Is PwC caught up in Scale Facilitation’s alleged $150 million tax fraud?
Read the emails, ATO’s Jeremy Hirschhorn told PwC CEO Luke Sayers in 2019
Expect a fierce response to Labor’s PwC reforms
The plan to crack down on misconduct by tax advisers is ambitious. But it faces a long rocky road.
The key to the ambitious changes the government is promising in response to the PwC leaks scandal will be in the execution – how much of it can Labor get up?
Few would cavil at the government’s conclusion that the system for regulating tax advisers is not “fit for purpose” after the PwC debacle, but previous attempts to rein in the powers of consultants and accountants have a fraught history.
The proposed reforms are all hot button issues that are likely to trigger strong responses by lobby groups and more general business concerns. Bloomberg
In 2007, Australia was about to introduce tranche two of the anti-money laundering provisions which were already in law, to require accountants, lawyers and real estate agents to report suspect transactions – only for lobbyists to block the change again and again and again, even as the rest of the world adopted the measure.
The government is now having another go at it, 16 years later, and that’s the least contentious measure in this space.
Then there was the 2017 recommendation by the black economy taskforce that firms with a history of using or marketing aggressive tax avoidance schemes should be barred from government procurement contracts – a measure that PwC helped defeat, convincing the Tax Office last year instead to settle for a self-regulation scheme, the large market tax adviser principles, which did nothing to stop PwC’s ongoing cover up of its leaks scandal.
Reforming this area is hard. But the PwC scandal, and the light now being shone by Four Corners and others on questionable behaviour across the big four firms, has created a unique opportunity for reform.
With tax promoter penalties the government is going for the nuclear option. It was extraordinarily unlikely that the PwC leaks would ever emerge into public view, given the multiple levels of secrecy involved.
Wider consequences
There is a vanishingly small probability that in future any tax adviser who markets tax schemes based on confidential government information will be caught out (and clearly they won’t be using email to discuss it if they do). But that tiny probability must be balanced against the possible consequence, that if caught their firm could be hit by a tactical nuclear device, in the form of penalties of up to $780 million.
It’s a bludgeon to even up the risk-benefit analysis for leaking. But are there wider consequences?
Currently, promoter penalties apply only to tax schemes where “it is not reasonably arguable that the scheme benefit was available at law”. Most of the six cases to date have involved some form of fraud. Using improperly obtained Treasury information isn’t caught by this.
The government says it will expand the laws so they’re easier to apply to advisers who promote tax avoidance, and that Treasury will review types of promoter activity including complex schemes that operate across jurisdictional boundaries.
This sounds like a much wider and more aggressive use of promoter penalties, at a time when the government is simultaneously promising that it’s “cracking down on the scourge of multinational tax avoidance and making sure multinationals pay their faire share of tax in Australia”.
Meanwhile, alarm bells will be ringing at the proposal to end the overlapping and largely ineffective administration of big four firms and consultancies, with Treasury to review transparency, executive responsibility, management of conflicts of interest and dealing with misconduct.
Industry self-regulation schemes like the large market tax adviser principles don’t cut it – an issue to consider when the disciplinary committee of the Tax Practitioner Board, which uncovered the PwC fraud, has former accountants setting what seemed inadequate penalties on other accountants.
A joint Treasury-Attorney General review into abuse of legal professional privilege underlines the failure of the ATO’s attempts to negotiate a voluntary protocol. But it’s an excruciatingly sensitive area to reform.
There’s also a review into easing secrecy provisions which kept the PwC emails that set off this saga a quiet little Tax Office secret for six years, restricting the ability to share information with other regulators.
These are all hot button issues that are likely to trigger fierce responses by lobby groups as well as more general business concerns – probably more pushback than the government realises.
The scope of the flagged changes underlines that this is a whole of government response to which Labor is deeply committed.
It will require all of that commitment to see at least some of these changes executed.
