by Ganesh Sahathevan
While PwC has named four tax partners in its recent scandal the works of Prem Sikka and Austin Mitchell suggests that the group of PwC partners involved in questionable tax work may well be larger than PwC cares to admit, and that the damage caused may have over the years harmed Australian and Ne Zealand taxpayers.
Prem Sikka and Austin Mithcell state in their book The Pin Stripe Mafia: How Accountancy Firms Destroy Societies:
PwC’s tax avoidance manoeuvres are not constrained by any geographical boundaries. In 2009, the New Zealand High Court upheld a total tax assessment of NZ$961 million by rejecting an avoidance scheme used by Westpac Banking Corporation. The assessment consisted of tax of NZ$586m with another NZ$375 million in interest payments. The bank used a series of structured finance transactions to reduce its tax liability.
The tax authorities characterised these transactions as a “sham” and the court decided that they were tax avoidance arrangements entered into for a purpose of avoiding tax. PwC’s role was identified in parliament by Dr. Russel Norman, co-leader of the New Zealand Greens.
“According to the judge ( in Westpac Banking Corporation v The Commissioner of Inland Revenue, CIV 2005-404-2843, 7 October 2009), not only were the arrangements unlawful but the four transactions tested in the case were “tax avoidance arrangements entered into for a purpose of avoiding tax;”. Anyone who has followed this case will be amazed at the extent Westpac went to in order to have this series of structured finance arrangements—very, very complicated structured finance arrangements—in order to, in Justice Harrison’s words, simply “avoid paying tax”. That was the only purpose of those arrangements. It is also quite sad that one of the people involved—in fact, he was one of the key advisers to Westpac in this case—was no less than John Shewan, who is now chairman of PricewaterhouseCoopers, one of our most important accounting and advisory firms. John Shewan, according to the judgment, advised Westpac to make tax payments as low as 6 percent— most taxpayers would be surprised by such advice—but no lower. That is in the context of New Zealand’s company tax rate being 30 percent. Westpac was advised by one of the most senior tax lawyers in our country to have a tax rate of 6 percent, but no lower. Justice Harrison wrote in his judgment: “The bank”—that is, Westpac—“was anxious not to reduce it unduly because of its reputational effect; it wanted to appear as a good corporate citizen paying a responsible level of tax. For that reason, Westpac’s chief executive officer imposed a minimum ETR for the Westpac group of 25% in 1997. All these transactions took that factor into account. However, management progressively allowed the ETR to fall, first to around 20% in about May 2000 and then to the ‘high teens’.” The Government’s banker is organising its tax affairs in order to reduce its corporate tax rate to under 20 percent. It is an extraordinary turn of events. What is even more extraordinary is that one of Westpac’s key advisers, John Shewan from PricewaterhouseCoopers, is now on the Government’s Tax Working Group.”. Source: Hansard, Daily debates, 14 October 2009. Vol. 658, p. 6993.
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SEE ALSO
Who is John Shewan?
The government has appointed a veteran of the accounting and audit sector, John Shewan, to conduct an independent inquiry to check whether the rules covering New Zealand-based overseas trusts are fit for purpose or need improving.
The terms of reference include reviewing foreign trusts' disclosure rules on record-keeping, enforcement and the exchange of information with other tax jurisdictions, and Mr Shewan is to report back by June 30.
John Shewan is a tax and accounting veteran. Photo: SUPPLIED
Who is John Shewan?
He graduated from Victoria University of Wellington with an honours degree in accountancy and started as a junior lecturer at the university in 1976.
The following year he joined leading accounting and audit firm Price Waterhouse (later to become Price Waterhouse Coopers or PwC).
He became one of the firm's leading tax practitioners, becoming a partner in 1984, and chairman of the New Zealand firm from 2003 to 2012, when he retired.
In mid-2012 he was appointed an adjunct professor of accountancy at Victoria University.
What is his government background ?
He has been appointed by Labour and National-led governments to official bodies looking into tax.
In 1988 he was appointed to the Tax Education Office, a position he held for nine years.
In 2009 he was appointed to the Tax Working Group, which was charged to advise the government on the broad design of the tax system. It said the tax system was broken and needed a significant revamp, including a land tax, closing of loopholes, a higher sales tax but lower income tax.
What is his link with business?
Since he left PwC, Mr Shewan has picked up several company directorships.
He is currently chair of the board of the manager of the Fonterra Shareholders' Fund.
He is also a director of Yealands Wines, the New Zealand branch of the China Construction Bank and Munich Reinsurance Australia.
He is an established commentator on tax and policy matters, and has been involved also in a number of high-profile tax cases.
He advised Westpac Bank in a dispute with the Inland Revenue Department (IRD) over the taxation of specialised funding structures. The bank, along with three other major Australian-owned banks, settled the cased by paying IRD $2.2 billion.
Mr Shewan was also an expert witness in a case involving two Christchurch surgeons, who paid themselves low salaries to minimise their tax bills after the top tax rate was raised in 2000. The courts set aside his evidence because it commented on legal issues outside of its scope.
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