Australia is set for its biggest crackdown on tax advice misconduct, according to a Treasury statement yesterday, August 6.
Treasurer Jim Chalmers announced a government-wide response in the joint statement signed by Attorney-General Mark Dreyfus, Assistant Treasurer Stephen Jones and Minister for Finance Katy Gallagher.
“The PwC scandal exposed severe shortcomings in our regulatory frameworks that were largely ignored by the coalition,” Chalmers said in the joint statement. “We’re cracking down on misconduct to rebuild people’s faith in the systems and structures that keep our tax system and capital markets strong.
“We’re also cracking down on the scourge of multinational tax avoidance and making sure multinationals pay their fair share of tax in Australia,” he added.
The joint statement listed three focus points for reform: 1) strengthening the integrity of the tax system, 2) increasing the powers of regulators, and 3) ensuring the regulatory framework is fit for purpose.
“Tax agents and others who advise their clients to avoid Australia’s tax laws must be penalised,” said Chalmers in the joint statement. “Bigger penalties will reduce incentives to use confidential government information to help clients avoid tax.”
Meanwhile, executives at the ‘big four’ firms Deloitte, EY, PwC and KPMG have told the Australian Financial Review that they want to see a single set of standards for their industry.
Just the start
PwC Australia is conducting an internal review, while the firm and former employees face investigations. These include two Senate committee inquiries and a criminal investigation by the Australian Federal Police into the conduct of Peter-John Collins, the former PwC partner implicated in the leaks.
“The PwC scandal has shown some regulatory frameworks are not fit for purpose,” said Chalmers in the joint statement. “It has raised questions about the adequacy of regulations applying to large consulting, accounting and auditing firms.
“This includes whether there are appropriate governance obligations on these firms,” he added.
The Labor government has already introduced legislation to strengthen the Tax Practitioners Board (TPB), including a A$30 million ($19.7 million) boost in funding to raise compliance levels.
At the same time, the government has moved to limit the role of PwC in public sector contracts, particularly to exclude anyone connected to the tax leaks.
The Treasury has now laid out a roadmap for building on these changes.
For example, the government will raise the maximum penalty for promoting abusive tax schemes from A$7.8 million to over A$780 million as a deterrent to advisory firms.
Meanwhile, the Australian Taxation Office (ATO) will get more time to take a tax matter to the Federal Court – from four years to six years following the incident of alleged misconduct.
As part of the reforms, the ATO and the TPB will be able to refer ethical misconduct by advisers to professional associations for disciplinary action. The TPB will gain more time – up to two years – to carry out difficult investigations, while its public register of practitioners will be made more transparent.
The Treasury also wants to remove the limits on tax secrecy laws that blocked regulators from taking swifter action against PwC Australia over the tax leaks. Whistleblowers will gain more protection for the evidence they provide to the TPB.
A review will be launched into whether legal professional privilege has been used to obstruct investigations into misconduct. This could mean the government will later change the law regarding such client privileges on the grounds of public interest.
The Labor government will work to deliver regulatory changes over the next two years with a consultation held in the coming months. This will focus on key issues such as the sanctions available to the TPB.
There will be a series of reviews as part of this process. The Treasury will assess the penalties for the promoters of abusive tax schemes, as well as new forms of fraud and systemic abuse of the tax system by advisers.
The Finance Department will review the use of confidentiality arrangements across all government agencies to ensure they are enforceable as well as legally binding. It will also examine ways to minimise and eliminate conflicts of interest.
ITR has produced a timeline on the tax leads scandal. You can read it here.
