Tax Office mixed up documents in PwC penalty case
The Tax Office dropped part of the $1.4 million in penalties that it slapped on PwC last year because it mixed up some of the documents which it claimed were false and misleading, Second Commissioner Jeremy Hirschhorn has told a Senate committee.
Mr Hirschhorn revealed the ATO mistake as he fielded questions over the settlement which the Tax Office signed with PwC in March which halved penalties for falsely claiming legal professional privilege over tens of thousands of documents relating to five multinational clients.
Second Commissioner Jeremy Hirschhorn: “They were coming up in the system as documents, but they were things like logos, they were not really documents.” Alex Ellinghausen
The ATO has previously reported that 24 major corporations, many of them advised by PwC, made blanket claims of LPP, typically covering tens of thousands of documents in each case. Brazilian meat group JBS, which wasn’t part of the settlement, initially made LPP claims over 44,000 documents.
But Mr Hirschhorn said on Wednesday it was a “high bar” to show it was unreasonable for PwC to claim privilege for its clients, and so the ATO concentrated on 170 documents from five audits. But one in 10 of those documents had been mis-categorised by the ATO’s filing system and turned out to be logos or fragments of documents.
“The number of documents in play reduced because we took the view, the way we had counted documents was a bit unfair in relation to 17 documents, which were not really separate documents because they were coming up in the system as documents, but they were things like logos, they were not really documents,” Mr Hirschhorn said.
It is not clear why manual checks did not identify the mistake.
Deputy Commissioner Rebecca Saint said the settlement, which cut the penalties down to $642,600, was based on legal advice, but the most important part of the agreement was training sessions and changes in the way PwC Legal operated and was reviewed.
“That’s like saying to a bank robber, you’ve robbed the bank, you got away with the money, and now we’re going to encourage you to do a training course on how not to rob the bank any more,” Greens senator Barbara Pocock responded.
“While all that is happening, there’s a vigorous argument happening in the [Tax Practitioners Board] about other matters – essentially corrupt behaviour. And yet what they walk away from is half the fine, and a slap over the knuckles about a little bit of internal training.”
“Well I’ll start with you,” Liberal senator Richard Colbeck said to Mr Hirschhorn. “Add my pissed-off-ness – just how pissed off I am that that $1.4 million was cut in half. I think probably in cruder terms than Senator Pocock would use. But we’re not happy.”
Mr Hirschhorn, who is the leading in-house candidate to succeed Chris Jordan as commissioner next year, was also forced to defend accepting hospitality from PwC, who paid his business class airfare to Europe and two nights’ accommodation at the Westin Paris – Vendôme hotel, near the Louvre, to address a PwC conference at the height of the dispute between the ATO and the big four firm.
“I think it was actually more than appropriate, it was actually a very important conference for us to present at,” Mr Hirschhorn said. It followed a “very robust speech” he had made to each of the big four firms in Australia and it was “an opportunity for me to give a robust, equally robust speech about how tax works in Australia … to PwC’s international structuring partners and to their biggest clients”.
It was policy for conference holders to pay travel costs for ATO speakers, Commissioner Jordan said. “We always seek to ensure that we get the best value that we can.”
“Sorry, you’re not convincing me,” Senator Pocock said. “What message do you think it’s sent to PwC that they paid for you to be there? I think it sends a message we’re friends, thank you for bringing me.
“You are in dispute with them at the time, and they pay for you to go to Paris, Mr Hirschhorn. It doesn’t pass the pub test. It just doesn’t stand up.”