Tax Changes – Income Tax, Capital Gains etc

AFR investigation Chris Jordan’s ATO legacy risks being overshadowed by two controversies from his time at KPMG, writes Neil Chenoweth.

It was a week before Christmas in 2000 and KPMG partners were celebrating. They always understood the constant need to network, but more importantly they knew how to party.

Wayne Jones was hosting dinner at his home in Sydney’s Strathfield, so the midnight blue Porsche 911 Targa that had become the tax partner’s after-hours signature was in the garage.

Chris Jordan rolled up in his black Mercedes. The guest of honour, Paul Keating, arrived in a Comcar, and the KPMG partners made a beeline for him.

It was so convivial. Jordan, who headed the firm’s NSW tax and legal division and was about to become chairman for KPMG NSW, crowed that both the current prime minister (John Howard) and the previous prime minister were KPMG clients.

Jones, who seemed equal parts brilliant tax lawyer and party animal, had advised Keating on his marital property settlement. Jordan was not only Howard’s personal tax accountant, he had advised on the introduction of the GST that year, for which he would earn an Order of Australia.

That night in December 2000, the boys culture at KPMG was at its zenith. A seamless mix of professional, social and political power, it would help propel Jordan 12 years later to become Australia’s first tax commissioner appointed from outside the agency, a role he would hold until he stepped down in February.

But Jordan’s legacy at the ATO now risks being overshadowed by two controversies from his time at KPMG: his involvement with Jones in a scheme to transfer more than $3 million from a mystery company in the Isle of Man; and a disastrous investment in a venture to run junkets to bring gamblers to Australian casinos.

An 11-month investigation by The Australian Financial Review has followed a paper trail of documents and transactions across numerous countries and tax jurisdictions. While the claims made about Jordan do not by themselves suggest improper behaviour, for financial regulatory experts they raise important questions.

Is a history of using offshore accounts or controversial investments appropriate for a person holding the ultimate compliance power over taxation? Given government sources tell the Financial Review they were unaware of these matters, should Jordan have disclosed them when he became commissioner?

When treasurer Wayne Swan named him tax commissioner in 2012, he would call Jordan ‘‘my poacher turned gamekeeper’’.

But to understand the sweeping changes which Jordan brought to Tax Office culture and the way it operates in the new digital world, its sometimes difficult relations with big corporates, and the conflicted view senior tax officers took over misbehaviour at big four firms such as PwC, it’s necessary to look at the years – and the wild times – that formed him.

It was the 1990s, and at KPMG Australia, women partners were rare. The men socialised together. They worked hard and they partied hard.

The partying was exemplified by the LLB, the Live a Little Better club, which would attend race days to raise money for charity and hold black-tie dinners for 30 to 40 KPMG partners, each of them with a nickname. Jordan was Hightower, ‘‘because he was so fricking big’’, one former member explained.

Others saw it less favourably. One senior partner called members of the LLB club the Low Life Bastards, a comment reflecting internal politics at KPMG.

Jones never made it into the LLB, but he and his 911 Targa were a regular feature at the KPMG parties.

‘‘I was always quite fond of Wayne – he was highly intelligent, great company. A fun guy,’’ a former colleague says of Jones, who had a master of laws from Cambridge.

‘‘He’s a very, very bright guy. The tax arrangements he came up with were so convoluted you had to be a Rhodes scholar to understand them.’’

Jones was always working on one deal or another. ‘‘He’d try to get you into a deal, his eyes were flashing, he was very convincing,’’ says another former colleague. ‘‘A lot of people got involved.’’

Jordan and Jones had worked together for years, and ‘‘we became friends’’, Jones said in a 2018 affidavit.

Jordan was more into networking than Jones. He was always affable, but his size and imposing figure could give the impression of arrogance.

‘‘I always thought Jordan would work out who the best person in the room was to talk to,’’ a former colleague says. ‘‘He plays the game very well.’’

Another was more dismissive: ‘‘Chris knows how to piss in someone’s pocket, so it just becomes lukewarm.’’

From partying together it was a natural step for KPMG partners to invest together, in ventures ranging from an asset consultancy to a Ceylon tea importer, to plantation projects set up by Rothschild.

And then there were the tax schemes. In July 2021, an anonymous letter was sent to politicians, regulators and the media, with a spray of unsubstantiated accusations against Jordan and Jones and an Isle of Man company called Dinnans Ltd.

Former associates who have fallen out with Jones are sceptical about the anonymous letter’s claims. They believe Jones is the most likely author, though this seems unlikely because he is one of the writer’s main targets.

It’s not known if regulators took any action in response to the letter. Jordan declined to comment but has privately said he regularly received unsubstantiated and baseless claims against him.

However, the Financial Review investigation has confirmed a series of previously undisclosed transactions involving Jones, Jordan and Rothschild Australia executives in the 1990s, and Dinnans.

The letter referred to KPMG inhouse tax schemes called Copper Doctor and Gold Doctor, which it said were trafficking tax losses in mining companies to wipe out much of KPMG partners’ personal tax bills.

In the late 1990s, using creative schemes to minimise tax was all the rage, especially for those using partnerships, tax losses were the way to go.

A former Rothschild executive confirmed to the Financial Review that up to 20 senior figures at KPMG and Rothschild, including Jordan, formed a partnership in the late 1990s to invest in the Horseshoe Lights copper-gold mine 800 kilometres north-east of Perth. The mine had been mothballed in 1994.

One of those involved described the scheme, known as Copper Doctor, as an investment that would have paid off if the copper price recovered. Others say it was a way of accessing the huge tax losses that the mine carried, by directing partners’ income towards the entity carrying losses.

Many accountants channel their partnership income through family trusts. While the details of the Horseshoe Lights arrangement aren’t clear, in such cases the family trust typically makes a distribution of that partner’s income to a third party, like the Horseshoe Lights group. The tax losses would mean Horseshoe Lights didn’t pay any tax, and on paper at least there was no undistributed income left in the family trust, so it didn’t attract any tax either.

But the distribution paid out to Horseshoe Lights was just on paper. By the marvels of accounting, the money would stay in the family trust, but now it was tax-free.

Jones played a leading role setting up the scheme. As a resources tax partner, Jones reported to Jordan, who was then partner in charge of the NSW tax and legal division at KPMG.

Gold Doctor was a similar scheme aimed at KPMG partners and Rothschild executives investing in Pegasus Gold’s failed Mount Todd gold mine 250 kilometres south of Darwin, through a company called Jairo Pty Ltd. While it also promised big tax losses, the deal fell through in early 1999. But Jones had a new plan for Jairo.

What happened next has been pieced together from company filings in Australia, New Zealand, Ireland and the Isle of Man, together with leaked documents, other sources and interviews.

In October 1998, KPMG Isle of Man incorporated a shell company, Dinnans Ltd, with nominee directors and shareholders. Like most shell companies using this secrecy jurisdiction, it was difficult to identify the beneficial owner of Dinnans.

It coincided with a move by a close friend of Jordan’s to relocate to Ireland. The friend had known Jordan since they worked at Arthur Andersen many years before, and Jordan had introduced him to Jones.

Jones had provided conventional tax advice to Jordan’s friend over his move to Ireland, a routine process that other tax advisers had verified. Separately to this, Jordan and Jones asked him to acquire a shell company in the Isle of Man to make some international money transfers. It was Dinnans.

On March 3, 1999, $3.378 million was transferred into Dinnans’ Australian-dollar account at the Royal Bank of Scotland International, from an unknown source.

Jordan’s friend told the Financial Review he was paid $200,000 to acquire and operate Dinnans and to transfer the rest of the funds. ‘‘They offered me 200 grand, and I was happy to do it,’’ he said.

He did not recall the details of the transactions, including the source of the funds or the purpose of the payment. He understood it was part of a legal tax minimisation strategy.

On May 21, 1999, Dinnans transferred exactly two-thirds of the initial deposit, some $2.26 million, to New Zealand. It did this by subscribing for shares in a newly incorporated NZ company called Dunderdale Properties.

Dunderdale’s sole director was a Rothschild Australia executive, and its address for service of notices was Jones’ home in Sydney.

But the money didn’t stay in New Zealand for long.

On May 24, Dunderdale subscribed for one share in Jairo (the company in the failed Gold Doctor scheme) for $989,000; and one share in Nighcal for $642,000. That left Dunderdale still holding $629,000.

Nighcal was owned by a Rothschild executive, while Jones ended up the sole owner of Jairo, which had received the $989,000. Jones had no further contact with Dinnans.

At the end of this process, more than $2 million had been moved from the Isle of Man to New Zealand, and then most of it disbursed in Australia, via entities controlled by KPMG and Rothschild personnel.

Rothschild no longer has a lending business in Australia. It is understood the remaining Australian arm was not aware of the transactions. There is no suggestion that Rothschild acted improperly.

A year later, some of the anonymity that surrounded Dinnans’ administration slipped. In April 2000, KPMG Isle of Man sold its international fiduciary business to British financial services provider Singer & Friedlander for £5,816,250. Singer & Friedlander would make cameo appearances in two great leaks, Panama Papers in 2016 and Pandora Papers in 2021. These, and other leaked documents, and other human sources, provide records of some of those involved in the Dinnans transactions.

The accounts show that more than $900,000 was transferred out of Dinnans’ account from November 1999 to December 2001, when the company applied to be dissolved. The Financial Review has been told that Jordan was the chief beneficiary of these payments.

It’s not clear what the money was for. It’s possible it was repayment of a loan from Jones or another party.

The filings offer no clue where the money in Dinnans came from, or why the money was paid. While it could have been structured like this for tax advantages, it also had the effect of making it difficult to trace the source of the funds.

AKPMG Australia spokeswoman said an internal review and an external law firm were examining the matters raised in the anonymous letter, as well as other unrelated historical allegations involving former KPMG partners. KPMG had no record of the Isle of Man transactions.

‘‘We are investigating allegations to the best of our ability, noting that the majority date back two or three decades, with some raised anonymously,’’ she said. ‘‘To date, we have no evidence of any wrongdoing. While the historic nature of the allegations makes corroboration particularly challenging, KPMG is treating these matters seriously.’’

Even before Dinnans was wound up, Jones was onto other deals. From 2000, he partnered with a property developer, Antonio Maiolo, to put together property development projects funded by Rothschild Australia at Petersham and Fairfield, in NSW, which KPMG partners bought into.

But then it all went wrong.

Jones described what happened in an affidavit he lodged with the Supreme Court in September 2018. While Jones had a wife and three children, he says from 2000 he had been in a relationship with a Thai woman, Veena Kaha, with whom he had a child in September 2004.

Soon after, he said, Kaha convinced him to back her in a scheme to run junkets for high rollers visiting Australian casinos, through a company called Citadel Business Loans.

Kaha told him casinos would pay junket operators a commission on turnover, but that they required a large deposit. Jones turned to close associates and business contacts for money.

One of these was Jordan. In December 2004, Jordan deposited $80,000 with Citadel as an undocumented loan at 15 per cent interest, Jones said in his affidavit. It’s a large enough sum to raise eyebrows at the familiarity and trust which it suggests between the two men.

The following month, Jones left KPMG, but Jordan’s readiness to invest in Citadel continued. Jones claimed in his affidavit that Jordan invested a total of $415,000 in the casino junkets, though by 2007 repayments had reduced this to $334,000.

Given the reported links between some junket operators and money laundering, it is awkward optics for the man who was chairman of KPMG NSW, and who would be appointed tax commissioner five years later.

To be fair, other lenders to Citadel have said they were unaware what the loans, on which Jones was offering up to 30 per cent interest, were for. Yet, Jordan made the last two deposits totalling $50,000 in December 2005 and July 2007 directly into Kaha’s bank account, Jones said.

But it turned out there was no money laundering, and in fact no junket operations.

According to Jones’ affidavit, on April 28, 2008, he confronted Kaha over a shortage of funds, and she told him there never was a junkets business, that it was a Ponzi scheme, and she had forged all the documentation and gambled away millions of dollars.

Jones describes angry exchanges with his investors, including Jordan, whose debt had already been paid down to $215,000.

Jones moved quickly. Days later, he was involved in share transactions which clarified that a string of apartments left over from his Fairfield property development were held by a newly incorporated company owned by his wife, Michelle Jones, with whom he was now reconciled.

Wayne Jones granted Jordan a third mortgage on the Pyrmont apartment where Kaha and their young son were living, but when this was sold in September 2008 for $970,000, nothing was left to pay out Jordan’s third mortgage.

Chris Kinsella, a former KPMG colleague who was then a tax partner at PwC, took Jones to court over unpaid loans. On May 18, 2009, Kinsella was awarded $946,000 against Jones in the NSW Supreme Court.

As creditors’ complaints escalated, Jones in his affidavit says he talked to Jordan. On May 26, 2009, a week after the court judgment, Jones says he made an agreement with Jordan about an apartment in Spencer Street, Fair-field, which was part of the property development Jones had done there, funded by Rothschild. The apartment was owned by a company for which Jones was sole director but which was owned by his wife, Michelle.

Jones says in his affidavit: ‘‘I agreed with Mr Jordan that the company would transfer that property to his [Jordan’s] wife, whose maiden name is Hailey-Jayne [sic] Braban, as satisfaction of the loan of $215,000, which was still outstanding and owed by me to Mr Jordan being the money that he had loaned me for the casino venture. No purchase money was paid by Mrs Jordan under the contract.’’

Property records show that on June 22, the property was transferred to Hayley Jayne Braban for $215,000 under a sale contracted on May 26.

On June 25, Kinsella registered a creditor’s position to bankrupt Jones. But Jones forestalled Kinsella by installing his own controlling trustee, Steven Nicols, of Nicols & Brien, under section 188 of the Bankruptcy Act.

When Nicols called a meeting of creditors, Jones says in his affidavit that Jordan registered a claim against him: ‘‘On 12 August 2009, Jordan signed a statement of claim and proxy form in which he asserted that he was a creditor of mine for a sum of $264,250, being the loan of $215,000 plus interest.’’

On Jones’ account in the affidavit, Jordan was making a creditor’s claim for a debt that had already been paid. Of course, there may have been other debts or obligations between the two men beyond the casino junket loans, which Jordan was claiming.

Braban had put the Fairfield apartment on the market in mid-July and it was sold on August 17 for $175,000, a loss of $40,000 on the purchase price. Jordan signed the transfer document as a witness when the sale was settled on October 14.

‘‘I personally would not attach any credibility to Mr Jones’ claims,’’ says a former associate who loaned money to Jones, and who asked not to be named. ‘‘In my experience, Mr Jones is highly unreliable, particularly when it comes to matters involving money. Mr Jordan I have observed to be a decent and honorable man. The assertions made by Mr Jones should not be relied upon.’’

A spokeswoman for Mr Jordan said in January that the former commissioner ‘‘cannot comment on matters either before the court or on the tax affairs of any individual or entity due to obligations of confidentiality and privacy under the law’’.

Jordan’s career went from strength to strength. He was chairman of the Board of Taxation from 2011, he chaired the Business Tax Working Group that then-treasurer Swan set up that same year, then in 2012 was named tax commissioner.

Swan told the Financial Review that Jordan’s practical experience was invaluable. His Liberal Party links ‘‘didn’t matter to me’’, Swan said last year. ‘‘He got the job done that wasn’t being done. I always referred to him as my poacher turned gamekeeper.’’

As commissioner, Mr Jordan won kudos for running a multinational investigation into how tech giants sidestepped tax. He led the world in 2016 with the response to the Panama Papers, some 11.6 million documents from Panama firm Mossack Fonseca, proposing the most ambitious international investigation in history, with more than 30 countries working together to hunt down tax evaders identified in the leak.

But Jordan’s history with Jones would resurface in the NSW Supreme Court.

In 2009, Jones settled with many of his creditors, and by September had put the bankruptcy bids behind him. By 2012, he was fending off new attempts to bankrupt him by the Tax Office, and he has faced regular court battles since then.

By 2018, Jones was battling a $5.6 million tax bill on undeclared personal income; the ATO was flagging a possible further $17 million from an ongoing audit into one of his companies.

Jones filed an affidavit setting out his defence – that losses from the failed casino junket scheme had wiped out his taxable income, which he said the tax commissioner (Jordan) was aware of because he had been an investor.

Jones’ claims about Jordan received short shrift in the Supreme Court, where Justice Peter Johnson ruled in December 2018 that ‘‘the defendant’s evidence, at its highest, indicated that Mr Jordan lent some money to the defendant in a private capacity years before he became commissioner of taxation’’.

‘‘There was no evidence that Mr Jordan had played any part in the decision-making concerning the bringing of the recovery proceedings and the application for summary judgment,’’ Justice Johnson found.

He confirmed the Tax Office’s position that Jones’ evidence about the casino junket loans ‘‘was irrelevant to the issues to be considered on the present application and, in any event, went nowhere’’.

Governance experts saw potential red flags in the casino junket loans and the funds transferred from the Isle of Man, a secrecy jurisdiction.

‘‘For our highest tax officers, they need to be well beyond any question over their integrity and ethics, and especially their own tax dealings,’’ barrister Geoffrey Watson, SC, who is a former counsel assisting the NSW Independent Commission Against Corruption, and a director of the Centre for Public Integrity. ‘‘The curious nature of some of these transactions were such that I would have expected an appropriate appointment process to pick them up, and I would have expected that they would have been matters that Jordan would have revealed.’’

Associate Professor Andrew Schmulow, an expert on financial regulatory architecture who lectures at the University of Wollongong, said: ‘‘If these allegations are true, then it reinforces the need for arms-length, rigorous, nonpartisan and forensic oversight and control over the appointment of leaders of the most important Commonwealth authorities in the land.’’

KPMG now puts tight restrictions on partners investing together.

‘‘In 2016, KPMG strengthened its policies on partners investing as a group to strongly discourage partners from investing together outside of the firm,’’ the spokeswoman said.

‘‘In addition, in 2016 a personal commercial activities policy came into effect, formalising a strict approval process for any such activities. Annually, partners are required to confirm compliance with the policies.’’

The ATO is currently pursuing investors in AgriWealth forestry schemes that Jones acquired from Rothschild in 2005. The investors, including some former KPMG partners, are contesting new Tax Office assessments. AgriWealth Capital also faced court action last year from the Australian Financial Complaints Authority, which alleges it overcharged investors.

Last year, in an appeal before the Administrative Appeals Tribunal that revisited the casino junket claims, deputy president Bernard McCabe was scathing about the way Jones conducted his business ‘‘by the seat of his pants’’, with Jones conceding ‘‘there’s money going everywhere’’.

McCabe confirmed a finding of evasion against Jones, for withholding information from the Tax Office and failing to report fee income in his ‘‘idiosyncratic approach to his finances’’.

And then there’s his driving record. When Jones appeared in Manly Court last July after conducting a U-turn across double lines on Military Road in Neutral Bay, the magistrate marvelled at his record of traffic offences, which stretched over seven pages. His barrister’s plea that Jones needed to be able to drive to run his business interests across the state went down badly.

Jones has spent his life in the fast lane. Now, the magistrate advised kindly, ‘‘perhaps your client needs to discover public transport’’. AFR

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

Moves that could classify tourists and business travellers who spend more than 45 days in Australia as tax residents risk stifling economic activity by discouraging visitors, the Albanese government has been warned.

The government is consulting about plans in the 2021 federal budget to dramatically simplify outdated and clunky individual tax residency rules that govern who has to pay tax and lodge annual returns with the Tax Office.

Included is a new primary ‘‘bright line’’ test that would result in individuals treated as Australian tax residents if they are in the country for 183 days in a year.

But moves to update residency rules designed in the 1930s risk catching tourists and business travellers who spend more than 45 days in Australia, under a proposed secondary test.

Institute of Public Accountants general manager for technical policy Tony Greco said it could act as a disincentive for some foreign workers, tourists and other short-term travellers, potentially hurting economic activity.

Other factors to be considered as part of tax residency rulings include the right to reside permanently in the country, close family ties here, access to accommodation, and Australian economic interests.

Mr Greco said it would also breach the principle of adhesive residency, which provides that it should be harder to stop being an Australian tax resident than to become one.

The 45-day test was recommended because it is longer than the traditional annual leave period of four weeks. The median stay in Australia for tourists and other short-term visitors is 11 days and all but a few short-term visitors stay for less than two months.

IPA has recommended a 90-day secondary test. In New Zealand, individuals cease to be a tax resident if they spend less than 40 days in the country. Britain uses a 46-day test.

‘‘We say 45 days is too low a threshold because then it reverts you back into those subjective tests that we’re currently having trouble with,’’ Mr Greco said.

‘‘Maybe the bar is too low. It is going to suck in too many players if you strike at 45 days. You’re quickly back into the complexity of the old scheme.’’

He said the case for change was strong, describing the current tax residency rules for individuals as outdated and incompatible with the modern world, where increased global mobility, advances in technology and changing social norms had shifted the goal posts.

‘‘What we do know is private binding rulings for residency are going through the roof because it’s so subjective and it’s litigated. The definitions that are used are quite subjective and you have to do a fact-based analysis to actually come up with an arguable position.’’

Treasury said the 45-day proposal predated the COVID-19 pandemic and could be revised. It argues a strict day count ‘‘ensures that residency outcomes are clear, the rules are administrable, and disputes are avoided’’.

When first announced, the then Coalition government estimated the new rules would deliver regulatory savings of about $110 million a year.

BDO’s national tax leader, Lance Cunningham, said 90 days would better accommodate skilled workers and Australians working abroad.

‘‘Where individuals flying in and out of Australia for business purposes may be subject to the commencing residency rules, this may prove unattractive to businesses overseas in sending skilled workers to Australia for special projects or short-term employment,’’ he said. ‘‘As an example, mergers and acquisitions, change management, global expansions and specific short-term projects might exceed the 45-day period.

‘‘For example, an ex-Aussie resident who may be ideally skilled to return to Australia for a short-term project but is reluctant due to fears of being deemed a resident due to satisfaction of the 45-day requirement along with two other factors, such as right to reside, legacy Australian economic interests.

‘‘Increasing the 45-day period to 90 days will provide an incentive for business travellers and holidaymakers to stay in Australia for longer without fear of compromising their tax residency status. Longer stays may result in an increased economic contribution to the Australian economy, particularly tourism expenditure.’’