A senior Australian Tax Office employee snared a job with consultancy firm PricewaterhouseCoopers (PwC) shortly after overseeing a tax settlement involving one of the company’s big bank clients, a Senate inquiry has been told.
The inquiry into corporate tax avoidance has heard of concerns about a “comfortable” relationship between the ATO and the four major accountancy firms that advise companies on their tax affairs: PwC, KPMG, Ernst and Young, and Deloitte Touche Tohmatsu.
Martin Lock, a former withholding tax specialist at the ATO, told the inquiry he had been working for three years on a matter involving one of the big four banks in Australia “around the early 2000s”.
He said the ATO believed the bank should pay $100m but instead of proceeding with litigation it negotiated with the company and reached a settlement for $30m.
During his testimony in Melbourne on Friday, Lock raised concerns about the involvement of one of his superiors, who went to work with PwC “some months later”.
“My immediate SES [senior executive service] at that time was involved in those negotiations,” Lock told the inquiry. “Those negotiations were conducted with PwC who were the representatives for the taxpayer bank at the time and shortly after the negotiation of settlement took place that particular officer left the ATO and took up a position with PwC.”
Lock called for greater accountability and transparency around the settlement of such tax disputes, saying that “a situation like I just described shouldn’t happen”.
He said before his case got to the litigation stage, he had been told by a member of the tax counsel network – the ATO’s legal advice area – that “this is not going to litigation, we’ll end up settling it”.
Lock said the ATO kept a register of settlements but it was not published. He called for it to be made publicly available so people could see the basis for such decisions.
“When there are such huge amounts of money involved and it’s not the SES officer’s money at stake then, for the public interest, the process has to have integrity,” he said.
The leader of the Greens, Christine Milne, said Lock’s testimony about the bank case was “pretty extraordinary evidence”.
“The Abbott government has no choice but to make the ATO’s settlement register public so that everyone knows to what extent we are missing out on revenue from the big end of town,” she said in a statement.
“If Joe Hockey and the Abbott government are to have any credibility on corporate tax avoidance then we need more transparency.”
The inquiry has previously been told that some employees of the big four accounting firms work on secondment to the ATO and Treasury to help provide advice on tax matters.
Rob Heferen, the deputy secretary of Treasury’s revenue group, defended the practice on Thursday.
Heferen objected to Milne’s description of such arrangements as “cosy” and said secondees from the ATO and professional firms improved the quality of Treasury’s advice to government.
“That deepens our policy advice; it enriches it,” Heferen said, arguing the practice should become more common.
“I’ve never had a situation where there has been ... 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.”
Lock, however, described the relationship between the big four accountancy firms and the ATO as “comfortable”.
He recounted receiving requests to provide feedback over the phone to the firms about proposed tax arrangements.
“I got the impression that when I was being called, they were trying to test the waters as far as tax planning was concerned,” Lock said.
“They’re not going to be ringing me up to ask me a small question that they can get from the master tax guide. They’d be testing the waters on the ATO’s way of thinking. I got the impression they were trying to see how much we’d looked into these particular types of arrangements that they were toying with.”
Lock said the accountancy firms were “there to serve their clients” not to “serve the greater good”.
One of the members of the committee conducting the inquiry, the Liberal National party senator Matt Canavan, said there was a risk of tarring everyone with the same brush.
“We’ve heard evidence here that there are concerns of people moving from one body to another, but where is the evidence that there’s large-scale unethical behaviour from our accounting sector? I’m worried we’re besmirching a group of hardworking people in our community that largely seem to do the right thing,” said Canavan, who is also a former executive with KPMG.
Lock replied: “I did not see any examples of criminality, if you like, from the accounting firms. The accounting firms were fulfilling the needs of their clients. There was no examples of blatant breach of the law.”
The inquiry continues.
