27/06/23

AUSTRALIA: PwC to sell Australian government business in wake of scandal

Professional services giant PwC has announced it will sell its federal and state government division in Australia for a value of less than £1. In Australia, PwC finds itself embattled in a major reputational scandal.

The Big Four of the consulting and accounting industry – Deloitte, KPMG, EY and PwC – have long been criticised for their association with international tax avoidance. In recent years, PwC in particular has been revealed as a big player in helping wealthy individuals and businesses offshore funds, in order to escape taxes in the countries where they operate.

As well as being named many times in the Panama Papers, documents came to light during the LuxLeaks scandal, suggesting that PwC had been operating legal ‘tax avoidance schemes’, helping companies divert profits to tax havens like Luxembourg via a series of loans between different parts of the business.

A report from British MPs suggested PwC was doing this "on an industrial scale", while also alleging PwC had written more than 500 letters to the tax authorities in Luxembourg, on behalf of more than 300 international clients.

As it is common practice for governments to turn to the Big Four when mulling over landmark changes, it was a major surprise to many industry experts that the Australian government tapped PwC professionals to discuss toughening its multinational tax laws between 2014 and 2017.

The case only came under scrutiny years later, however, when allegations surfaced that PwC’s now former international tax head Peter Collins had used confidential information and documents obtained through this work for the firm’s commercial gain.

Collins, who since had his tax agent status terminated, used his privileged position to feed intelligence on government plans to toughen its tax laws, which in turn helped his PwC colleagues win overseas business.

PwC since said it identified 76 current and former partners linked to the scandal, and handed their names to Australian lawmakers. Somehow, though, the company has also maintained that no confidential information was used to help clients pay less tax.

Since the actions were made public, PwC has been publicly lambasted for “robbing Australia of tax revenue”, seeing the firm’s Australian wing become subject to multiple investigations, including a criminal probe. Meanwhile public opinion unanimously favours a ban for PwC from government contracts.

As PwC scrambles to take control of the narrative once more, the firm has now announced the fire-sale of its government consulting business in Australia. The wing is reportedly set to be divested for only a symbolic A$1 (around £0.50) in a move which will allow the firm "to move forward with predictability and focus," according to one spokesperson.

PwC has entered into exclusive talks with private equity firm Allegro Funds. The parties aim to reach a binding agreement for the deal by the end of July 2023 – creating two independent firms without any "disruption in vital services to public sector clients”, according to PwC.

Indicating just how much disruption there could be if that fails, for the current financial year, official data says that the Australian government is committed to contracts with PwC worth A$255 million. PwC Australia's government business is understood to host roughly 1,750 employees, accounting for around 20% of its annual revenue.

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Australia Tax Leak PwC