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‘For your eyes only’: How PwC leaks helped global clients dodge tax
Previously secret emails show PwC charged $2.5 million in fees to advise 14 clients how to sidestep new tax avoidance laws in 2016, relying on confidential information.
KEY POINTS
Accounting giant PwC Australia charged $2.5 million in fees to advise 14 clients how to sidestep new multinational tax avoidance laws in 2016, relying on leaked intelligence from disgraced tax partner Peter Collins.
PwC emails released on Tuesday in response to questions on notice by Labor Senator Deborah O’Neill show multiple partners of the big-four firm were aware Collins was leaking secret government documents and praised him for his revelations.
Peter Collins, former international tax leader for PwC Australia.
The Tax Practitioners Board (TPB) released 144 pages of heavily redacted PwC emails, which show that between 2014 and 2017 Collins repeatedly shared confidential information that became a key driver in the firm’s plan to win new work from US tech firms that would be hit by the new Multinational Anti Avoidance Law (MAAL).
In a January 2016 email summarising the Australian firm’s “North American project”, an unnamed PwC partner outlined how successful the multi-year endeavour had been in winning new, “brand-defining” clients for the firm.
“We got this outcome because … we were aggressive in telling these relationships they needed to act early (heavily helped by the accuracy of the intelligence that Peter Collins was able to supply us, and our analysis of the politics),” wrote the partner, whose name is redacted (bold emphasis their own).
“In total, we expect (based on fee estimates that we have agreed with clients) that revenue from this first stage of the MAAL projects will be approximately $2.5 million.”
Registration terminated
Last December, the TPB took the unprecedented step of terminating the registration of Collins as a tax agent after a lengthy investigation found he had shared secret information about the government’s tax plans to other partners and staff at PwC, despite signing a series of confidentiality agreements with Treasury from 2013 to 2018.
PwC, which won $537 million in government contracts in the last two years, was also found to have failed to regulate other partners and staff, who knew the confidential information was going to be used to help clients sidestep new tax laws and market to new clients. The TPB ordered the firm to train relevant partners and staff on how to handle conflicts of interest.
In response to the TPB investigation, PwC Australia chief executive Tom Seymour acknowledged the firm “did have a partner breach a confidentiality agreement” and said it had updated policies to “protect against this happening again”.
But he denied that as many as 30 partners and staff were involved in the confidential, government tax-policy information obtained by Mr Collins, contradicting evidence given to a Senate committee in February.
“There was no finding that 30 people got the information,” Seymour said. “What was said at the Senate committee was that there is a perceived issue around the 20 to 30 [PwC partners and staff].
“The issue for us is there’s a perception problem and that’s because we didn’t have the right management tool in place.”
In January, a PwC spokesman told The Australian Financial Review “a partner of the firm did not comply with confidentiality agreements in relation to a consultation process with Treasury, which occurred in 2014”.
However, the swathe of emails shows multiple PwC operatives repeatedly going to Collins to get updates on the thinking of Treasury, the Australian Tax Office and the then-Coalition government on the planned international tax reforms.
Confidential draft
In November 2013, Collins signed the first of three confidentiality agreements to join a group advising Treasury and the Board of Taxation on plans to enact new laws designed to stop multinational companies avoiding tax by exploiting gaps in tax rules around the world.
The proposed new Australian tax rules were based on the Organisation for Economic Co-operation and Development’s Base Erosion Profit Shifting (BEPS) project, which was of intense interest to companies worldwide.
When Treasury provided PwC with a confidential copy of an OECD document, OECD Discussion Draft – Mandatory disclosure of tax planning schemes – Sept 2014, PwC’s response was to form a “global team” to assess the international opportunities with Australian, UK and US partners.
“Because [the document] was provided to us on a confidential basis I ask that you don’t circulate it beyond us or discuss it outside PwC – it would really put PwC Australia and me in a real bind,” an unnamed PwC partner wrote in an October 2014 email. “There is a procedure for me to get you confidentiality clearances – you sign a deed – if needed.”
Earlier, another partner had suggested a UK operative could receive a version from “other sources”. But a day later the unknown partner attached the document to an email, “Guys sorry, I hope this work [sic]. As per my other email this draft was provided to me on a strictly confidential basis.”
Several days later, a PwC Australia operative wrote to the global team to discuss their response to the secret document.
“Recently I forwarded you an early confidential draft from the OECD BEPS project on mandatory disclosure reporting. The Australian firm has been invited to comment to the Australian Treasury by Friday COB [close of business] this week,” the unnamed operative wrote.
‘Pls don’t circulate’
The emails show Collins provided a regular flow of information about the government’s secret proposals to introduce the MAAL in January 2016, the Diverted Profits Tax in 2017, and further measures on hybrid structures.
“Pls don’t circulate but from agenda for tomorrow,” Collins emailed on August 4, 2015, with an excerpt showing the ATO’s position on the start date for MAAL.
“There was some more consultation today … ” Collins emailed a day later, before giving details. Treasury also tapped Collins for smaller, targeted, consultations on proposed tax changes.
“We had a meeting with the ATO and Treasury yesterday in relation to the Diverted Profits Tax (DPT) proposal in the budget,” Collins emailed on May 11, 2016. “Summarised below are the key points from the discussion … ”
Collins told his colleagues to describe his inside revelations about government plans as gossip. “Please don’t circulate this note and please treat as rumour and expectation,” he emailed on November 23, 2016. “DPT will be ready to go next Weds … ”
“As usual, pls treat as rumour,” Collins wrote about another minor update in August 2015.
“For your eyes only” was another recurrent phrase.
Such was the regard in which Collins was held by Treasury, if he needed information he just had to call.
“Let me check with someone who will know,” he would respond to his colleagues queries; or “Treasury tells me … ”
Advance notice
With MAAL, Collins was able to provide advance notice of what the law would say and, critically, when it would be introduced. PwC wanted to use its inside knowledge to attract clients.
“I really want us to own this space for not only the Tech Cos [companies], but also all the others like Web retailers, funds managers, commissionaire structures, contractors and so on,” one PwC partner emailed Collins.
But the partner complained the January 2016 start date for MAAL was too early – “too soon to make as much money as we should though” – given the need to restructure clients’ operations before the new law came into effect.
Collins replied: “Agree there is an opportunity to own this space because my sense is that we are ahead on the curve.”
Collins’ information appeared tailor-made for PwC Australia’s business plan to attract new international clients, which was described in email updates to all Australian tax partners.
The ‘dirty 30’
Tech companies such as Apple had been looking warily at Australia since late 2013 when the then-tax commissioner Chris Jordan set up an international collaboration of tax agencies to target up to 30 US tech giants, which were called the “dirty 30” because of their use of tax havens.
When one tech company was insisting the MAAL would be deferred, Collins was insistent: “Treasury was crystal clear on this and the politics of delaying the rule for the dirty 30 seems impossible. There is no sympathy for this group in treasury or govt or the ATO.”
But the controversy offered a “treasure trove [i]f we can land a few of these”, Collins wrote.
In the first months after the MAAL was introduced in January 2016, ATO officers expressed shock that ready-made schemes to sidestep the anti-avoidance law were already being marketed, by PwC and others.
Meanwhile, Collins was privy to Treasury and Board of Tax confidential talks about a new tax to ensure international companies paid tax on the goods and services they sold in Australia. The Diverted Profit Tax was particularly aimed at tech companies selling services to Australians but billing them via overseas addresses.
“Awesome for our MAAL defence work,” one PwC operative responded to Collins’ latest update on the secret plans. “Puts [redacted] in a great place.”
Back in September 2014, after US tech companies pressured US officials to complain about Chris Jordan’s international investigation, then-treasurer Joe Hockey asked the commissioner “to double his efforts in this area by undertaking more extensive inquiries and audits of multinational companies considered a risk to Australian tax collections”.
On May 13, 2015, the day after Hockey announced the MAAL in the budget, PwC sent pitches to 23 US tech companies warning of the threat the new law posed for them.
On September 1, 2015 a PwC operative emailed, “The industries that might have problems include non-resident Tech/Digital, shipping, virtual retailers, insurers/reinsurers, funds managers, commodity traders, telcos and service providers generally. In addition, ANY inbound commissionaire structure might have a problem.”
But changes had to be made before MAAL came into effect on January 1.
“So the field is large, and time is short,” he concluded.
On September 3, 2015, a PwC partner emailed Collins, “I hear there is an ATO or maybe Treasury or both meeting on 7 Sept. You attending?”
Collins replied: “Yes. Filling in for [redacted]. Also talking to treasurer’s office about the law which is still changing. What you need?”
It was that simple.
The Collins updates continued: “Little real chance of anti hybrid rule anytime soon,” he emailed 17 September 2015. “I spent three payneful [sic] hours today. BoT [Board of Tax] has zero idea. The only thing they get (now) is that it is complicated and perhaps we should not rush. No need to share this because all supposed to be secret … The imported mismatch formulas will blow our mind but be easy to sidestep.”
All the courting of tech companies paid off. By January 6, 2016, a partner was crowing, “[W]e are assisting 14 clients with their efforts to comply with the MAAL … (Some clients having only decided to go ahead with changes two weeks ago).”
$2.5m of fees just the start
PwC Australia saw the $2.5 million in fees it had booked for MAAL advice as only the beginning.
“Most of these clients will now have future work dealing with the ATO, documenting their positions and systems, preparing transfer pricing models as US and other international BEPS planning proceeds over the next year,” the partner wrote. “We will work to get as much of this as we can.”
Collins had become a resource. In May 2016, PwC held a conference call for global tax partners to bring them up to speed on the proposed Diverted Profits Tax “leveraging Peter Collins’ insights”.
On January 25, 2017, with the DPT looming, a partner sent a casual note to Collins: “Can you send me the draft leg’ pls. Can you also send me a note on the mtg yesterday. I have so many clients interested in this that we need to be at the front of the pack. Thanks.”
The “meeting yesterday” was another Treasury consultation on the draft DPT legislation. Of course Collins complied with the request with an update and an attached document.
“Not to be shared please.”
It was marked confidential.
Read more about the PwC leak
January 2023
February 2023
March, 2023
Senate - Questions on Notice @ Estimates Economics
Inquiry into management and assurance of integrity by consulting services (Consulting services)
FINANCE AND PUBLIC ADMINISTRATION REFERENCES COMMITTEE
Management and assurance of integrity by consulting services (Consulting services)
PUBLIC HEARING Tuesday 2 May 2023
Senate Committee Room 2S1 Parliament House, Canberra
12.00 pm Professor Andrew Podger
12.45 pm
Emeritus Professor James Guthrie (Submission 5) Professor Jane Andrew (Submission 5)
Dr Erin Twyford (Submission 5)
1.45 pm Break
2.05 pm
Professor Fran Baum (Submission 4) Dr Julia Anaf (Submission 4)
2.50 pm
Australia Institute (Submission 13)
Mr William (Bill) Browne, Director, Democracy and Accountability Program Mr Rod Campbell, Research Director
Dr Alexia Adhikari, Postdoctoral Research Fellow
3.50 pm Break
4.05 pm
Community and Public Sector Union (PSU Group) (Submission 6) Mr Michael Tull, Assistant National Secretary
4.50 pm Adjournment
Ban Consulting Firms Who Breach Public Trust: Parliamentary Submission
Parliamentary Committees Senate Submission
Consultants ‘tailor their work’ to win more government con
Rebuilding the capability of a federal public service worn down by overuse of external consultants will take years and better pay in areas such as information technology, respected former public servant Andrew Podger says.
Former public service commissioner Andrew Podger says the APS has 'lost capability in recent years'. Sean Davey
The former public service commissioner told a Senate inquiry on Tuesday that the overuse of external help had produced consultants who “tailor their work in order to ensure that they get future business”.
“I think there have been serious erosion of capability in the public service over the last two decades,” Professor Podger told an inquiry into conflicts of interest that can arise when big accounting firms do government work.
“[This is] in part due to excessive use of consultancies and other external providers. Consultancies and other external providers can be very helpful ... but excessive use of them undermines the use made of the public service, and the public service then doesn’t invest in its core activities as much.”
Australia’s five largest consulting firms secured a record $2 billion worth of taxpayer-funded work in 2021-22, with Accenture taking top billing for the second consecutive year followed by KPMG, Deloitte, PwC and EY.
Inquiry triggered by PwC tax leak
The Senate inquiry, sponsored by Greens senator Barbara Pocock, was triggered by the revelation that PwC former partner Peter Collins shared secret government policy material about a crackdown on tax avoidance by multinationals.
Three academics who also appeared at the inquiry – Professor James Guthrie, Professor Jane Andrew and Dr Erin Twyford – called for reforms including a “whole of government” approach to the “appointment, administration, and oversight of consulting services in the Australian public sector”.
“[It] doesn’t have to be large, but a statutory authority [should] be established to take a whole government approach to consulting services in Commonwealth bodies,” Professor Guthrie said.
“I am of the view that this would be something like the Australian National Audit Office ... the point we’re looking at is what is the value of the consultancy and their recommendations? What did you actually get out of the contract? That is the performance of the service.”
‘Inadequate’ punishment for PwC
The government has already announced it will create a new Treasury evaluation unit, costing $10 million over the next four years, to evaluate key programs, rebuild lost internal evaluation capability and support high-quality evaluation such as better data practices.
Dr Twyford said PwC had received an inadequate punishment over the tax leak. While Mr Collins had his registration as a tax agent terminated, the Tax Practitioners Board ordered PwC to train relevant partners and staff on how to handle conflicts of interest.
“I find it a little difficult to believe that there was one person orchestrating all of this ... leaking the documents, plus devising the [tax] schemes,” Dr Twyford said.
She said the PwC operatives involved were specialists who should have known that what “they were relying on was not public information”.
“The response from PwC just appeared a little bit inadequate, and a distancing of the firm from that particular person, rather than looking at it as more of a culture that is not very transparent about its conflict of interest or very forthcoming about them when they are made apparent.”
‘Inside trading?’
Professor Guthrie was more blunt in his evaluation of the PwC tax leak.
“It’s just insider trading. It’s quite simple. It was insider trading to make a profit for the partnership,” he said. “But we don’t have enough evidence yet to make a definite case as to the extent and how PwC benefited from it.”
PwC chief executive Tom Seymour has previously acknowledged that Mr Collinsbreached his confidentiality agreement, and said the firm has now put in place processes to ensure there is not a repeat of the leak.
Professor Podger said the business model of consulting could also erode the ability of external advisers to give independent advice.
“I think there is an issue when you become reliant on consultants, and the consultants also want to continue to get business, that they may tailor their work in order to ensure that they get future business,“ Professor Podger said.
He said he felt this was more likely to occur when firms are asked for “general policy” advice as opposed to when technical expertise was sought.
‘Long exercise’ to rebuild public service
Professor Podger said the more the public service used consultants, the more it would come to rely on outsiders’ expertise.
“My main concern has been about the extent of use of consultants and the implications of that on the capability of the public service,” he said. “[The] more you use the consultants ... you reduce the capability [and the] less likely it is that you can get quality out of your consultancy services anyway.”
He said it would be “quite a long exercise to rebuild” the skills of the public service and would require the government to increase pay in some areas, such as for IT experts.
“When I talk about capability, I’m not talking about the quality of people joining the public service ... the human capital in individuals is very strong,” he said.
“The issue is the system’s not utilising [them] as well as it should and they’re not developing those people as well as they should.”
The inquiry is scheduled for two more days of public hearings.
Edmund Tadros leads our coverage of the professional services sector. He is based in our Sydney newsroom.Connect with Edmund on Twitter. Email Edmund at edmundtadros@afr.com.au
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