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Monday, June 03, 2024

‘This may not end well for you’: The secret war behind the PwC inquiry

Luke Sayers takes an ATO epiphany to the chest


 This may not end well for you’: The secret war behind the PwC inquiry Documents tabled by three federal agencies 

Documents tabled by three federal agencies raise questions about whether the ATO tried to shut down the investigation into the PwC tax leaks and targeted the man leading it, Michael O’Neill.

“Is it worth rubbing Peter Collins out for something he did eight years ago?”
Peter Collins is the PwC partner at the heart of the tax leaks scandal that rocked Australia’s professional services industry last year, and that comment was made by a senior Tax Office executive.
The comment – in handwritten diary notes, obtained by the Senate – reveal the starkly different views within the federal bureaucracy about the PwC tax leaks scandal, before it became public last year.
“It’s a wild goose chase with PwC – 99 per cent of PwC was good,” Tax Office executives said.

The comments show just how deep the rift over the PwC scandal was between the Tax Office and the Tax Practitioners Board, which regulates tax agents and is headed by Michael O’Neill. The tax officers wanted O’Neill to stop his PwC investigation and complained that the Tax Office had only referred Collins to the Tax Practitioners Board “to keep Michael O’Neill happy”.

The Tax Office denies it tried to close the O’Neill inquiry down. But hundreds of documents tabled by three federal agencies last week, in response to Questions on Notice from Greens Senator Barbara Pocock, raise questions over that denial.
They also provide more detail on six attempts by Treasury and the Tax Office to target O’Neill – first reported by The Australian Financial Review in February – including three bids to raise an informal bullying complaint which was never shown to him, and which were dismissed by ATO lawyers and human relations staff on each occasion.
“Last year, when our inquiry began, I asked whether what we have here is a PwC protection racket,” Senator Pocock told The Australian Financial Review. “These documents provide some very disturbing evidence in support of that proposition. They reveal how these relationships and a flawed regulatory regime worked, or almost worked, to protect PwC when they needed it most.
“These documents reveal how, in process after process, attempts were made to restrain or even shut down an assertive regulator in a David and Goliath struggle. They show repeated attempts to undermine investigations into PwC involving a minister’s office, senior public servants and regulators.”

Bullying claims

The Tax Office had formally referred PwC partner Peter Collins after repeated information requests from the Tax Practitioners Board. But O’Neill’s hard-charging investigation team ran into a wall after they opened a second inquiry into PwC in March 2021.
In order to investigate PwC’s actions in using confidential information to pitch to clients, the Board needed to look at case notes and records of how multinationals interacted with PwC over the 2016 Multinational Anti Avoidance Law, using confidential Treasury information. The Tax Office was unwilling to release these documents, saying they were locked up by settlement agreements.
This was the Tax Office’s dichotomy: it could say it supported a PwC investigation while it blocked the documents needed for such an investigation. It would only provide documents for the Collins matter.
On June 16, 2021, a tax officer emailed the Tax Practitioners Board refusing to provide any information about PwC’s tax schemes: “We have reviewed [the information requests] and are of the view that they did not address or illuminate the alleged conduct of Mr Collins,” the tax officer wrote. “We believe we have provided all information in our possession that is relevant to the alleged conduct of Mr Collins.”
It prompted a flurry of emails and calls from the Tax Practitioners Board investigators. O’Neill emailed deputy commissioner Hoa Wood, who ran the ATO’s Individuals & Intermediaries team: “Surely this is not some reversion to a place where the ATO proposes to tell the Tax Practitioners Board what is relevant to our investigation?”
The Tax Practitioners Board had advice from outside counsel and Tax Office counsel that it could directly access the Tax Office’s data warehouse through the Siebel system, as well as sending disclosure notices to 26 multinational companies who were PwC clients, which they did from July 2.
While this went on, on July 5 an unnamed tax officer in Wood’s division made a formal complaint, on behalf of several people, of bullying and harassment by O’Neill and other senior Tax Practitioners Board personnel.
When HR referred it to the office of the General Counsel, assistant commissioner Catherine Willis flagged that she and others were already advising about the Tax Practitioners Board accessing Tax Office records.
She was dismissive of the bullying claim: “[A] quick read gives the impression that the authors have been invited to give negative feedback.” There was no direct behaviour evidenced.
Rather than a workplace behaviour issue, she referred to a conflict over operational issues between agencies. Besides which, “the ATO is not able to direct the TPB as to how they carry out their work under the Tax Agent Services Act 2009”, she said.
More troubling, “If the allegations are against more senior officers in the TPB, we need to be mindful of any perception that the ATO was indirectly dictating TPB operational approaches,” Willis warned.
“I agree … the information provided in the complaint is purely from the perspective of ATO staff members,” replied deputy commissioner Brad Chapman, the head of the agency’s human relations arm, ATO People.
While it wasn’t suitable for a bullying investigation, Chapman suggested a workplace assessment. Some saw this as a first step in gathering incriminating evidence about O’Neill. But nothing came of it.

Shadowy talks with Treasury

It wasn’t the only threat. Separately, the Tax Practitioners Board chairman, Ian Klug, was engaged in discussions with the Tax Office and Treasury about governance complaints about Michael O’Neill, which would bubble along throughout 2022. These would soon involve then assistant treasurer Michael Sukkar’s office.
As this was simmering, on August 10 Sukkar appointed former PwC partner Peter Hogan to the Tax Practitioners Board. Hogan was a longstanding friend of Sukkar and his chief of staff, Barmak Armani, and has spoken widely of the pressure Armani put on him to join the board. He continued to socialise with Sukkar and Armani, current board chairman Peter de Cure has said, but was excluded from reports on the PwC investigation.
Two processes were now targeting O’Neill – the bullying complaint and the shadowy talks with Treasury, which would later include Hogan – but O’Neill was not aware of either of them.
The fight with the Tax Office was about to go ballistic, as tax advisers complained to the Tax Office about the Tax Practitioners Board disclosure notices sent to multinationals.
The Tax Practitioners Board met on September 1, beginning with an in-camera session without the chief executive to discuss governance measures, including ones targeting O’Neill.
When the board meeting reconvened, tax commissioner Chris Jordan, second commissioner Jeremy Hirschhorn and Wood joined them, and Jordan read the riot act, accusing Tax Practitioners Board investigators of acting illegally in its PwC investigation.
Such was the impact of Jordan’s comments that two days later the Tax Practitioners Board met again in camera to discuss sacking Michael O’Neill. Jordan followed up with an explosive letter to Klug demanding that it withdraw the disclosure notices and halt its inquiries.
Days later Treasury under-secretary Paul McCullough emailed a colleague that he had just spoken to Klug, and that “next week it would be nice to email him setting out what we have in mind, to check he will be ‘happy’”.
What Treasury had in mind came from Sukkar’s office: a plan to give the Tax Practitioners Board chairman power to hire and fire the chief executive. Keith James had recommended this measure in his 2019 review of the TPB, as part of a raft of measures to enhance independence.
This was the only James recommendation that Sukkar adopted. And it would make O’Neill’s position precarious, because Treasury would insist that the CEO, who had had a long career with the ATO before his secondment to the TPB in 2018, could not return to the Tax Office.
In October, the TPB board decided to hold an internal review of the PwC investigation, by board members Greg Lewis and Debra Anderson, who began interviewing senior tax officers about the rift between the two agencies.
As part of its complaints to Lewis and Anderson, the Tax Office reactivated the July bullying claim against O’Neill.

‘This may not end well for you, Michael’

In mid-November, the TPB board met privately for two and a half hours to consider the allegations – even though they hadn’t actually seen the detailed complaint. Emails show that O’Neill, who had still not heard of the claim, was subsequently told only that four people had complained of bullying by him. Chairman Klug told him, “This may not end well for you, Michael.”
Klug subsequently told board members he had asked advice from Shannon Schuster of ATO People, who spoke of the absence of due process, and told him no bullying issues had been raised by ATO staff using formal channels and that such tensions were “common in the contest of ideas between teams”.
“A contest of ideas does not amount to bullying or harassment, I am advised that of themselves, these would not be subject to an ATO investigation,” Klug reported.
On November 3, Treasury’s Paul McCullough wrote to assistant commissioner Usha Narain in the policy analysis and legislation section, asking for the Tax Office’s views on a change to the way the TPB CEO was appointed and managed.
“We understand that Minister Sukkar’s Chief of Staff may also have raised this issue with the Commissioner directly recently,” McCullough wrote. Ahead of the meeting with Jordan, Armani had liaised with Hoa Wood and Narain, the emails show.
On January 13, 2022, Narain forwarded the Tax Office response to the plan by 11 Tax Office staff. On January 14 ATO general counsel Nicholas Shivas cautioned: “Please note that there is a limited group who are aware of this line of enquiry. The CEO and TPB are not aware, except the Chair who I think may be aware.”
By March 8 with the Morrison government heading towards an election, Barmak Armani from Sukkar’s office spoke directly to Wood and Narain, who reported: “He was a bit annoyed that not much had been done to progress what the Minister wants in terms of the CEO … ”
More details were emerging. “Treasury state the agreement would clearly provide that the CEO, being a Band 2 ATO employee, could not come back to the ATO at the end of the term,” Narain reported. “Treasury believe this is non-negotiable … ”
She asked Treasury: “What does this mean for the current CEO?”
It seemed clear O’Neill stood to be the big loser here.
“It would be interesting to understand what mischief the board is trying to address – is it the current performance, or is it because he has pushed back on some things?” replied assistant commissioner Lorena Arpke of ATO Finance, one of the growing number of tax officers party to the planning.
Sukkar’s office was pressing for an announcement of the change to be made by the end of the month before the government went into caretaker mode.
Jeremy Moore, acting deputy commissioner, ATO People, pushed back: “Announcing this before even doing rudimentary consultation with the incumbent could be industrially fraught, appears to lack real leadership and would potentially make the incumbent position untenable while this is being put into place.”
The announcement would be made on March 25 in a press release titled, “Greater Independence for the Tax Practitioners Board”. The arguments went back and forth whether to tell O’Neill before then that his job was being redefined, with reference to “how to manage the circumstances of the current CEO” and a “transition plan for him”.
“Would there be issues for the TPB asking the current CEO to go into a 5-year contract?” Narain asked.
O’Neill first learnt of the plan from Shannon Schuster and Klug on March 24. He has testified he was later shown a standard non-ongoing contract template which he would have to sign, subject to legal advice. The non-ongoing contract would apparently remove his capacity to return to the Tax Office.
This too came to nothing. The change of government came before the ATO’s legal advice came back, which was that the proposed non-ongoing contract would not extinguish O’Neill’s right to return to the ATO.
In November, the TPB closed its Collins investigation, and disqualified him as a tax agent for two years. The PwC investigation saw a requirement that the big four firm conduct classes to teach partners and staff how to recognise conflicts of interest.
By December, Sharon Schuster had heard no more of the plan to change how the CEO was hired and fired, but was clear on one thing: “There is no agreement or arrangement for the incumbent to return to the ATO at any stage.”