target international tax avoidance, which it called Base Erosion Profit Shifting. The new Australian law required all multinational companies with more than $1 billion of global turnover to file local accounts for all countries in which they operated.
The PwC emails published by the Senate show that on July 29, 2015, an unnamed PwC partner emailed Mr Collins, another PwC partner and the general email address for all partners and directors in the tax practice, with the subject line “CbCR ED update”. The writer had a five-line sign-off, suggesting some seniority at the firm.
PwC has previously named four former partners who it said were involved in the Collins emails and last week expelled three more because “their actions failed to meet their professional responsibilities” and another five for failing to exercise leadership to prevent these actions or hold others accountable. Although it says these were the only partners directly involved with the leaks, no one is said to have directed the leaks.
This first email in the July 29, 2015 chain, sent at 4.28pm, noted without detailing its source that the exposure draft (ED) of the new country-by-country reporting law was expected in the new few days and then provided some details of the power the tax commissioner would have to decide how the regulations would be administered.
Another unnamed PwC partner replied at 6.56pm that after the earlier note they and another PwC partner had spoken with an unknown official: “Most off the record pls be discreet.”
The name of the official they spoke to is redacted, but the context makes it clear that it was a senior tax officer, speaking on a confidential basis.
“ED [exposure draft] and EM [explanatory memorandum] expected imminently,” the PwC partner wrote. The new law would give the tax commissioner discretion to determine what information would have to be provided and to which taxpayers the reporting laws would apply.
The ATO “is wrestling with how to set the detailed criteria. None of this will be settled in the ED”, the PwC partner reported. The tax officer “mentioned that even just defining the $A1 billion worldwide t/o [turnover] threshold is potentially troublesome/difficult.”
The tax officer they spoke to “has carriage on implementation and welcomed our input once the ED has been released”, the PwC partner wrote.
“This will be an opportunity to feed in suggestions which may help influence definitional/interpretation aspects and/or free or defer certain clients from some or all of the Action 13 net(s). If you have examples please let [redacted] or me know.”
This second email had a three-line sign-off.
Six minutes later, at 7.02pm, another partner forwarded the email chain to five other partners, including Mr Collins, with instructions on how to take the matter forward: “fyi as discussed earlier. I’ll come by tomorrow so we can call [redacted].”
The emails show PwC sought to influence the ATO on which companies would be caught by the new law by arguing for definitions of revenue that would not catch some PwC clients; and on the form of reporting known as a “local file”, which firms caught by the rules have to produce.
Subsequently, PwC and others urged the ATO not to require reports that included material already reported in transfer-pricing documentation.
The tax officer who welcomed the PwC input was unaware that through Mr Collins’ leaks of Treasury information, the firm was already offering ways to sidestep the multinational tax avoidance law that he was helping to write.
The ATO has no comment,” a spokesman told The Australian Financial Review last week.
ATO consults only ‘trusted operators’
The Tax Office continues to consult external advisers and other stakeholders on the operation of the tax laws.
In a letter to Treasurer Jim Chalmers on February 10 this year, obtained through a freedom of information request, Tax Commissioner Chris Jordan said the Tax Office was committed to consulting with key stakeholders. In addition to formal consultations with “stewardship groups” the ATO had less formal meetings with subject-matter experts.
“Our senior ATO officers have a good understanding of the key participants, particularly in the large market, and as such will tend to only consult with trusted operators (beyond the stewardship groups),” Mr Jordan’s letter said.
In July 2016, PwC reported that the ATO “consulted with a range of external stakeholders” and that it had amended its local file requirements in response.
Later that year, the ATO reported that it received valuable feedback after consulting tax agents, companies, regulatory and industry bodies and the software industry, which helped it develop a local file design that “minimised overlap with existing reporting requirements”.
The Albanese government recently amended its proposed new public country-by-country reporting law, bowing to industry pressure in dropping disclosures of related-party expenses, effective tax rates and intangible assets from its draft legislation.
“The government will continue to engage with stakeholders on our commitment to introduce a public country-by-country reporting regime,” Assistant Treasurer Andrew Leigh said on June 22, announcing the backdown.
“Over the coming months, we will work with industry and civil society on the appropriate level of disaggregated reporting ... to align our approach more closely with the European Union’s public country by country regime,” Dr Leigh said.
PwC told the Financial Review in a statement: “As a result of an investigation into the handling of confidential Treasury information and past failures in professional, ethical or leadership responsibilities, eight partners have recently exited or are in the process of being removed from the PwC Australia partnership.
“It is clear that the conduct of a small number of partners fell short of our expectations, and we are taking all appropriate steps to improve the firm’s culture and standards.”