Sunday, August 06, 2023

Not fit for purpose’: Sweeping response to PwC scandal


Tax agency’s board meetings held inside PwC

Not fit for purpose’: Sweeping response to PwC scandal

Consulting firms caught promoting tax exploitation schemes will be fined up to $780 million, a 100-fold increase, under the Albanese government’s sweeping response to the PwC tax leaks scandal.

A two-year Treasury review of the regulation of all professional firms; the removal of secrecy rules hampering the ATO and more power for regulators are also part of changes designed to fix a system deemed “not fit for purpose”.

Announcing the changes on Sunday, Treasurer Jim Chalmers, Finance Minister Katy Gallagher, Attorney-General Mark Dreyfus and Assistant Treasurer Stephen Jones said they signalled the biggest crackdown on misconduct by tax advisers in Australian history.

Treasurer Jim Chalmers will help push the government’s response to the PwC tax leaks scandal through parliament. Louise Kennerley

“The PwC scandal exposed severe shortcomings in our regulatory frameworks,” the ministers said in a statement.

“By increasing penalties, giving regulators stronger teeth to investigate and prosecute perpetrators and boosting transparency, collaboration and coordination within government, we are acting to restore public confidence and help prevent this from happening again.”

It marks the most substantive reaction to the PwC leaks, first reported by The Australian Financial Review, which have also triggered a criminal investigation by the Federal Police, two federal and one state parliamentary inquiries, and caused federal departments to terminate contracts with the big four firm.

The government has also flagged that the light-touch regulation of Deloitte, EY, KPMG and PwC could be coming to an end. Treasury will examine the governance obligations of these firms in areas such as transparency, executive responsibility, management of conflicts of interest and dealing with misconduct.

The ministers described a two-year process where Treasury will oversee changes to the Tax Practitioners Board changes and six new reviews, with two additional reviews by Finance on issues that include:

  • Implementing recommendations from the independent review of the TPB, particularly widening the range of sanctions available to the regulator.
  • Tailoring tax promoter penalty laws to address current promoter behaviour, marketing complex tax avoidance schemes across jurisdictional boundaries.
  • A review of emerging fraud and threats of systemic abuse of the taxation system by tax agents “and other bad actors”.
  • A joint review by Treasury and the Attorney-General’s Department of concerns that legal professional privilege claims are being used to obstruct government investigations.
  • Whether reforms are needed to regulate consulting, accounting and auditing firms.
  • More compulsory information-gathering powers of the ATO.
  • Whether secrecy provisions of the ATO and TPB should allow information sharing with other regulatory agencies.
  • The use of confidentiality agreements across all government agencies.
  • Options to increase the transparency of where federal contracts have been terminated for material breach.

    More options for regulators

    Legislation to increase the powers of regulators and other tax measures is expected to be introduced later this year after consultations on the reforms begin shortly.

    The speed of the changes will widen the range of responses open to the Tax Practitioners Board and the Tax Office as they examine possible further misconduct by PwC partners who used Treasury information to market tax avoidance schemes to US multinationals.

    Tax promoter penalties for firms and individuals who market tax avoidance schemes have only been applied six times since they were introduced two decades ago, in part because of the high bar set in the legislation.

    In 2019, the ATO considered then dismissed a proposal to impose promoter penalties against PwC over the tax leaks. The PwC scandal involved former partner Peter Collins sharing secret government information that was used by PwC personnel to advise clients on how to sidestep new tax laws.

    The current law applies to marketing schemes where it was “not reasonably arguable that the scheme benefit was available at law”, which does not cover, for example, using leaked information

    The proposed changes will make it easier in future for the ATO to apply them to tax advisers and firms promoting tax avoidance and will lift maximum penalties 100-fold, from $7.8 million to just over $780 million.

    The current penalty for a body corporate promoting tax schemes is 25,000 penalty units (each $313), with 5,000 penalty units for an individual. The new laws would make companies and partnerships liable to 2,500,000 penalty units.

    Penalties could potentially go higher than $780 million because typically the ATO imposes promoter penalties over multiple years and on multiple entities. In the largest case to date, in 2021 Paul Bogiatto was fined $6.51 million, but further penalties on his companies took the total to $22.68 million.

    “Bigger penalties will reduce incentives to use confidential government information to help clients avoid tax,” the ministers said.

    “We’re also cracking down on the scourge of multinational tax avoidance and making sure multinationals pay their fair share of tax in Australia.”

    Current rules ‘not fit for purpose’

    The time limit for the Tax Office to begin court action on promoter penalties will also be increased from four years to six years after the behaviour.

    More immediately the government committed to removing limitations in the tax secrecy laws that barred the Tax Office from sharing its discovery of the PwC leaks with other departments including Treasury.

    It will also boost the TPB’s powers to protect whistleblowers, provide more transparency over misconduct matters in its public register, more time for investigations and to refer ethical misconduct to professional associations for disciplinary action.

    “The PwC scandal has shown some regulatory frameworks are not fit for purpose,” the ministers’ statement said.

    “It has raised questions about the adequacy of regulations applying to large consulting, accounting and auditing firms and how this misconduct was able to occur and go undetected without consequence for so long.”

    Big four governance

    The move to examine, with a view to reforming, the way the big four consulting firms are regulated will raise alarm bells across the partnerships. It comes after the lack of regulation of the sector was highlighted repeatedly during the ongoing Senate inquiry into consulting.

    A separate joint parliamentary inquiry is already going to examine the partnership models of the big four consulting firms, their lack of disclosure obligations, and explore how regulators and the government can impose penalties on their personnel for bad behaviour.

    “This work will require collaboration with states and territories, given cross-jurisdictional regulation of partnerships, as well as engagement with ongoing Parliamentary committee inquiries,” the Ministers said.

    The big four firms avoided an earlier attempt by the ATO to regulate their tax advisors which would have linked their ability to win Commonwealth contracts to their behaviour as tax agents. However, the scheme ended up becoming a set of self-regulatory principles that were effectively voluntary for the firms.

    Key stories in the PwC tax leaks scandal

    • PwC partner leaked government tax plans to clients The former head of international tax for PwC Australia, Peter Collins, has been deregistered by the Tax Practitioners Board for dishonesty and for sharing confidential government briefings with PwC partners and clients.
    • ‘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.
    • PwC partner leaked government tax plans to clients The former head of international tax for PwC Australia, Peter Collins, has been deregistered by the Tax Practitioners Board for dishonesty and for sharing confidential government briefings with PwC partners and clients.
    • PwC chief steps down over tax leaks scandal PwC boss Tom Seymour has stepped down three days after confirming he was linked to a tax leaks scandal that had threatened the firm’s ability to win work from its largest client, the federal government.
    • The inside story of PwC’s tax scandal The consultancy is facing one of the biggest crises in its history following revelations that dozens of PwC operatives used confidential updates on government tax plans to drum up new clients. This is how it happened.
    Neil Chenoweth is an investigative reporter for The Australian Financial Review. He is based in Sydney and has won multiple Walkley Awards. Connect with Neilon Twitter. Email Neil at
    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