PwC Leaked Confidential Australian Government Tax Information

In January 2023, a small, front-page newspaper article about the leakage of confidential Australian government tax information by PricewaterhouseCoopers (PwC) sparked anger that led to two Government inquiries, initially into PwC, but soon widened to consider the consulting industry more generally.

An investigation found that a PwC partner, as a consultant to the Treasury, had, in 2015/16, engaged "in confidential consultations on proposed Australian tax legislation and policy positions intended to give effect to the Organisation for Economic Cooperation and Development (OECD)" efforts to tax the profits of transnational companies earned in the countries where they operate".

"Having signed the required confidentiality agreements, that partner had nevertheless shared the confidential information within PwC, and from there it was used to "market PwC ... and influence the structures of existing clients in a manner that may be perceived to circumvent the intent of the proposed legislation regarding the OECD ... provisions."ⁱ

At the international level PwC had also formed a global team to make commercial use of the information obtained, and to influence negotiations to reform international tax systems. In other words, while supposedly helping the Australian government (and the OECD) devise tax laws to tax the transnational companies where they operate, the partner and PwC also used the confidential information to profit even further by helping their transnational clients to weaken and avoid (defeat) those very laws before they came into effect in 2016.

Denied, Lied, Obfuscated, Withheld Information

In the Senate Committee inquiry that followed, PwC tried to deny, lie, and obfuscate, and continues to withhold information, hence the titles of the two Senate Committee reports about the PwC inquiry: "PwC: A Calculated Breach Of Trust";ⁱⁱ and "PwC: The Cover-Up Worsens The Crime".ⁱⁱⁱ In the face of PwC's intransigence, the Senate Committee sought further information from the Tax Practitioners Board (TPB) which had investigated PwC's leaking of the confidential Government tax information.

The TPB advised that 22 PwC personnel in six countries had been using the confidential information to oppose international tax reform, and provided many PwC emails in evidence: for example, an Australian PwC partner boasting about interactions with PwC firms internationally, including in the United States, Singapore and the Netherlands. The TPB had commenced multiple additional investigations into this, and had referred one investigation to the Australian Federal Police for criminal investigation. This investigation involved both domestic and international matters.

PwC's continued withholding of information from the Senate Committee inquiry suggests it fears attracting further attention than it already has from regulators in other countries, such as the US and UK. Already, the US Public Company Oversight Board (PCAOB) has fined PwC $US600,000 for failing to report the Australian investigation in a timely manner.

Consulting firms, including the major accounting firms such as PwC, are well known for pursuing a profit-driven focus, often very aggressively. As consulting firms have extended tentacles into multiple Government areas, they have grown significantly and become involved in massive conflicts of interests. One comment in the most recent Senate inquiry report, argues consulting firms' expansion into the public sector, "has given too much power to small numbers of influential people who have assiduously and deliberately farmed a tight network of close relationships for personal benefit - across the big end of town and into Governments and regulatory bodies. In too many places, a very profitable network is evident, circulating through revolving doors that spin across the sector. This corrupts our democracy".^iv

Expensive Hidden Shadow Workforce

The growth in consulting firms and the resulting conflicts of interest have occurred as Governments internationally significantly reduced public sector staff. In Australia, the Commonwealth government imposed a severe staffing cut in 2015, followed immediately by a cap on public service numbers. Although defended as a budget repair measure to be achieved without reducing public programmes or services, recent revelations have shown a much larger amount than the costs saved was spent instead on consulting firms providing an expensive hidden shadow workforce.

Such extensive reliance on consultants has left parts of the Commonwealth public service without organisational memory and even more dependent on consulting firms that largely lack the knowledge needed of what works. The New Zealand's government's current efforts to cut thousands of public sector staff in search of $NZ1.5 billion cost savings in 2024 alone will likely also lead to heavy reliance on consulting firms will therefore require careful management to avoid the negative effects becoming evident elsewhere. The findings of the two further Australian government inquiries may assist.

In mid-2023, the initial Australian Senate Committee inquiry into PwC was widened to also address ways to commission and manage arrangements with consulting firms. The report of that inquiry was published in 2024. Additionally, in mid-2023, a Joint Parliamentary and Senate Committee inquiry was established to examine structural challenges in the consulting industry ("Ethics And Professional Accountability: Structural Challenges In The Audit, Assurance And Consultancy Industry"), but the report of that inquiry was not due until December 2024. The recommendations of these two inquiries into the use of consulting firms are intended as a pair and will be assessed as such when the second report emerges.

The widened Senate Committee report that has been issued is titled, "Management And Assurance Of Integrity By Consulting Services".^v The report is thorough and provides interesting reading for understanding what happened, but its recommendations, mostly about things Government might do differently, have been criticised as modest and inadequate even by one of that Committee's own members.

In summary, this Senate Committee report acknowledges that Governmental use of consulting services is essential for some purposes, but that it had become excessive and consequently undermined Australian public sector capability, and that transparency had decreased. It emphasises the importance of public sector staff competence in contracting out and management of contractors, and recognition that consulting firms motivated primarily by profit may pay little, if any, attention to professional and ethical expectations. It proposes some changes that may assist, such as adjustments to the structure and powers of some regulatory bodies, changes to penalty laws, and laws covering tax regulator secrecy.

PwC Banned But Cosy Relationships Continue

Some reductions in the use of consultants have occurred since this tax leaks scandal emerged and currently PwC remains banned from engaging in Government contracts and has disposed of its consulting arm. However, based on the recommendations of this Senate report alone, there is every indication that "the cycle of scandal, apology and promises of internal reform could continue."^vi

The Senate report, for example, offers nothing to address the cosy relationships that have developed between consulting firms, including PwC, politicians, regulatory agencies, and Government departments and can have a corrupting effect. Whether the recommendations in the coming report of the Joint Parliamentary and Senate Committee Inquiry, when considered together with those in the Senate Committee report, will offer more hope of improvement is yet to be seen.

In the meantime, efforts to tax transnationals in the countries where they operate are continuing and PwC is prominent among those lobbying against the latest Australian efforts. Government tax legislation currently proposed seeks country-by-country reporting of revenue, expenses and effective tax rates by transnationals, but the Opposition has proposed amending this by allowing "companies to self-declare that certain information is commercially sensitive and cannot be made public for five years".

"You Couldn't Make This Shit Up"

Among the cross-bench senators subjected to the heavy lobbying against the proposed country-by-country disclosures, one senator worries that if Australia does require such disclosures, the transnationals would just go to New Zealand and export from there to Australia. Presumably, the lobbyists are suggesting New Zealand is happy for the transnational companies to avoid paying tax there.

Another cross-bench senator is clearly unconvinced by those lobbying that companies be allowed to self-declare their information is commercially sensitive: "Transnationals have whole teams of people dedicated to avoiding tax and the Liberals think they can be trusted to self-regulate? I mean, seriously, you couldn't make this shit up."^vii

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