KPMG culture created Smarter Data 📊 peppered with Accenture shares … and waves of conflict of interests …
ATO audit finds $69m IT consultant cost blowout
Prices for some contracts rose more than 1,000 per cent.
Former top public servant's conflict of interest laid bare in audit report
A former Tax Office executive failed to properly declare his conflicts of interest, including details about shares he held in a consulting firm that worked with the agency, an audit report has revealed.
A probity review, revealed in the audit report, found former ATO chief information officer Ramez Katf did not provide adequate clarity and detail about his shareholdings in tech consulting firm Accenture.
Mr Katf joined the ATO in 2015 and had previously been a managing director at Accenture, a long-standing contractor to the ATO.
Between 2003 and 2024, Accenture held $2.5 billion worth of contracts with the ATO.
While Mr Katf submitted annual declarations of his Accenture shares and some conflict of interest declarations, the Australian National Audit Office found inconsistencies and issues with the reporting.
"The ATO did not have a full picture of the conflict, which influenced decisions made about managing the conflict," the ANAO wrote in its report.
Former ATO executive Ramez Katf did not provide adequate clarity and detail about his conflicts of interest, an audit report has found. Main picture by Karleen Minney
The audit report assessed whether the ATO complied with Commonwealth procurement rules for its IT Strategic Sourcing Program (ITSSP), which included contracting six external advisors at a total cost of about $88 million.
The ANAO found the ATO's procurement of IT managed services was largely effective and that it was largely compliant with the Commonwealth procurement rules.
However, the audit report highlighted the former CIO's inappropriate management of his conflict of interest, saying it was a key probity risk for the agency.
Mr Katf left the ATO in 2024, at the end of his seven-year tenure.
Former CIO's conflict prompts probity review
When the ITSSP began in February 2021, Mr Katf was the senior officer responsible for the program and the public governance, performance and accountability delegate.
Mr Katf reported no conflict of interest for the program at the time, the ANAO noted in its report, despite his previous annual declarations.
All of the former CIO's annual declarations, except in 2017, stated he had shares in Accenture.
Accenture participated in the program's initial market sounding exercise from July to August 2021. However, Mr Katf did not declare a conflict until February 2022.
At the time, it was reported as a perceived conflict.
After Mr Katf's February 2022 conflict of interest declaration, it was proposed that the ATO's chief financial officer (CFO) would become an alternate delegate for dealings with Accenture.
However, the ANAO found this arrangement was not adequately defined in the probity register.
In December 2022, Accenture was shortlisted for the Enterprise Operations and Technical Enablement (EOTE) part of the program.
In July 2023, a decision framework was put in place to strengthen the management of Mr Katf's conflict of interest.
This included replacing the CFO with the Commissioner for Taxation as the alternative delegate for the procurement.
Around the same time, the procurement was paused and a probity review was requested, which was considered necessary due to forthcoming media reports about potential conflicts of interest.
In August 2023, advisory firm Bellchambers Barrett was appointed to conduct the probity review, which found "a lack of clarity and detail" around Mr Katf's shareholdings in Accenture.
The review also assessed Mr Katf's conflict as an actual conflict, not a perceived conflict.
In October 2023, the ATO moved into negotiations with Accenture for the EOTE project and eventually became the successful tenderer.
Personal relationships, previous employment not always declared
The ANAO report also found that while Mr Katf made 13 annual declarations of his shareholdings and four ITSSP conflict of interest declarations, the size of the shareholdings was not always reported.
The auditor also found Mr Katf's personal relationships and previous employment were not always declared.
The ANAO found the former CIO's declarations frequently did not contain sufficient detail.
"This was not consistent with ATO guidance on conflict management plans," the report stated.
It made four recommendations in the report, including that the ATO ensures conflicts are declared in a timely manner with sufficient detail.
The ATO agreed to all recommendations and said it continued to improve its processes.
"Over the last three years, the ATO has made a number of improvements to strengthen our policies in relation to conflicts of interest and procurement to ensure that they are best practice," an ATO spokesperson said.
This included more detailed conflict management plans, stronger governance on conflict declarations and visibility, and further training for staff.
ATO loses $1b tax dispute with Alcoa as US companies play hardball
The Australian Taxation Office has conceded defeat in its $1 billion-plus tax dispute with Alcoa following a six-year battle with the US aluminium giant.
The ATO has declined to appeal a tribunal ruling against it, effectively ending the case, and will now be required to pay Alcoa $107 million in tax refunds. The defeat is a blow for Canberra, which is fighting to recoup billions of dollars in alleged unpaid taxes from several big US companies
Pittsburgh-based Alcoa has been embroiled in the legal stoush since 2019, when the ATO accused the company of selling alumina from its Australian operations at below-market rates to related parties in Bahrain.
Related party transactions are closely scrutinised by the ATO because they can be used in tax avoidance schemes to shift profits, expenses, or assets in ways that reduce overall tax liabilities.
For instance, one entity might sell a good or service to a related party at below-market value to create an artificial loss, or shift profits to a related entity in a lower tax jurisdiction.
Last month, the Administrative Review Tribunal rejected the ATO’s claim that Alcoa’s Australian companies had sold its product too cheaply.
The ATO had until Wednesday, which was 28 days from the decision, to appeal.
“The Commissioner has not appealed the ART decision,” an ATO spokesman said. Reasons for this will be published by the ATO later, he added.
During the almost six-year battle with Alcoa, the ATO had increased the size of its claim for the alleged underpayments to more than $1 billion, based on penalties and interest.
The tax office’s decision not to contest the tribunal’s decision means that the Australian government and, indirectly, taxpayers, will refund $US67 million ($107 million) to Alcoa in June. Alcoa had paid this amount – which was 50 per cent of the income tax amount – during the third quarter of 2020.
The ATO is engaged in a slew of tax brawls with other major US corporations, including oil major ExxonMobil, the world’s largest gold miner Newmont and PepsiCo.
Car maker Ford has enlisted the US Internal Revenue Service as it fights attempts by Australian authorities to wrest billions of dollars from it – a sign that President Trump’s “America First” policy agenda could encourage US companies to take a tougher stance in tax disputes overseas.
The ATO investigation of Alcoa was sparked by a US Securities and Exchange Commission inquiry into Alcoa and its Australian subsidiary’s use of a London-based consultant with links to the Bahrain royal family.
The SEC investigation found that more than $US110 million ($171 million) in corrupt payments were made to Bahraini officials with influence over contract negotiations between Alcoa and a government-operated aluminium plant.
In 2014, Alcoa agreed to settle the SEC’s charges and a parallel criminal case by paying $US384 million.
The ATO investigation focused on alumina sales over a 20-year period. The ATO bill applied to Alcoa of Australia, which was 60 per cent owned by Alcoa and 40 per cent owned by ASX-listed Alumina.
Alcoa acquired its Australian partner Alumina Limited last year. Shares in New York listed Alcoa have effectively traded on the ASX via a Chess Depositary Interest since the takeover.
Elouise Fowler is a journalist for The Australian Financial Review based in the Melbourne office. Connect with Elouise on Twitter. Email Elouise at elouise.fowler@afr.com.au
Peter Ker covers resource companies for The Australian Financial Review, based in Melbourne. Connect with Peter on Twitter. Email Peter at pker@afr.com
Ford enlists Trump tax officials in billion dollar ATO brawl
Ford has enlisted the Internal Revenue Service as it fights attempts by Australian authorities to wrest billions of dollars from the carmaker, a new tactic in attempts by American companies to avoid local taxes.
The Australian Taxation Office is in the midst of similar fights with other major corporations, including oil major ExxonMobil, aluminium manufacturer Alcoa, the world’s largest gold miner Newmont and PepsiCo.
The ATO said a growing number of foreign companies were enlisting authorities where they are headquartered to help fight off tax bills. “This may reflect the increase in cross-border dealings globally and an increasing awareness of [mutual agreements] as a process for dispute resolution, as well as the ATO’s focus on ensuring that multinational companies do not misprice their cross-border transactions,” the spokesman said.
A tax treaty with the US allows for the IRS to be included in any dispute.
Ford has expanded its Australian market share, even after stopping manufacturing in Australia in 2014. A decade on, its Australian subsidiary has tripled revenue, generating more than $6 billion last year. The company’s stoush with the ATO relates to its accounts between 2014 and 2019 when Ford generated around $19 billion in revenue.
A Ford spokesman declined to detail how much money the ATO claims it is owed, only that it disagreed with the proposed bill. The ATO and the IRS were “currently in discussions to resolve this dispute”, he added.
Ford’s Australian subsidiary did not pay any income tax between 2014 and 2019. In five of those six years, the company reported a loss, with an $8 million profit in 2018 its only surplus.
But taxable income was reduced considerably by what the company claims is spending on research. Ford’s Australian business expensed close to half a billion dollars per year in research and development in both 2016 and 2017. Ford also used deferred tax assets to reduce its tax obligations.
“It is often country against country to get the higher taxing rights,” said Nolan Sharkey, an international tax researcher at the University of Western Australia. “When American authorities come in to bat for the American company, they are not necessarily doing it so they can pay less Australian tax, they’re effectively doing it to increase American taxing rights.”
US President Donald Trump has signalled it does not support global tax treaties, including those signed under the Biden administration, and has directed government agencies to consider whether taxes levied by other countries are discriminatory toward American companies.
“On day one of his presidency he signed an executive order disavowing the OECD Global Minimum Tax deal,” said Adrian Blundell-Wignall, a former senior official at the Organisation for Economic Co-operation and Development. “This is like the holy grail for Trump.”
The OECD brokered the Global Tax Minimum – a rule adopted by 137 countries including Australia – in the hope of curbing tax avoidance by imposing a 15 per cent minimum rate on the profits of multinational companies, regardless of where those profits are reported.
Trump’s attitude toward global tax could flow into how US agencies dealt with disputes between American companies and Australian tax officials, said Sharkey. “It could change the culture to be even more aggressive and more pro-America – if that is possible.”
The ATO is already mired in disputes with major US corporations.
It is at odds with ExxonMobil over the interest rates that the company’s subsidiary charged when lending money to its Australian business. The dispute, first reported by The Australian Financial Review in 2018, escalated to encompass 13 years of accounts filed by its Australian subsidiary.
In 2021, Exxon set aside a provision of $21 million to cover a potential payout over the ATO stoush, which has subsequently risen to $70 million.
In accounts filed with the Australian Securities and Investments Commission in April, Exxon said it also expects “years of litigation” against the ATO over a separate tax dispute relating to the petroleum resource rent tax applied to its Bass Strait oilfields in 2016, 2017 and 2018.
Pittsburgh-based Alcoa is embroiled in a separate legal stoush with the ATO over the price its Australian companies sold alumina to related parties in Bahrain. The ATO has increased the size of its claim for the alleged underpayments to more than $1 billion, based on penalties and interest.
Last month, the Administrative Review Tribunal ruled in Alcoa’s favour and rejected the ATO’s claims that Alcoa had sold alumina too cheaply. The ATO and Alcoa remain embroiled in a Federal Court dispute on the matter.
Australian tax officials are also appealing a Federal Court decision in favour of PepsiCo to the High Court. That matter relates to money paid to PepsiCo and its Singaporean business by Schweppes, which manufactures and distributes several of PepsiCo’s brands including Pepsi.
Colorado-headquartered Newmont is also awaiting judgment from the Federal Court on an $84 million claim by the ATO. The dispute – over whether the company should pay capital gains tax after an internal restructure – has continued for more than a decade.
Peter Ker covers resource companies for The Australian Financial Review, based in Melbourne. Connect with Peter on Twitter. Email Peter at pker@afr.com
Elouise Fowler is a journalist for The Australian Financial Review based in the Melbourne office. Connect with Elouise on Twitter. Email Elouise at elouise.fowler@afr.com.au
