In response to my questions Treasury is investigating PwC for allegedly misleading the Foreign Investment Review Board when representing overseas clients. The dark well of unethical behaviour is a bottomless pit in the consulting industry. We need stronger action to rein them in.
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Treasury threatens to revoke foreign takeovers with PwC links
Federal Treasury is reviewing an unknown number of foreign takeovers involving PwC after the embattled consulting firm was accused of misleading the Tax Office to help its clients receive Foreign Investment Review Board (FIRB) approval.
The investigation could lead to criminal charges and approvals being revoked, but Treasury would not say if the review could lead to forced sales if the foreign acquirers were unable to gain fresh approval.
The move follows revelations from the Australian Taxation Office that it now monitors the role of advisers when foreign groups seek Foreign Investment Review Board (FIRB) approval, after a recent case involving aggressive tax arrangements where PwC acted as an adviser.
The ATO said statements it received from the applicant and/or PwC, “while possibly legally correct, had the effect of misleading the ATO as to the intended use of aggressive tax structures by the FIRB applicant”. The ATO did not name the applicant involved.
The ATO said this case triggered reforms to the foreign investment application process, which included the Tax Office monitoring the role of advisers in tax structuring for the first time.
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It cited announcements as recently as May this year from Treasurer Jim Chalmers strengthening the foreign investment review framework.
“We’re overseeing the biggest crackdown on tax adviser misconduct in Australian history,” a spokesman for the treasurer said in response to queries about the review.
“The PwC scandal exposed severe shortcomings in our regulatory frameworks that were largely ignored by the Coalition, and we’re taking significant steps to clean up the mess.”
But it won’t end there.
Treasury has now confirmed it is investigating past transactions involving PwC that could lead to criminal charges for misleading Treasury, as well as approval for some of these deals being revoked.
PwC declined to comment. At least four PwC clients in recent years have been acquired by foreign groups and may have used the firm for the FIRB approval process.
This includes the $1.5 billion takeover of baby food group Bellamy’s Organic in 2019 by Chinese interests; Tasmanian salmon farmer Huon Aquaculture, which was acquired in 2021; the $1.2 billion takeover of APN Outdoor in 2018; and the takeover of surfwear group Billabong, also that year.
“Treasury is presently examining its records and working with the ATO to identify whether any foreign investment applications where PwC was involved were based on false or misleading information,” Treasury said in a response to queries from Labor senator Deborah O’Neill.
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“Subject to the findings of these investigations, Treasury will consider what further actions or responses may be appropriate to take.”
Treasury said that providing false or misleading information to the department could result in criminal prosecution or civil penalties.
“In addition, the treasurer has the power to revoke a foreign investment approval on the basis of false or misleading information or documents,” it said.
Treasury said this review was triggered by information provided by the ATO in response to questions on notice in May this year.
This referred to ATO statements that second commissioner Jeremy Hirschhorn advised former PwC boss and current Carlton president Luke Sayers, in August 2019, of the ATO’s concerns with the PwC tax practice.
This included “involvement in Foreign Investment Review Board approval processes on behalf of clients which, through omission and commission, had the potential to mislead or subvert those processes”, the ATO said in its May response. It also said this specific PwC-related matter had now been resolved.
Sayers was not a part of the tax team and there is no suggestion he is under investigation for potentially misleading the ATO.
The parliamentary inquiry responsible for the queries was set up in response to the PwC tax scandal that started with former partner Peter Collins being banned in 2022 for sharing sensitive government tax plans with other partners and potential clients.
The scandal exploded in May last year when questions on notice from Senator O’Neill led to the publication of more than 140 pages of emails detailing the scale of PwC’s attempts to profit from confidential government plans through its local and overseas operations.
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PwC Is Grappling With an Exodus of Clients and Staff in China [Bloomberg]
PricewaterhouseCoopers LLP’s regulatory troubles in China have caused an exodus of clients and led some of its accountants to seek out jobs at rivals, casting doubt over the firm’s prospects in the world’s second-largest economy. Since March, more than 30 publicly listed companies based in mainland China have dropped PwC as their auditor, according to stock-exchange filings.
PricewaterhouseCoopers LLP’s regulatory troubles in China have caused an exodus of clients and led some of its accountants to seek out jobs at rivals, casting doubt over the firm’s prospects in the world’s second-largest economy. Since March, more than 30 publicly listed companies based in mainland China have dropped PwC as their auditor, according to stock-exchange filings.
When we’re reminded that income tax cuts represent merely the partial return of the proceeds of earlier bracket creep, and that the process of clawing back the latest tax cut starts the same day it arrives, it’s easy to join the impassioned cry for tax reform. Sorry, it ain’t that simple.
Rob Heferen, Commissioner of Taxation, Australian Taxation Office. PETER RAE
Surely if we could end the crazy business of bracket creep, we’d pay less tax? Well, yes – but no.
Bracket creep occurs because our income tax scales ignore the reality of inflation. When our wages rise to take account of inflation, we’re no better off in real terms, but we’re often pushed into a higher tax bracket, which raises the average rate of tax we pay on the whole of our income. (If we’re not literally pushed into a higher bracket, our average tax rate still goes up because a higher proportion of our income is now taxed at a higher rate.)
So we’ve long known how to (largely) end bracket creep: do what the Americans do and increase all the bracket limits once a year, in line with the annual increase in the inflation rate. Then, it would only be rises in your real income that pushed up your average tax rate, which is fair enough.
Mission accomplished. Now we’ll all be paying less tax.
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Except that the net profit the taxman makes after all the to-ing and fro-ing on bracket creep isn’t just kept in a jam jar somewhere. It’s used to help cover the ever-growing cost of all the services the government gives us, and thus to limit the size of budget deficits and government debt.
So, without the benefit of bracket creep, governments would be forced to keep making explicit increases in the rates of income tax, or to announce new taxes.
Wouldn’t that be an improvement? In principle, yes. In practice, our (politician-fed) aversion to paying higher taxes would just make politics an even bigger shoot-fight than it already is. The pollies would spend more time abusing each other and less time getting on with fixing our problems.
One thing we can be sure of is that it wouldn’t do much to slow the growth in government spending. Why not? Because our demand for more and better government services is insatiable. Because both sides of politics fight every election campaign promising more and better services – and by never showing us the tax price tag on whatever it is they are selling.
How can I be sure tax indexation would do little to slow the growth in government spending? Because that’s what happens in America. They keep running bigger budget deficits and amassing more government debt than the other rich countries (except Japan).
But they get away with it because their economy’s so big, and they’re the centre of the world financial system. A middle-level economy like ours could never pull it off.
So tax indexation isn’t high on my list of desired tax returns. Bracket creep turns out to be just one of the dirty little tricks by which the politicians who’ve done so much to make our political system almost unworkable keep it staggering along.
It’s easy to agree on the need for tax reform, but its advocates want to reform differing things and have differing motives. “Reform” is a lovely, positive word, but you need to beware of people whose idea of reform is: I pay less, you pay more.
All the alleged reform advocated by the (big) Business Council, for instance, takes that form. They want a lower rate of company tax and a lower top rate of personal income tax – all paid for by a higher goods and services tax.
Spruikers for the highly paid make a big fuss about the government’s heavy reliance on income tax – which they exaggerate – and always claim discourages them from working and investing.
But economic theory doesn’t support these claims, and the empirical evidence – which would be more persuasive – doesn’t either. The people whose behaviour is influenced by the rate of tax on additional earnings are “secondary earners”, who have more ability to increase or decrease the hours they work because they have part-time jobs. But the nation’s executives don’t worry much about them.
No, the tax reform I think we need is higher tax on capital gains, less concessional tax on the superannuation of people such as me, a decent tax on highly profitable mining companies and, probably, a tax on big inheritances.
But don’t hold your breath waiting for that to happen.
Ross Gittins is the economics editor.
