chelsea

Taxing times PwC scandals and GST frauds are casting a long shadow, but the commissioner points to his successes, writes Jennifer Hewett.

Chris Jordan leaves his high-profile role as tax commissioner dodging another hail of political brickbats but confident he has delivered much better service and a digital revolution at the ATO – as well as forcing multinational companies to pay billions more in tax.

That’s despite the finale of his 11 years dominated by the politics of the PwC tax scandal and, just this week, criticism from the auditor-general of the ATO’s response to a giant GST fraud scheme that went viral on TikTok.

Not only were 12 officials working at the Tax Office and around 140 other former ATO contractors and employees among the tens of thousands of Australians investigated or charged, the auditor-general also found the agency’s internal risk framework was lacking.

This requires Jordan to belatedly acknowledge the failure of the ATO’s systems when ‘‘57,000 people trying it on meant the GST scam got out of control’’. Banks suspicious about their customers’ behaviour finally raised the issue with the Reserve Bank.

But as Australia’s 12th tax commissioner prepared for his last personal grilling at Senate estimates on Wednesday afternoon, he sounded his typically forthright self.

As evidence of the positive change at the ATO, he cites the Public Service Commission’s annual report measuring trust in Australian public services. This shows the chief revenue raising body in the country had one of the highest ratings of any government department or agency last year – equal third with Parks Australia.

‘‘And we’re the ones that take money from people,’’ he says happily. ‘‘The ones that give money out are way down the scale.’’

He still has to concede the response to the GST scam could have been better, insisting it will be, ‘‘now that we know the appetite of the community to do such large-scale fraud’’.

The ATO has established a new fraud and criminal behaviour unit to combat the new normal in a digital world, including surging industrialised identity theft.

For Jordan, it’s also about the ‘‘tension that exists between providing client service and putting grittiness in the system to stop fraud’’.

That service element included the requirement on the ATO to repay GST refund claims within 14 days, for example, making it more difficult to investigate potential fraud until after the money had been paid.

That’s particularly fraught in an agency which he maintains ‘‘falls over backwards’’ trying to help small businesses, including with timely registrations for Australian business numbers and GST refunds.

He still appreciates that the auditor general’s report and the continuing PwC fallout will overshadow, at least temporarily, one of his proudest achievements – ‘‘the cultural transformation’’ of the ATO.

In his office overlooking Barangaroo in Sydney, Jordan brings up the ATO app on his mobile to demonstrate the ATO’s ‘‘contemporary’’ approach under his leadership. It’s a spectacularly slick, easy-to-use comparison to the struggling, inadequate efforts by other departments to digitise federal government services, including via the clunky myGov app.

‘‘I think not having grown up with the rules and regulations of the public service enabled me to challenge things that I just thought were silly or unnecessary,’’ Jordan says.

‘‘A lot of senior public servants have what I call passive resignation to the

status quo . . . they don’t seem to have a passionate desire to get rid of unnecessary complexity in their own organisation.’’ What will happen at the ATO from now on is less clear.

Jordan came to the Tax Office from KPMG: the first private sector player to become Australia’s tax commissioner; the first to live in Sydney rather than Canberra; the first to engage so enthusiastically in vigorous public debate about the need to firmly combat behaviour and corporate structures designed to avoid tax.

Will he be the last of his type?

Treasurer Jim Chalmers, for example, has restored the ATO tradition of appointing a senior, long-term public servant to the role, naming Rob Heferen as Jordan’s replacement from March 1. Heferen was chosen over deputy commissioner Jeremy Hirschhorn – whom Jordan had also brought over to the ATO from KPMG and had been widely expected to become his replacement.

Chalmers’ choice followed months of revelations in The Australian Financial Review about PwC’s activities turning into fiery political theatre in the Senate. Greens and Labor senators probed – with dramatic effect – the extent of PwC’s betrayal of its obligations and how aggressively the ATO had pursued this over several years.

Jordan and Hirschhorn found themselves in the political firing line even as they insisted that their jobs required them to obey the draconian secrecy provisions of the Tax Act.

The tax commissioner certainly believes the reaction – which intensified Labor’s pre-election commitment to curb the use of consultants – affected Hirschhorn’s chances of appointment to the role of tax commissioner.

‘‘Obviously, the Treasurer knew Rob Heferen because he was working in Wayne Swan’s office when Rob was head of the revenue unit at Treasury,’’ he says cautiously. ‘‘But I have no doubt it (the PwC issue) would not have helped Jeremy because he had been widely seen as the frontrunner.’’

He also argues the increasingly personal nature of some of the political attacks will make the idea of transferring between the private and public sectors less appealing to other senior business figures.

But Jordan himself has always understood the vicissitudes of the political world extremely well due to decades of working closely with politicians on both sides.

After starting his working life as a young copper, Jordan shifted to study accounting. His CV ever since is a microcosm of the circles within circles in Australia’s leadership positions.

Originally drafted from KPMG to work on tax policy in then-leader of the opposition John Howard’s office in the 1980s, Jordan became an advisor to governments on issues ranging from implementation of the GST to becoming chair of the Business Working Tax Group and later chair of the Board of Taxation. He had also become chair of KPMG in NSW.

Approached about the commissioner’s job by the then-Treasury secretary Martin Parkinson, Jordan was appointed on January 1, 2013 by then-Labor Treasurer Wayne Swan, whose chief of staff at the time was one Jim Chalmers. ‘‘I had a bit of impostor syndrome,’’ Jordan says with a laugh.

‘‘I thought, ‘why me? I couldn’t do that. It’s ridiculous’. And then I thought, ‘Well, why not me? I would like to do that and actually make change’.

‘‘That’s because it was obvious to me that the reputation of the Tax Office had shifted a bit from being the top of its class to being more rigid. I was incredibly impressed with the way they did that huge implementation of the GST and all of that, but they seemed to have drifted off a bit after 2000.’’

Jordan says his clear mandate was to try to make the ATO more connected to the community and more aware of community needs and expectations.

‘‘I was firmly of the view that you needed to make staff as satisfied as they can be at work to be able to deliver a satisfactory service for people. If you are all bound up in bureaucracy and process, that’s what you will do to clients whether external or internal.’’

Yet, he is noticeably frustrated that strict secrecy laws governing the ATO have made it harder for the agency to simultaneously demonstrate its commitment to greater transparency and accountability. The unravelling at PwC has sharpened all those contradictions.

The savage criticism has included why the Tax Office did not reveal its suspicions about former PwC partner Peter Collins, leaking sensitive material – including by Jordan informing the Secretary of the Treasury.

‘‘It’s a difficult and fine line to walk but I believe there are very sound reasons to change the secrecy provisions to provide better opportunity for the Tax Office to share information, particularly with other government departments,’’ Jordan says. ‘‘It’s a bit odd that I can’t tell the Secretary of the Treasury certain things.

‘‘There is a review being done by Attorney General’s of all the secrecy provisions, but I would like some specific changes made to our secrecy provisions to enable us to be more effective and efficient.’’

That, according to the tax commissioner, should also include greater ability for the ATO to undertake criminal investigations itself rather than relying on the Australian Federal Police, and to broaden its scope from merely making tax assessments to allow closer examination of potential fraud.

‘‘This is the whole problem that we had with the PwC Peter Collins issue – that we didn’t have the power to ask PwC for certain information because it wasn’t to do with the making of an assessment to tax,’’ Jordan says.

He believes the outcry will lead to an overdue focus on the regulatory governance of partnerships and whether they should become subject to ASIC’s normal corporate governance requirements. ‘‘I personally think that would be well worth looking at.’’

Yet, the ATO’s adherence to the tax secrecy laws also led to a turf war with the Tax Practitioners Board after the ATO had referred Collins to it.

The Financial Review’s story on the board’s decision to deregister Collins as a tax agent triggered the detonation of PwC’s reputation. The ripple effects are still spreading through the big four consultancies and their previously highly lucrative government services businesses.

The TPB’s subsequent decision to also access the ATO’s confidential files of its agreements with 24 international companies without prior notice or permission created considerable friction between the two agencies, coming to a head at a meeting in September 2021, also revealed by the Financial Review.

‘‘They came into our systems without telling us and took a number of highly confidential settlements,’’ Jordan says now.

‘‘This thing about shouting and all, that didn’t happen. But I was very direct and very clear that this was not the way to have a good relationship.’’

Some of these files, he says, also had nothing to do with the PwC matter.

‘‘We simply asked, why did they need those documents? We never heard back and now we are labelled as obstructionist.’’

That’s unlikely to accord with the TPB’s version of events

But what can’t be disputed is that Jordan, from the time he started at the ATO, has been far more effective in his dogged pursuit of multinational companies, including the new generation of tech giants such as Apple, Google and Microsoft. He argued they were using all sorts of accounting techniques to unfairly reduce the amount of tax paid locally, despite the revenue made from selling their products here.

This notion of profit shifting or transfer pricing was hardly new or limited to Australia. Many national governments have found it hard to establish appropriately taxable sources of revenue due to slippery notions of intellectual property rights deliberately allocated to low-tax jurisdictions.

Years of OECD efforts to establish global rules on ‘‘base erosion and profit shifting’’ are still dogged by disagreements, despite Australia’s leading role in encouraging greater international co-operation between national tax authorities.

Ironically, Jordan’s strong support for Australia’s own version of multinational anti-avoidance legislation under the Coalition government led indirectly to the inferno at PwC.

Then PwC partner Collins used his confidential consultations on the legislation with Treasury to brief dozens of his partners ahead of it coming into effect on January 1, 2016. PwC then used this material with potential international clients to immediately promote tax strategies to bypass the legislation – inadvertently alerting the ATO to investigate how the countermeasures could have been adopted so quickly.

Nor were the biggest and more traditional resources companies immune from the ATO’s targeting as it separately successfully challenged companies such as BHP and Rio over their use of assigning big profits to marketing hubs in low-taxing Singapore.

Similarly, the ATO won a hard-fought, crucial court case in 2017 over Chevron providing an artificially high interest-rate loan to its Australian arm which reduced stated profits and thus tax liabilities.

Jordan describes this as one of carefully structured ‘‘debt dumping’’ schemes – advised by none other than PwC – and it took the ATO $10 million and several years to win the fight.

According to Jordan, the court judgment meant oil and gas companies forfeited an estimated $40 billion in interest deductions that would have been carried forward – resulting in $12 billion of additional tax being paid in Australia. He says he is now ‘‘very satisfied’’ with the tax arrangements for multinationals.

‘‘We (the ATO) used to be intimidated by firms coming in and dropping a big report on the table and saying it had been done by world experts. Who are you to question the results,’’ he says.

‘‘I said, ‘Don’t go through each page and tick it as being correct and therefore the result is correct. Stand back and look at what has been done and if it doesn’t make sense economically, you should not just accept it’s correct technically. Really challenge it’.

‘‘We might have disagreements still. But we know what they are doing and they know if and when they will have a disagreement with us.’’

That includes lengthy court battles with Coca-Cola and PepsiCo over the ATO’s application of a ‘‘diverted profits tax’’ with Pepsi currently appealing a federal court judgment in the ATO’s favour last December.

The result, according to Jordan, is that there’s ‘‘not a lot of tax left’’ in what the ATO used to think of as a large corporate tax gap.

But Jordan’s optimistic view that most people now think large companies are paying their share of tax is likely to be tested given the ATO’s focus on extending its focus on the ‘‘tax gap’’ to more small businesses and individuals.

The ATO’s leniency towards many small businesses during the COVID-19 era is now gone. Over the five years to 2023, the ATO’s uncollected debt almost doubled to over $50 billion.

‘‘The small business area debt has grown very significantly,’’ Jordan says. ‘‘A number of small businesses have been living off money that was never theirs . . . if, for whatever reason, the business is not viable, they need to understand that.’’

As for Australia’s extremely heavy reliance on income tax for revenue, Jordan notes that’s ‘‘policy with a capital P’’ which prevents him commenting. But he points out that most countries have shifted to taxes on property and consumption. ‘‘We seem to have this problem that you can’t raise an issue without it being shut down before it’s actually talked about.’’

He also cites the fact that Australians are big users of workplace expense deductions, making individual tax returns far more complicated.

New Zealand, he says banned workplace expense deductions while also dropping the top marginal tax rate to 30 per cent. Due to that simplicity, most New Zealanders get their returns simply pushed to them due to forms being ‘‘pre-filled’’ with the necessary information.

‘‘We will find it hard to get to that situation because of work-related expenses,’’ he says.

Jordan’s last public outing as tax commissioner before he exits on February 29 will be at the National Press Club next week. He will wait until midyear to decide what comes next.

‘‘I have no particular plans,’’ he says. For about the first time in his life. AFR