Now is the time for the Nation State to reassert its control over multinational entities.
Multinationals advance an agenda that is self-serving. These agendas may be separate from, and at times, above, a nation’s law. Financial gain is at its heart. Arthur Andersen, a former large international consultancy that collapsed in 2002, “struggled to balance the need to maintain its faithfulness to accounting standards with its clients’ desire to maximise profits. The firm has been alleged to have been involved in the fraudulent accounting and auditing of WorldCom and Enron among others”.
Large international consultancies are central to the success of multinationals. These consultancies have deep knowledge of how countries and multinationals operate and they advise both, a clear conflict of interest. PwC’s current tax scandal goes to the heart of this conflict by prioritising itself, and the wellbeing of other multinationals, at the expense of Australia. These large consultancies have deep specialist knowledge in tax with particularly deep skills in multinational tax. Globally PwC has in excess of an estimated 100,000 people dedicated to ‘financial advice’, a euphemism for tax. This is an area individual countries can’t compete against; they do not have an equivalent globally connected framework to oppose this avoidance. Now add the other large consultancies to understand the size of the problem.
Multinationals headquarters can move to locations purely for their own tax advantages. Accenture is a large NYSE listed consultancy which employs over 700,000 people in 49 countries. In 2001 it was incorporated in Bermuda, despite the US being its main source of revenue. In 2009 Accenture changed the company’s place of incorporation from Bermuda to Ireland and became Accenture plc. Its 2022 10K SEC filing has this to say about its revenue. “Our business in the United States represented 45% of our consolidated revenues during fiscal 2022, 2021 and 2020, respectively. No other country individually comprised 10% or more of our consolidated revenues during these periods. Business in Ireland, our country of domicile, represented approximately 1%, 2% and 1% of our consolidated revenues during fiscal 2022, 2021 and 2020, respectively.” In 2012, it was revealed Accenture was paying only 3.5% in tax in the Republic of Ireland. Strong tax avoidance schemes enable multinationals to reduce their financial support of Nation States.
All this often happens in a black box. Consultancies are frequently partnerships. No formal filing of financials is required. This is the great irony, those that audit companies advising on what an Annual Report should disclose; never have to produce an equivalent. PwC Australia does produce a Transparency Report which includes such sophistry as trying to bolster their annual tax payments by including an estimated tax payment paid by its partners. Being a franchise partnership there is no single home market, no single dominant investor pool, no one centre of management. They are both local and global and can avoid localised regulatory pressure that might target foreign investors.
But it’s not easy taking them on as they can be very large. Amazon has a direct employee count of over 1.5 million, placing it 150th in a list of UN countries ranked by population. Its market capitalisation of $1.2 trillion would rank it near the value of Spain’s annual GDP. Amazon is but one of a multitude of mega-multinationals. They hold significant power.
Large corporations also have tight control of media and communications and are not subject to the same daily scrutiny that our politicians have. The ATO first became aware of the potential breach of confidentiality way back in 2017. PwC have had over 6 years to come clean and rectify this. That they didn’t speaks volumes about the firm’s culture. I once asked a question in a PwC Town Hall something like (abbreviated) “Are we the problem?” The response was akin to “Toughen up and welcome to capitalism.” Even now that this issue has blown up witness the drip feeding of communiques and reaction from PwC. They’re not interviewed on radio or television. Three press releases have been issued. First pinning the blame on one partner, and then suspending another nine, all on full pay of course. It’s clear that they are battening down the hatches and waiting for it all to blow over. Even with Ziggy Switowski’s upcoming report, don’t expect it to address structural issues in the audit, tax and consultancy industries.
In the last ATO tax transparency report multinational corporations with combined revenues of over $90 billion paid $30 in tax. Of the other Australian companies that pay no tax it is worth noting that all are fossil fuel or mining related, but that is another story. Michael West Media has been covering this tax avoidance story for some time.
It is time for bipartisanship. All political parties should see the existential threat such behaviour creates. Reduced income and compromised policy results in growing inequality and rising disquiet with governments’ ability to perform. Failure to reform this sector now will just kick the can further down the road until a breaking point is reached. It’s time to act.
Ross Hanan
Ross Hanan is a former researcher at PwC, Booz, Deutsche Bank and Goldman Sachs.
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