Too many sins to count: Why PwC must not audit again

So egregiously did PwC exploit legal professional privilege claims as a weapon against the efforts of the Australian Tax Office (ATO) to enforce tax law that the firm is unable to count them, it has admitted to the Senate inquiry into consultants.

In a newly released lengthy set of responses to questions on notice placed by Greens Senator Barbara Pocock, the firm has exposed more detail of its aggressive tax advice practices, designed to help multinational companies dodge tax.

Pocock asked the firm about the number of legal professional privilege claims made between 2016 and 2020 by Meredith Beattie, who was general counsel from 2013 until earlier this year, when she left the firm amid the tax leaks scandal. But they were literally too many to count:

Having regard to the number of notices PwC has received from the ATO during the relevant period, and the volume of documents produced in response to those notices, in the time available it has not been possible to identify the number of legal professional privilege claims made to the ATO between 2016 and 2020 that Meredith Beattie either prepared or had involvement in.

As Crikey’s David Hardaker has reported, claiming legal privilege over documents was a key strategy of PwC to thwart efforts by the ATO to dig into the tax avoidance schemes the firm peddled, at least until the Federal Court began finding against its egregious exploitation of it over thousands of documents.

But the strategy helped generate nearly $3.5 billion in revenue for PwC’s tax advice area over the past decade, according to the Senate documents.

An internally commissioned review prepared for the firm and handed to the Senate also gives an insight into the abuse of tax laws. Mainly laudatory of the firm’s internal processes, particularly where it tightened up its tax practice procedures after adverse publicity, the report — written by a former senior ATO officer — notes that the ATO had had to “force” PwC to undertake “behavioural change through their positioning around advisers”, while “legal engagements have been a particular area of focus in the last 4 years in response to increased activity by the ATO to ensure there is discipline around legal engagements”.

The only reality check in the report was in the comments of ATO second commissioner Jeremy Hirschhorn, who told the reviewer of …

… the ‘Rover’ model where tax structures (many including cross-border arbitrage) would be ‘rolled out’ to the market; PwCA was at the ‘centre’ of a number of the taxpayer alerts that the ATO issued; clients would be ‘pushed’ into legal engagements; there was insufficient attention given to the proper engagement of legal practitioners; a perception that ‘commercial purpose’ in relation to general anti-avoidance rules were manufactured by PwCA and not the taxpayer’s actual purpose of entering into particular transactions.

The Senate answers also illustrate the extraordinary extent to which big four audit and tax partners pervade the public sector at senior levels. There are 24 PwC partners on public sector boards, the firm says, and a further 19 are acting in advisory roles to such boards. Nine partners are on university boards, and a further 20 are advisers to university boards, while 64 are either on the board of or advisers to corporations, reflecting the extraordinary extent of potential conflict of interest for any government using the firm.

There’s no reason to assume the comparable numbers would be markedly different for Deloitte, EY and KPMG (recall that KPMG’s James Hunter, a key figure in the TAHE scandal in NSW, was embedded in NSW Treasury and signed himself “Partner KPMG | NSW Treasury”.

PwC insists a new era has dawned at the firm, that it had already overhauled its tax practice processes to curb its “risk appetite”, and has sacked the few bad apples who failed to act appropriately in relation to the tax leaks scandal (although PwC admits it gave tax information leaker Peter Collins a payout of eight months’ income when he left last year).

But when its previous behaviour was so outrageous that it is literally unable to count how many times it tried to exploit legal privilege, when it pushed clients into a legal relationship in order to do so, when it had to be forced by the ATO to alter its practices, when it simply invented sham commercial purposes as a cover for tax dodging by multinationals, when it would devise tax avoidance models and go flogging them to the market, and made billions doing so, no government should have anything to do with the firm.

PwC can keep the $3.5 billion it made from selling tax-dodging schemes. But it should never audit any government agency ever again. And any ethical corporation should never use it for either auditing or tax advice again either. Any company or government that sticks with PwC is signalling its approval of sins too numerous to count.

This article was first published by Crikey.