A PwC building in Sydney (Image: AAP/Dan Himbrechts)
(Image: AAP/Dan Himbrechts)

How deep do PwC’s cultural problems go? That’s the question as, over the past several weeks, more details have emerged about who knew what and when about the tax advice scandal that has engulfed the big four consultancy firm.

In truth, the cultural problems run deep indeed and appear to permeate its entire way of doing business.

At the heart of it has been PwC’s practice of asserting legal professional privilege over advice it gives to clients, and whether that was bona fide or simply a way to conceal information from federal authorities. And if PwC does it, what about the other big four accounting firms?  

What has been lost in the recent gush of revelations is that initially PwC stonewalled inquiries into its behaviour by asserting legal professional privilege over documents sought by the Australian Tax Office (ATO). Those documents related to the confidential information former senior PwC partner Peter Collins had gained from his role as a government adviser, and which was then used by the firm to drum up business with international clients (who were, of course, keen to know the latest plans from Australia to combat tax minimisation).

We only know the extent of the scandal because the little-known regulator Taxation Practitioners Board (TRB) took up the cudgels against PwC. It was able to obtain the firm’s internal emails, a cache of close to 150 pages’ worth, which was then released to a Senate committee. Talk about the mouse that roared.

However, if we look back to May last year, a Federal Court decision offers context to the battle for information from PwC, which has been raging for a long, long time. It is hard to know why the recent revelations of its unethical behaviour might be any surprise at all to the firm, which now likes to say how disappointed it is that it has failed to meet its own lofty standards.

The relevant case is the Commissioner of Taxation v PricewaterhouseCoopers [2022] FCA 278. Federal Court Judge Justice Moshinsky ruled that PwC had incorrectly applied privilege to more than half the documents requested by the ATO, with the judge finding that the firm had used legal privilege to shield documents from the ATO during an audit of its multinational clients.

How many documents were involved? The commissioner of taxation had disputed privilege claims made by PwC over approximately 15,500 documents.

The court’s decision had major implications for any multidisciplinary firm (such as PwC) and has been much analysed in legal circles.

Gadens law firm provided the helpful background that since 2019, commissioner of taxation Chris Jordan had been on a mission to stamp out the “reckless” and “baseless” use of legal privilege in tax matters as part of a campaign to eliminate multinational tax evasion.

“In September 2021 the ATO had declined to prosecute PwC for its alleged role in assisting Swiss mining group Glencore in moving $30 billion of international shares into offshore tax structures. More recently, however, the ATO had success in a similar matter against Carlton United Breweries where it was once again Justice Moshinsky who dismissed the company’s efforts to use legal professional privilege to withhold information during a tax audit,” Gadens partners advised.

In the ATO action decided last year, the court had considered a sample of 116 documents concealed from the Tax Office, citing legal privilege (out of a possible 44,000). Justice Moshinsky found that 49 were legitimately privileged, 61 were not, and six were “partly privileged”.

Where the court did not accept a claim of privilege, it was usually because the purpose of giving or receiving legal advice was not the dominant purpose but one of multiple, according to analysis from Corrs Chambers Westgarth.

The court action, as these things do, necessarily pursued the finest points of legal interpretation as highly paid legal practitioners fought over the boundary separating the legal from the illegal.

Yet it pointed to the spirit in which a firm like PwC conducts its business, exploiting the bounty to be made in the grey area of ATO rulings.

PwC’s apparent misuse of legal privilege — and its resistance to admitting that — is worth bearing in mind as it moves its reputation rehab into overdrive.

It won’t be pretty.

Crikey has approached PwC for comment.