PwC - Financial Crises and Tax Havens

Congratulations to Neil Chenoweth and Edmund Tadros of The Australian Financial Review on winning the 48th Graham Perkin Australian Journalist of the Year Award. The pair won for their coverage of the PwC Tax Leaks Scandal.

PwC: A corporate giant on the brink and the ‘best graduate job going’ that’s now on the nose

I’m extremely proud of the contribution every individual at PwC Australia makes to this firm and their ongoing commitment to producing exceptional results for our clients.”

This was the brave part of the statement PwC boss Kevin Burrowes made on Wednesday as he announced another 366 partners and employees would be cut at the embattled firm to right-size the shrinking business.

This was on top of the 340 staff sacked in November due to the tax scandal, and economic conditions. As well as the 1300 staff that left when PwC was forced to spin off its lucrative government business for just $1 after it was banned from any further government work.

The firm’s website still boasts of a workforce of 8000 employees, but those stats are from a year ago when the news surfaced that several PwC partners had allegedly used confidential government tax information to woo some of the biggest companies in the world as clients.

The outlook appears grim and not just for the tax business, which was the source of PwC’s woes. There are clear signs that the audit and assurance business – the original core business of the big four firms and the unit that PwC is counting on to lift it out of the mire – is also suffering.

Westpac’s dramatic dumping of PwC last week in favour of KPMG was a big blow, with the bank’s business worth $70 million over the last two years alone. But that is not the only signal of the corporate sector’s disaffection with the firm.

On March 1, PwC’s 19-year run as the auditor of $3 billion Super Retail Group – the company behind retail names like Rebel Sport, Supercheap Auto and BCF – came to an end.

Mineral sands group Iluka Resources will end its 33-year relationship with PwC in May.

“Following completion of a tender process, and given PwC’s tenure, the board of Iluka considered it appropriate to replace PwC with KPMG as Iluka’s external auditor,” it said.

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Financial Crises and Tax Havens

Tax havens not only facilitate tax evasion and corruption in ‘normal times’, they also harbour funds during economic crises, slowing down recovery.

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It's using all of its debt recovery tools, Mr Archer says, including issuing director penalty notices which give a company director 21 days to voluntarily enter into an insolvency appointment, otherwise they become personally liable for their company's debt.

It is also becoming more common for the ATO to use garnishee notices against small business owners, Mr Archer says.

This practice was highlighted as part of a joint Fairfax (now Nine) and ABC Four Corners investigation that revealed the practice was crippling small businesses and was found to be problematic in a consequent review by the small business ombudsman.

Another review by the inspector-general of taxation found the impact of garnishee notices on small business owners "can be very significant and take the form of substantial emotional, reputational and financial harm". 

Independent MP Andrew Wilkie is also worried that the ATO's current approach to debt recovery could send more small businesses to the wall.

ATO chases small businesses for $34b in debt, insolvencies tipped to hit post-global financial crisis levels

Wall Street Journal, We’re Paying for Our Daughter’s Wedding. Is It a Taxable Gift?:

We answer readers’ questions about annual gift giving and taxes.

Q: My husband and I each plan to give our adult children $14,000 this year. My daughter may marry this year, and we would like to pay for much of the wedding. Could paying for the caterer or another wedding supplier count as a taxable gift if we pay the vendor directly?—a reader in Lexington, Ky.

A: You probably can pay for the wedding without fearing the taxmen. Paul Caron, a professor specializing in gift and estate taxes who is also dean of Pepperdine Caruso Law School, says, “In all my years in tax, I’ve never seen a case or ruling involving parents’ payments for a child’s wedding. So I wouldn’t feel I have to tell parents they owe gift tax on the cost of a wedding.”

He adds that often a wedding is more for the parents than the child, as in, “We’ve waited all this time…” However, he does advise parents to pay wedding bills directly to suppliers rather than giving money to the child for payments.

There’s more to gift taxes than weddings. Here are some other questions.

Q: I’m curious. If an NFL quarterback “gives” to each of the offensive line—the people who block opponents from sacking him—a $15,000 present, are the presents taxable to the linemen, and is the total $65,000 deductible to the QB?—a reader in Sebastian, Fla. ...

Q: If I give some of my stocks to a relative, I presume there is a step-up in basis. If they then sell the stock (assume it hasn’t appreciated) and give the proceeds back to me—all at amounts under the lifetime gift maximum allowed—will I owe any taxes?—a reader in Santa Clara, Calif. ...

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