Fines for financial advisers and firms who promote dodgy tax exploitation schemes will increase by 100-fold and secrecy laws will be overhauled in a major federal government crackdown in the aftermath of the PwC tax-leak scandal.
On Sunday, Treasurer Jim Chalmers said the government would double down on tax adviser misconduct and ensure multinationals paid their fair share of tax in Australia.
The federal government said it would give regulators stronger teeth to address tax adviser misconduct.Credit: Martin Ollman
“By increasing penalties, giving regulators stronger teeth to investigate and prosecute perpetrators and boosting transparency, collaboration and co-ordination within government, we are acting to restore public confidence and help prevent this from happening again,” he said.
Changes include a lifting of the maximum penalty for advisers and firms that promote tax exploitation schemes from $7.8 million to more than $780 million. Tax avoidance penalty laws will be expanded so they are easier to apply, and the time limit for the Australian Taxation Office to bring Federal Court proceedings will be extended from four years to six years after the conduct occurred.
The government said it would implement remaining recommendations from the independent review of the Tax Practitioners Board (TPB), including strengthening the range of sanctions available.
“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,” Chalmers said.
Treasurer Jim Chalmers.Credit: Alex Ellinghausen
In January, former PwC partner Peter Collins was banned by the TPB for leaking confidential government tax plans – including new rules to stop multinationals avoiding tax – to other staff and partners at the firm. The TPB also sanctioned PwC for failing to regulate conflicts of interest by partners and staff who knew the confidential information would be used to help clients sidestep the new tax laws and to attract new clients.
Since then, there has been a parliamentary committee investigating ethics in the consultancy sector. Some experts, including former Australian Competition and Consumer Commission chairman Allan Fels, have called for a break-up of the big four consulting firms so that they can no longer provide both advisory and consulting services.
“It is now clear the self-regulation and government oversight don’t work,” he said. “We therefore need legislation to break up the big four – and in time other audit businesses – and to prohibit audit businesses from doing consulting advisory and other forms of business.”
The government has so far enabled departments to terminate contracts with parties that receive adverse findings against them from a legal body, and the Australian Federal Police has begun a criminal investigation into PwC over the tax-leak scandal following a referral from Treasury.
‘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.’
Jim Chalmers, federal treasurer
Inquiries are also being undertaken by the parliamentary joint committee on corporations and financial services and the Senate finance and public administration references committee into the PwC matter.
Under the latest reforms, there will be bigger penalties against tax agents and those who advise clients to avoid Australian tax laws using confidential government information.
“The current tax promoter penalty laws have remained largely untouched since their creation in the 2000s and have only been applied six times,” Chalmers said.
Regulators will also have increased powers as the government seeks to remove limitations in the tax secrecy laws that were a barrier to their acting in response to PwC’s breach of confidence.
The changes also include protection for whistleblowers who provide the TPB with evidence of tax agent misconduct, improved transparency for the TPB’s public register of practitioners, up to 24 months for the TPB to complete complex investigations, and the ability for the ATO and TPB to refer ethical misconduct by advisers (including but not limited to confidentiality breaches) to professional associations for disciplinary action.
Chalmers said the PwC scandal had shown some regulatory frameworks were not fit for purpose.
“It has raised questions about the adequacy of regulations applying to large consulting, accounting and auditing firms and how this misconduct was able to occur and go undetected without consequence for so long,” he said.
“This includes whether there are appropriate governance obligations on these firms in areas such as transparency, executive responsibility, management of conflicts of interest and dealing with misconduct.”
The Treasury would co-ordinate a whole-of-government response to the PwC matter and the work would deliver options to the government over the next two years, he said.
Consultation on the response will begin in coming months and include implementation of remaining recommendations from the independent review of the TPB such as strengthening the range of available sanctions.
It will also include Treasury reviews such as those examining the regulation of consulting, accounting and auditing firms to consider whether reforms are needed; a joint review with the Attorney-General’s Department of the use of legal professional privilege in Commonwealth investigations, with options for the government to respond to concerns that some claims of privilege are being used to obstruct or frustrate investigations; and a review of the compulsory information gathering powers of the ATO.
A Department of Finance review will be conducted into the use of confidentiality arrangements across all government agencies to ensure they are fit for purpose, legally binding and enforceable, identifying opportunities to strengthen the management of conflicts of interest in contracts.
A KMPG spokeswoman said the company welcomed the announcement from the federal government and strongly supported the reform package as a significant, sensible and constructive step forwards in restoring trust in its profession.
“KPMG supported a number of these recommendations during the parliamentary committee process, and we look forward to actively engaging in the consultation process,” she said.
A Deloitte spokesperson said the firm welcomed moves to crackdown on tax adviser misconduct in response to the recently reported tax confidentiality breaches.
“We will continue to work constructively with government and regulators to strengthen trust in the quality and integrity of professional tax advice,” the spokesperson said.
PwC and EY have been contacted for comment.
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2023-08-06 04:27:43Z
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