Global accounting firm PwC told Brazilian meat multinational JBS it would save about $70m a year in Australian tax if the company followed advice that was deliberately structured as a legal service in order to prevent it being seen by authorities, according to documents released by the federal court.
PwC’s decision to provide tax advice to JBS as legal advice was legal, but the strategy backfired after the Australian Taxation Office (ATO) launched an audit of JBS.
The ATO is investigating JBS for alleged tax avoidance and launched a federal court lawsuit that resulted in PwC being forced to hand over some of the documents it had insisted should be kept from authorities because they contained legal advice. Neither JBS or PwC answered Guardian Australia’s questions with respect to the ATO’s tax avoidance allegation.
JBS, which has operations in Brazil, the US and Australia, where it is the nation’s biggest meat supplier, is controlled by brothers Wesley and Joesley Batista, who as Guardian Australia previously reported were involved in Brazil’s biggest-ever bribery scandal.
The company came to Australia in 2007, indirectly, through its purchase of US group Swift, which already had operations here. That deal was funded in part by a loan from a Brazilian government bank that prosecutors there alleged was fraudulently obtained. The allegations never went to trial and it is not suggested that JBS Australia is implicated in any wrongdoing.
PwC Australia worked on several projects for JBS from 2014, including a global reorganisation described by the firm as a “tax structuring initiative” involving the “selection of a more efficient global structure”, and “Project Twiggy”, which was the purchase of smallgoods manufacturer Primo. (Primo makes twiggy sticks, a variety of thin salami.)
Other projects included the repatriation of Australian profits back to Brazil, and “Project Chelsea”, a proposal to list part of the company on the New York stock exchange that ultimately did not go ahead.
The documents show the ATO began an audit of JBS’s Australian holding company, Flora Green, in February 2019 over concerns that included violations of laws against tax avoidance.
“Most of the identified risks arose from JBS Global Group’s implementation of a ‘Global Regional Alignment Project’,” government solicitor Suzanne Emery said in an affidavit filed with the court.
As part of its audit, the ATO demanded documents from Flora Green and PwC, but the accounting firm refused to hand over nearly 44,000 documents on the grounds they were protected by legal professional privilege, which shields many communications between lawyers and their clients.
The ATO then took PwC and Flora Green to the federal court to obtain the documents. The case came against a backdrop of alarm within the authority over both corporate Australia’s heavy use of legal professional privilege to keep documents from it and the marketing of tax minimisation schemes by the big four accounting firms.
In court, the ATO said it disputed the claim over about 15,500 of the documents because the way JBS hired PwC did not establish a relationship of lawyer and client, in part because there were so many highly expensive non-lawyers involved in the work.
Justice Mark Moshinsky rejected this argument in a judgment handed down in March, finding that JBS did engage PwC as its lawyers.
However, after viewing a sample of 100 documents, Moshinsky found that 61 of them were not protected by legal privilege and an additional six were only partly privileged. The privilege status of the remaining documents is still to be determined.
Moshinsky subsequently approved Guardian Australia’s request for affidavits and other documents tendered to the court during the case, many of which have been heavily redacted.
The documents show PwC was keen to secure what would prove to be a steady stream of lucrative work from JBS ahead of competition from other consultancy firms.
In a 27 August 2014 email, PwC Australia’s high-priced tax guru, Neil Fuller, who was not a lawyer, told John Kulich of PwC in America of the tax benefits he expected a restructure of JBS to reap in the US and Australia.
The restructure was expected to save $250m in US tax and “potentially $70m pa Aus tax on future Aus profits”, Fuller said in the email, which is contained in hundreds of pages of documents provided to Guardian Australia by the federal court.
In another email, Fuller was also excited about the possibility of structuring the takeover of Primo in a way that reduced tax, including state stamp duties.
“It does seem to me that there are great opportunities to structure this very effectively for a meaningful overall group benefit (particularly given the group’s existing US and Aus tax profiles), and that is exciting,” he wrote in a 7 November 2014, email to Cindy Garland, who was head of tax at JBS in the USA.
The federal court documents also show how PwC deliberately set up the services it offered to JBS as legal advice so that its advice could be shielded from the ATO.
The lead partner PwC named on the deal was Glenn Russell, who in 2014 had been a partner for just two years and was completing his training as a lawyer. He commanded $862 an hour, far less than the $1,459 an hour at which Fuller was charged out.
In a 10 June 2014 email to PwC in Brazil, Russell said he wanted to “set up the Australian component of the work as a legal engagement”.
“The other advantage of setting the engagement up as a legal engagement is that provided certain protocols are followed, legal advice is privileged and therefore the Australian Taxation Office should not be able to obtain copies of it in the event of any ATO review activity,” Russell said in the email.
The firm did not answer questions from Guardian Australia about the the restructuring advice.
Nor did PwC, or JBS, answer detailed questions about the advice PwC gave and the transactions discussed in the court documents.
