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PwC tax scandal ‘not over yet’: Stephen Jones looks at reforms for auditors
The federal government and key figures in the regulatory world are warning that the PwC tax scandal is not over yet, despite efforts by the firm to put the crisis behind it, with the audit and consulting giant’s refusal to hand over the results of a key internal investigation a major sticking point.
Assistant Treasurer Stephen Jones said the government was not done yet with its response to the PwC tax scandal, telling The Australian the government had more reforms on the horizon to take on the big four audit firms as well as deal with freelancing taxation accountants seeking to illegally minimise tax.
Mr Jones said the government was only up to phase 3 of its reforms in the wake of the PwC tax scandal, saying it would do more work in the coming year to beef up the powers of the tax office and other regulators.
This comes almost a year after PwC Australia’s former head of international tax, Peter Collins, was banned after regulators finally caught up to the accountant over his misuse of confidential government information.
Mr Collins was handed a ban by the Tax Practitioners Board after it was found he shared confidential government tax briefings with other members of PwC in Australia and overseas.
This allowed PwC to manufacture several tax schemes for multinational companies operating in Australia, in a bid to defeat looming new tax laws set to be introduced in 2026.
The Multinational Anti-Avoidance Law amended Australia’s existing anti-avoidance rules, introducing a new layer to target multinationals’ supply of goods and services.
The ban, handed out at the tail end of 2022 but not published by the Tax Practitioners Board until early 2023, came after years of pursuit of Mr Collins and PwC by the tax office after discovering the firm’s use of the confidential information.
The government has responded to the tax scandal by increasing the penalties for firms attempting to exploit tax loopholes to $780m, from $7.8m.
Legislation has also been introduced to further empower the TPB to run lengthier, more complex investigations into potential breaches and hand out tougher penalties.
Mr Jones said the government was also looking at tinkering with tax privacy arrangements to ensure the tax office “can provide, with appropriate protections, the right information to the TPB in a PwC-type event”.
He said the government was closely watching a court case involving an EY partner who is being sued by the ATO, alleging he constructed illegal schemes to minimise taxes for clients of the firm.
The case, which has been suppressed by the Federal Court, alleges that between 2016 and 2021 the partner constructed trusts for a number of clients allowing them to transfer profits from one entity while leaving the other entity with tax obligations.
Mr Jones said the government was looking at “these schemes that are designed for tax minimisation” that the big four firms were marketing to clients.
“It’s never a job finished but what we’ve already announced will take us through to the next election,” he said.
Mr Jones also took aim at PwC over its response to the scandal, which has seen the firm sack much of its senior leadership, parachuting a Singapore partner in to steady the firm.
PwC’s new chief executive, Kevin Burrowes, recently told parliamentary hearings he had not read the firm’s key inquiry into the scandal prepared by law firm Linklaters.
Mr Burrowes told the Senate no one in the Australian firm had read the review, which he said “found no evidence that any PwC personnel outside of Australia used confidential information from PwC Australia for commercial gain”.
However, the report did find six PwC staff “should have raised questions as to whether the information was confidential”, noting some remained with the firm.
PwC Australia claims the international firm has withheld the report. However, several staff spoken to by The Australian note the close connections between the two operations, which are almost indistinguishable.
Mr Jones warned PwC it would benefit “from more transparency, not less transparency this year” by releasing the report and addressing the scandal head on.
He said the government had “its own agenda around consultants”, noting there would be no let-up in a move away from using the industry to do the job of the public service.
“The PwC scandal put a spotlight and made it perfectly plain the perils and dangers of a government being so overly reliant on the consultancy industry,” Mr Jones said. “What was exposed last year not only significantly damaged the PwC brand and their business but it also created brand damage right across the consultancy sector.”
The ATO is also closely watching the issue of multinational tax avoidance and advisers assisting companies to avoid paying tax.
Rob Heferen is set to take on the top job at the tax office in March, replacing Chris Jordan.
Tax office sources indicated the ATO’s recent activity against several firms and their clients, including most recently securing a win against drinks giant Pepsi, was a sign of priorities.
The ATO is expected to closely look at tax services offered by the big four to their private clients and high-net-wealth customers.
The agency is also closely watching an investigation into the PwC tax scandal by the Australian Federal Police, as well as several probes by the TPB into various partners who may have been involved.
The ATO is also understood to be highly sceptical about PwC’s claims it has fully co-operated with efforts to hold the firm to account, with key figures in the tax office noting the firm’s refusal to disclose the Linklaters review as well as several other documents.
PwC noted in a recent response to a Senate inquiry it would not hand over further “details than what is contained in a statement of facts” when quizzed about a meeting between former CEO Luke Sayers and ATO second commissioner Jeremy Hirschhorn.
The ATO is also understood to be speaking with international tax authorities about the PwC tax scandal.
Australians funnel more than $100bn into foreign tax havens
Australians have funnelled more than $100 billion into offshore “tax haven” countries, new data has shown. See the list of our favourite destinations.
Secret Swiss bank accounts are the top choice for Australians funnelling more than $100 billion offshore into “tax haven” countries, according to new data released by the financial crimes watchdog.
More than $65 billion was flagged to be sent from Australian banks to Switzerland in the last financial year, a jump of more than $20 billion since 2021, Austrac has revealed.
While Switzerland topped the list, the second most popular countries dubbed as tax havens are the United Arab Emirates with $10 billion earmarked for transfer, followed by Jersey with more than $4 billion and Bermuda more than $2 billion.
The information about international funds transfers, which is provided to Austrac from financial institutions, was obtained under Freedom of Information laws and reveals there are 11 countries listed as tax havens and a further 10 as secrecy jurisdictions.
The revelations follow a global tax report, The EU Tax observatory, which this year estimated Australians hold almost $400 billion in known foreign tax havens.
Switzerland is considered to be the most popular international tax haven for Australians due to its low tax levels and strong privacy laws.
It was a favoured destination for funds in one of Australia’s biggest tax dodge schemes which involved a Swiss-based base firm and financial adviser.
The scheme was targeted by the Australian Taxation Office’s (ATO) Operation Wickenby, a nationwide tax probe, which saw music promoter and John Farnham’s promoter Glenn Wheatley jailed for tax fraud. Farnham was never accused of any wrongdoing.
The ATO also went after Crocodile Dundee star Paul Hogan and his sidekick John (Strop) Cornell, for unpaid tax but their cases were dropped and a settlement reached. The pair always denied any wrongdoing.
Australian Taxation Office Assistant Commissioner Belinda Darling said offshore bank accounts are not illegal and there are many legitimate reasons for having them.
However, she said “some taxpayers enter into offshore arrangements to deliberately and dishonestly hide income or assets in order to gain a financial advantage and evade tax,” she said.
Ms Darling said the ATO together with international partners are actively seeking data about Australian tax dodgers using tax and secrecy havens.
Ms Darling said Australian banks and financial institutions are required to give information to the ATO about offshore bank accounts of Australian residents which gives them visibility of the amount of money held in bank accounts overseas.
The EU Tax Observatory report said Australians are holding about $370 billion ($A729 billion) in foreign tax havens and multinational companies are shifting profits to lower-taxing countries which is ultimately costing up to $11 billion in lost tax earnings.
The report said tax evasion is falling, but global billionaires have an effective tax rate of 0-0.5 per cent of their wealth
“Tax evasion, wealth concealment, profit shifting to tax havens are not laws of nature,” said Gabriel Zucman, the co-author of the EU Tax Observatory report.
Research from the Tax Justice Network (TJN) shows, worldwide, countries collectively lose $US480 billion in tax to tax havens a year due to profit shifting and offshore tax evasion by wealthy individuals.
The TJN has warned countries will lose nearly $US5 trillion ($A7.6 trillion) to tax havens over the next decade if it continues.
