The Federal Government has plans to get tougher on consultancy firms that help multinational companies escape paying tax in Australia, with a 100-fold increase in penalties.
In light of the PwC massive breach of trust scandal, maximum penalties for advisers and firms that promote tax exploitation schemes will jump from $7.8 million to more than $780 million.
New rules will also expand tax promoter penalty laws to make it easier for the Australian Tax Office to apply them to advisers and firms found to promote tax avoidance.
And the time limit for the ATO to bring Federal Court proceedings on promoter penalties will be increased from four years to six years after the conduct occurred.
Treasurer Jim Chalmers, Attorney-General Mark Dreyfus, Finance and Public Service Minister Katy Gallagher and Assistant Treasurer Stephen Jones issued a strongly worded joint statement describing the move as “the biggest crackdown on tax adviser misconduct in Australian history”.
They said the PwC scandal exposed severe shortcomings in the government’s regulatory frameworks.
“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,” they said.
“We’re also cracking down on the scourge of multinational tax avoidance and making sure multinationals pay their fair share of tax in Australia.
“By increasing penalties, giving regulators stronger teeth to investigate and prosecute perpetrators and boosting transparency, collaboration and coordination within government, we are acting to restore public confidence and help prevent this from happening again.”
Legislation will be introduced this year, but there will first be another round of consultation on the reforms the government wants to introduce.
The government has even engaged a consultant to tell it how to deal with consultants.
The Finance Minister has awarded the Ethics Centre’s Simon Longstaff a $32,000 contract to advise on how her department should engage with Scyne Advisory, which took over PwC’s government business.
That move has already been described by Greens senator Barbara Pocock as belonging to a script from political satire comedy Utopia.
“Just imagine a bureaucrat in the finance department saying ‘We need to hire a consultant to advise us on how to hire consultants’,” Senator Pocock told The Guardian.
“The scriptwriters from the ABC’s Utopia series couldn’t have come up with a more laughable scenario.”
The three priority areas of the yet-to-be-seen legislation, however, will focus on strengthening the integrity of the tax system, increasing the powers of our regulators, and strengthening regulatory arrangements to ensure they are fit for purpose.
“Tax agents and others who advise their clients to avoid Australia’s tax laws must be penalised,” the ministers said.
“The current tax promoter penalty laws have remained largely untouched since their creation in the 2000s and have only been applied six times.
“Bigger penalties will reduce incentives to use confidential government information to help clients avoid tax.”
Limitations in tax secrecy laws played a role in hindering regulators’ response to a PwC partner who used confidential Treasury information to help his firm’s multinational clients evade their tax obligations.
The legislation will seek to remove those limitations to enable the ATO and the Tax Practitioners Board to refer ethical misconduct to professional associations for disciplinary action.
It will also protect whistleblowers when they provide the TPB with evidence of tax agent misconduct.
Treasury will be coordinating what the ministers are describing as a “whole-of-government response” to the PwC matter and the systemic issues it raised.
It will deliver options to the government progressively over the next two years.
“These are complex policy areas that also go to the broader integrity of our taxation and superannuation systems, and the integrity of our capital markets,” they said.
Inquiries relating to the PwC scandal are ongoing by the Parliamentary Joint Committee on Corporations and Financial Services, and the Senate Finance and Public Administration References Committee.
The Australian Federal Police has also begun a criminal investigation into the matter.