PwC sues former employee over tax leaks scandal

In a major response to a claim for unpaid entitlements, PwC has filed its own action against a lawyer and former partner over his alleged involvement in the tax scandal that rocked the accounting giant.

Editor’s note: This story first appeared on HR Leader’s sister brand, Lawyers Weekly.

Early this year, former PwC employee Paul McNab filed proceedings in the NSW Supreme Court over a claim the major accounting firm failed to pay him ongoing post-termination entitlements in the years following his retirement from the partnership in mid-2020.

McNab alleged PwC’s refusal to make the payments “did not identify any provisions of the partnership agreement which [indicates] disentitlement” to them, and the firm was therefore in breach.

In a cross-claim filed with the court earlier this week, PwC alleged McNab contributed to the major tax scandal by “knowingly” receiving information from colleague Peter Collins, who had allegedly used his position in advisory groups to steal confidential material.

By his alleged non-disclosure of Collins conduct to PwC’s board and his failure to request that Collins stop sharing material, the firm further alleged McNab breached his statutory obligations.

“At all times … during which he was provided by Collins with information … McNab knew, or ought to have known, that the information being provided to him by Collins … was confidential information of Treasury which Collins was obliged not to disclose to McNab or any third party,” the cross-claim alleged.

Specifically, PwC alleged that between February 2014 and September 2015, McNab was provided with confidential information relating to legislative and regulatory options considered by the Department of Treasury for the Base Erosion and Profit Sharing (BEPS) provisions.

From May 2015 to January 2016, McNab allegedly disclosed information about the Multinational Anti-Avoidance Law (MAAL), which was designed to stop major companies from shifting their profits away from higher-taxing countries to those with lower taxes.

Four months after the MAAL commenced, the Australian Taxation Office (ATO) became aware of companies that were working to avoid it and commenced an investigation.

By July 2020, Collins misuse of confidential information was referred to the Tax Practitioners Board by the ATO, which then found PwC failed to have adequate arrangements in place to manage conflicts of interest that arose in relation to activities as registered tax agents.

In response to PwC’s cross claim, McNab said the firm’s attempts to blame him for the tax scandal fell short.

“First, McNab engaged in no wrongdoing. Secondly, no conduct of McNab caused the tax scandal loss,” his response read.

“While PwC has no doubt suffered loss associated with the tax leak scandal, that loss was caused by the conduct of persons within PwC other than McNab and by PwC’s mishandling of the tax scandal.”

Further, McNab claimed he did not know Collins had disclosed information to him that he was obligated to keep confidential.

Inside the claim for entitlements

McNab has sought an order that PwC make post-termination payments from 1 May 2020 – or, alternatively, 1 August 2023 – until the Supreme Court’s hearing date of the summons.

The former PwC partner retired in April 2020 after what he said were 22 “successful years” with the firm. Shortly afterwards, he joined the partnership of global law firm DLA Piper.

By June 2023, McNab alleged he became aware PwC would not be paying him these entitlements in a public document prepared by the firm for the Australian Senate Finance and Public Administration Reference Committee’s inquiry into Collins conduct.

In PwC’s document, it said it did not “intend to make any future payments to any of the four individuals”, including McNab.

In November, McNab demanded PwC make the payments retroactive to 1 August 2023, the day following his departure from DLA Piper. At this stage, McNab had taken the view the payments had ceased because he had joined DLA Piper’s partnership.

By letter of response, PwC ‘s lawyers claimed McNab had caused the firm “loss and damage well in excess of all future post termination payments … that PwC may have otherwise paid to him”.

The letter added: “Consequently, our client does not propose to pay your client any payments after terminations.”

McNab made a further demand in January 2024, but that time retroactively to 1 May 2020, being the day after his retirement.

In addition to the payments, McNab has sought a declaration that DLA Piper was not a “listed firm” for the purpose of the PwC Australian Firm Partnership Agreement, as at June 2017.