Since about this time last year (late January 2023), the PwC leaks saga has been the ‘story that keeps on giving’. Whilst talking with colleagues, when this story was just breaking, one well placed person said that there was as much going on in the Australian Taxation Office (ATO) as outside it. And now (a year later) this story breaks, in the Australian Financial Review article, below (8.2.2024). It is about the ructions between the ATO and the Tax Practitioners Board (TPB or Board), its CEO, and Chair. Hold onto your seats – it seems just as ‘hairy’ in Government, as inside PwC. The ‘optics’ around the Board’s regulation of tax agents, being independent of the ATO, is marred by most of the Board’s staff being seconded ATO officers. This is complicated by there being ‘Big Four’ alumni littered through the ATO, the Board, and the Assistant Treasurer’s office. In independence terms, it is concerning that the ATO was trying to influence whether the Board went beyond the PwC partner accused of leaking confidential Treasury information, to investigating PwC, itself, or how went about that job. As part of this, there was personal drama, for the embattled Board CEO: Michael O’Neil (see towards the end of the Article – consider whether you’d like to trade places with him). The ATO alleged that the Board ‘over-reached’, but you might think: ‘what over-reach’. Then there was the influence, of the Senate investigation, into all this. What do you think of Senator Barbara Pocock’s comment: I’m looking at TPB right now as ‘the little engine that could’. I’m looking at the ATO and thinking ‘the little engine that didn’t’.” Intrigued? Read on.

 


 

Inside the Tax Office’s bitter feud over PwC

A senior Tax Office official, pressed to open an investigation of the Tax Practitioners Board, at the height of the PwC tax leak scandal, last year, citing suspected leaks to The Australian Financial Review.

The request last June, for the ATO’s fraud prevention arm, to investigate board officers, which was described to the Financial Review, by several Tax Office sources, was said to have been declined, by the fraud team. While that request was not actioned, documents obtained under freedom of information from Senate inquiries and other sources show the Tax Office made multiple attempts to sideline or to engineer the dismissal of board chief executive Michael O’Neill because of his team’s actions in investigating PwC, which the ATO saw as overreach. A Tax Office spokesman did not respond to a question about the request to investigate the leak, but said the agency “has not suggested impropriety by you or the Financial Review”. However, “it is clear from these statements … that you have a number of sources providing you with information to inform your coverage. Statements made by the ATO relate to these sources only …”

The accusations of leaking highlight the ongoing tension between senior tax officers and the board over its investigation into PwC and former partner Peter Collins. Senior tax officers are said to be deeply unhappy over the public revelations last year about the PwC tax leaks and ongoing Senate inquiries, which raised questions about the Tax Office’s relations with big four firms and why it took six years to bring the PwC tax scandal to light. The Tax Office blames O’Neill for much of this embarrassment.

Greens Senator Barbara Pocock turned the knife at the Senate consultants inquiry in September: “They got a result that the ATO did not get. I’m looking at TPB right now as ‘the little engine that could’. I’m looking at the ATO and thinking ‘the little engine that didn’t’.

The pursuit of O’Neill, a career tax officer, reflects cultural tensions within the Tax Office, where three of the four top positions are held by former partners of the big consulting or law firms; this ratio will change next month when commissioner Chris Jordan is replaced by experienced public servant Rob Heferen. [Jeremy Hirschhorn, who is ex-KPMG, like the outgoing Commissioner, might move from the ATO, if he thinks he’s been ‘passed over’ for the Commissioner’s job.]

O’Neill had a stellar career at the Tax Office.

  • In 1988 he was reportedly one of “Boucher’s raiders” (named after tax commissioner Trevor Boucher), the 37 tax officers who raided Citibank and seized hundreds of documents regarding an alleged tax avoidance scheme.
  • In 2001, he was head of the scheme promoters’ taskforce targeting the advisors behind mass market schemes.
  • He went on to head the $2 billion Project Wickenby which for a decade chased offshore accounts of high-wealth Australians including Paul Hogan and Glenn Wheatley (Hogan always denied wrongdoing regarding his tax affairs).
  • In one of the more colourful Wickenby episodes, in October 2006 O’Neill met secretly with officers of the Bundesnachrichtendienst, Germany’s Federal Intelligence Service, to interview a Liechtensteiner whistleblower with banking details for 60 high-profile Australians, including the Lowy family.
  • The files came to light in 2008 when a US Senate investigation heard claims that Frank Lowy had used a Liechtenstein foundation to hide $US68 million from tax authorities – which Lowy denied. He made a confidential settlement with the Tax Office in 2011.
  • O’Neill went on to work on Australia’s response to the international profit-shifting laws targeting multinationals, including sitting on consultation committees with PwC partner Peter Collins.

In 2018, O’Neill was appointed to run the board, which has a staff of some 150 tax officers on secondment. [The Board seems to have no embarrassment, taking their staff, almost exclusively, from the ATO, on secondment. This does not give the same appearance of independence, as the Inspector General and Taxation Ombudsman, who hires independent staff, herself. Having said that, this ‘dust up’ between, an ATO seconded Board CEO: O’Neill, and the Commissioner (with his un-seconded staff), shows at least some independence at work. Independence of the regulator of tax agents, from the Commissioner, and his office, is important, if you think that private sector agents, should be independent of the ATO. Agents need to obey the relevant tax, and tax agents, law, but it is another thing, to suggest that, they should have some loyalty, to the Commissioner, beyond that, by way of nebulous overarching duty, merely to the Commissioner and his/her officers – the greater: ATO.]

Claims of ‘serious overreach’ by the TPB [Board]

In January 2021, the board formally opened an investigation into Collins after receiving a referral from the Tax Office six months earlier. But the two regulators fell out after the Board broadened its investigation to include PwC. The Tax Office considers that the Board should be restricted to regulating individual accountants and small firms, leaving the major firms to the larger agency [really – on what basis?]. After the board asked, in June 2021, for documents about PwC’s engagement, with multinational clients, the Tax Office refused to provide further material.

By late August 2021, the Commissioner [Chris Jordan] asked to address the Board. Jordan appeared at the Board’s September 1 meeting, where he launched a ferocious attack on what he described as an illegal investigation by Board officers, who he said had accessed ATO records without consent. O’Neill was said to have overreached. “No, we did not tell them to back off,” second commissioner Jeremy Hirschhorn told the Senate inquiry last June. “We did have a forthright discussion at that meeting and it was not about whether they conducted a review on Mr Collins or PwC. In fact, we were very keen that they did a review on Mr Collins and PwC. … What we were concerned about, and we discussed at that meeting – it was a forthright meeting – was how they were going about it.” Jordan had not disclosed what he planned to speak about and board members have described being blindsided by the attack.

TPB board splits, starts internal review

Two days later the Board met, confidentially, without O’Neill present, to discuss the Commissioner’s serious concerns. Several members pressed for O’Neill to be sacked, or to be “performance managed” out of the job [is that ‘lack of good faith’ performance assessment?]. In practice, this would have meant O’Neill returned to the Tax Office [see, a ‘secondee’]. The split in the eight-member board was deepened by the involvement of two former PwC partners, Judy Sullivan and Peter Hogan. They had recently been appointed to the board by Assistant Treasurer Michael Sukkar. He [Sukkar?] and his chief of staff: Barmak Amini, are both PwC alumni. Sullivan and Hogan had not been privy to the Collins/PwC investigation as part of standard TPB/ATO conflict management procedure. But Jordan’s failure to notify the board about what he intended to discuss meant that Sullivan and Hogan were both allowed to be at the September 1 meeting. As a consequence, they were an active part of the discussion, two days later, discussing whether to discipline O’Neill and whether the PwC investigation should be reined in.

Jordan followed up his September 1 Board appearance, three weeks later, with a scathing letter to Board chairman: Ian Klug, accusing the Board’s team, of misleading the ATO, accessing confidential settlement agreements, with PwC’s multinational clients, and sending production orders to the US multinationals. The board’s staff’s actions were “inexplicable”, “extraordinary”, “highly inappropriate”, “serious overreach” and “a deliberate disregard for the Tax Office concerns and an attempt to conceal these notices from us”, Jordan wrote. He would “strongly suggest” winding back the PwC investigation by “withdrawing the notices” sent to the multinationals. ​​“We strongly reject any suggestion that the ATO made attempts to affect the outcome of the Collins investigation,” a Tax Office spokesman said.

“The ATO referred the matter to the TPB for investigation and provided substantial information to support that investigation.”

In response to Jordan’s complaints, the Board ordered an internal review of its investigators, by two board members, Debra Anderson and Greg Lewis.

Bullying complaint [against O’Neill]

The Tax Office meanwhile lodged a separate complaint – a claim that O’Neill had been bullying ATO staff with unreasonable demands for documents for Board investigations. This was a serious charge, which triggered a separate review. However, no substantiation was offered, and no tax officer was identified as the victim of bullying. The bullying claim fell away.

The Anderson-Lewis review cleared Board staff of any illegality.

Klug wrote to Jordan in January 2022, that the review found that “whilst our TPB officers acted legally and consistent with TPB policies and processes, in the conduct of this investigation, it did identify opportunities to improve our processes, to enhance the relationship and collaboration, with the ATO”.

The Tax Office was not satisfied. It now demanded a third review, this one also targeting the Board’s investigation of PwC, by an independent mediator.

Richard Oliver, a former public servant, spent several months conducting a workplace assessment, a process sponsored by Hirschhorn and Klug. This too came to nothing.

The ‘no return’ policy

O’Neill’s position, however, was about to become more precarious.

On March 25, 2022, Assistant Treasurer Sukkar announced changes in a press release titled, “Greater Independence for the Tax Practitioners Board”. In 2019 Sukkar had received a review of the board by independent expert Keith James, which contained 28 recommendations to boost its function and independence. He had moved on none of them. Now, however, almost three years later, Sukkar adopted just one recommendation. From July 1 the TPB chairman would have the power to hire and fire the chief executive – in this case: Michael O’Neill. As the press release made clear, Jordan’s consent was necessary before this delegation of power could be made. What went unreported was that as a condition of that consent, he insisted on a “no returns” policy. It meant that if O’Neill was sacked, he would not be able to return to the Tax Office.

While Keith James had recommended the change as a way to increase the Board’s independence, the political reality suggested the reverse. This appears to be the fourth attempt to sideline O’Neill during the PwC inquiry. The proposal was dropped after the change of government in May 2022.

The Tax Office’s opposition, to aspects of the PwC investigation, ramped up further last year [2023] when it strenuously fought the Board’s decision to release PwC emails, citing secrecy laws, risks to ongoing investigations and the dangerous precedent for breaching taxpayer confidentiality. [Really … ?]

TPB chairman exits, leaks request [and the CEO survives…]

Days after the emails were released last May, Treasury reconfigured the position of TPB chairman, forcing out the incumbent, Ian Klug, after his term expired. Peter de Cure, who had been a leading critic of O’Neill, was appointed the new chairman, on Treasury’s recommendation. [The new Chair] De Cure is thought to have a good relationship with Jordan and Hirschhorn, who were partners with him at KPMG, and to share their views on a restricted role for the board. [‘Wheels within wheels’ on Board Independence front – this time KPMG alumni.]

It was in this tense environment that a senior ATO officer is said to have requested an investigation into alleged leaks by TPB staff. It suggests the enmity against the Tax Practitioner’s Board is not going away. Success can be unforgivable.

[One footnote, though – the ‘survivor’, here, is Michael O’Neill – he is still the Board’s CEO. Never underestimate the political skills, of a public servant, in a bureaucracy.]

 


 

[EDITORIAL NOTE – I have added the underlining, for emphasis, and occasionally made additional comments, which are noted by being in square brackets.]

[15.2.2024]