The Big Four accountancy firms have come under attack for their alleged involvement in setting up aggressive tax avoidance schemes for multinationals and for having too ‘cosy’ a relationship with the Australian Taxation Office (ATO) at a series of Australian government committee meetings being held this week
The criticism follows extensive hearings this week by the Australian Senate Economics References Committee, which has been tasked with investigating corporate tax avoidance and aggressive tax planning by Australian companies and multinational companies operating in Australia.
The Committee’s Melbourne session heard that PwC is in ‘ongoing dialogue’ with the ATO over claims it set up aggressive tax avoidance schemes via Luxembourg.
PwC was said to have helped in obtaining ‘letters of comfort’, on behalf of Australian clients, which PwC’s Australian head of tax, Thomas Seymour, told the inquiry were legal under current rules.
Seymour said that although the tax office might be carrying out a review of the firm’s clients, the ‘structures don’t give rise to a leakage of Australian tax’.
Senator Christine Milne, leader of the Australian Green party, repeatedly drew attention to what she described as ‘a revolving door between big business, the Big Four firms, the tax office, treasury and government ministers whereby now there is negotiation rather than actual straight laws and obligations that need to be met.’
Milne claimed that there were conflicts of interest developing due to the practice of government using Big Four secondees as well as redundant ATO staff, expert in multinational tax issues, turning to the Big Four for employment.
Martin Lock, a former withholding tax specialist at the ATO, said he had been involved in a settlement case with a major bank in Australia in which the ATO believed the bank should pay $100m (£52m) in disputed tax, but opted to settle for a negotiated sum of $30m (£16m) rather than take the case through litigation.
Lock claimed that one of the senior ATO executives involved in this decision then later moved to work with PwC, which at the time of the dispute, was auditor of the bank in question.
Lock also claimed he received phone calls from Big Four firms during his time at the ATO which he said were ‘testing the water’ as to how different tax treatments might be viewed by the tax authorities.
KPMG partners giving evidence came under fire from Milne over claims that they ‘embed’ people in the Treasury, with Milne stating: ‘You have got the people who are writing the laws also working with people who have an aggressive business in avoiding the laws’.
Milne claimed that KPMG secondees had assisted with the development of new laws about thin capitalisation, and that once the changes were announced, the firm released a paper which she said explained ‘how to skirt around those rules, looking at using the arm’s-length test and the worldwide gearing test.’
The claim was denied by KPMG partner Grant Wardell-Johnson, in charge of the firm’s tax centre.
In his evidence, Rob Heferen, deputy secretary of Treasury’s revenue group, denied the relationship between big accountancy firms and the tax authorities was too ‘cosy’ as Milne suggested.
Heferen said he had never had ‘any concern that somehow the person has either used their role to influence decision making or they, once they left, have taken anything that would be confidential or something not on the public record and utilised that in any inappropriate way.’
The committee hearings also saw highly critical questioning of senior executives from Google, Microsoft and Apple over their global tax arrangements.
Chris Jordon, ATO’s commissioner of taxation, said in his evidence that there are 69 companies that have turnover of over $5bn (£2.62bn) in Australia that represent 42% of the corporate tax base, and that the tax authorities are ‘in dispute with a number of those companies’ over the use of so-called marketing hubs in low-tax regimes, notably Singapore and Switzerland, as well as Luxembourg and Ireland.
The committee heard evidence from several witnesses, however, which was highly critical of the UK’s recent introduction of the Diverted Profits Tax (DPT) as a means of tackling these issues, an option which is under consideration in Australia.
Wardell-Johnson described such a move as ‘very dangerous’, saying a tax like DPT fits outside the agreed international structures and so is likely to result in a proliferation of individual tax treaties.
In his evidence, EY partner Rob McLeod said: ‘There is a certain irony in any country attempting to maximise its share of the international tax base while in the same breath being critical of corporations that are essentially attempting to do the same thing vis-a-vis their own welfare.
‘Those are I think collectively as points pushing in the direction of multilateral solution rather than unilateral.’
OECD director for tax policy and administration and leader of the Base Erosion and Profit Shifting (BEPS) project, Pascal Saint-Amans, supported this view, saying that ‘multinational action is much more fit for purpose than uncoordinated national responses’ and confirmed that details of the project’s 15 actions would be formalised by the agreed October 2015 deadline.
Asked about the UK’s DPT move, Saint-Amans he said: ‘We have sympathy for the need to move and there is an electoral context, if I understand correctly the situation in the UK, where the government, which has been very instrumental in supporting BEPS in raising the profile of this project, wanted to show that it was acting very, very quickly.
‘On the other hand, unilateral actions are not exactly in the sense of what we are trying to develop.’