PwC Australia tax scandal and its impact on governance

FILE PHOTO: PwC sign is seen in the lobby of their offices in Barangaroo, Australia June 22, 2023. REUTERS/Lewis Jackson/File Photo

CANBERRA: The Australian arm of PricewaterhouseCoopers (PwC Australia) has pledged to boost its corporate governance controls in response to firm-commissioned reviews faulting its culture for a leak of government tax plans.

The tax leak scandal has shaken the country’s consulting and auditing industry since it became public in January. Here’s a rundown of what’s happened so far and what may come next.

In 2016, the Australian Taxation Office began an investigation into a PwC Australia tax minimisation “foreign partnership structure” it had presented to clients.

After facing legal blocks to its investigation and a lack of response from PwC’s Australia office to its concerns, in 2021 the tax office asked the Tax Practitioners Board, the regulator, to investigate the firm’s then-international tax chief, Peter-John Collins.

A board investigation found Collins had shared with colleagues and clients confidential information from meetings with Treasury officials about the country’s 2015 law targeting tax avoidance by multinational companies. He was suspended in January for two years.

The board’s action against Collins sparked a Senate inquiry, which found PwC had “engaged in a deliberate strategy” to cover up the leak and its partners’ plan to monetise it. Treasury subsequently referred Collins and PwC to the Australian Federal Police for criminal investigation.

The firm responded by asking business executive Ziggy Switkowski and top law firms to examine how the leak had occurred and the firm’s wider approach to conflict management.

PwC Australia published the Switkowski report, which identified serious governance, structural and cultural problems and made recommendations for remediation.

The firm issued another report summarising how confidential Treasury information was misused.

This fact-finding report was based on reviews PwC requested from law firms King and Wood Mallesons and Allens. PwC also asked international law firm Linklaters to examine information sharing by the firm’s Australian arm with other firms.

Linklaters found “no evidence” that PwC personnel outside of Australia used confidential information from PwC Australia for commercial gain, the firm said in a Sept 27 statement. Full details of this assessment have not been released.

Ahead of the reports’ publication, PwC Australia announced its commitment to overhauling governance via several measures.

The separate fact-finding report PwC put together with the assistance of law firms found governance shortcomings had contributed to an environment within the international tax practice “where pressure to perform was paramount.

This was with “insufficient regard” for confidentiality obligations and potential conflicts of interest.

In its published commitments to change, PwC Australia agreed it had allowed the chief executive officer (CEO) too much power, failed to hold leadership to account and lacked transparency in communications with its board and wider partnership.

Its highly collegial culture had a “shadow side” that fuelled overconfidence in decision-making and a reluctance to share bad news, the PwC Australia reform-focused publication said.

PwC Australia is overhauling its board with new non-executive appointments and an independent chair.

The firm is also giving the board a mandate to appoint and remove the CEO, its commitments publication said.

By September 2025, the firm will begin publishing its annual audited financial statements.

PwC Australia’s “issues reporting process” will be expanded to capture and manage all ethics-related matters, including those raised by whistleblowers, the firm’s report with law firms noted.

The Australian government continues to take a hard line on the tax leaks issue amid a number of ongoing inquiries.

In September, Treasurer Jim Chalmers released draft changes to tax laws to crack down on tax avoidance schemes by making them unprofitable.

The government would also consider broader regulation of the audit and advisory industries, Chalmers said in an interview on Sept 28.

Switkowski’s recommendations were modest compared to PwC’s misconduct, Sen Deborah O’Neill, a leader of the related lawmaker inquiry, said in a Sept 27 statement. — Bloomberg

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