Consultants who encourage tax avoidance could be fined 100 times more than current laws allow, and regulators will be given far greater powers to stamp out corruption in the industry under draft legislation released by Treasurer Jim Chalmers targeting tax advisers who act against the national interest.
The legislation aims to restore some integrity to the tax system following the PwC scandal that saw the giant accountancy firm help its international clients avoid an Australian taxation scheme the firm was actually helping the government establish.
New laws will increase the maximum penalty from $7.8 million to more than $780 million for advisers and their firms found to be promoting tax avoidance schemes.
Penalties will be made easier for regulators to apply and secrecy laws will be removed to help them crack down on the corrupt behaviour.
By removing the secrecy laws, the Australian Taxation Office and the Tax Practitioners Board will be able to refer ethical misconduct by advisors to professional associations for disciplinary action.
Whistleblowers will be given greater protections and investigations will be afforded more time for more complex cases.
Dr Chalmers said the draft legislation showed the Federal Government was taking a strong stance against blatant misconduct in the tax advice industry.
He said the PwC scandal exposed severe shortcomings in Australia’s regulatory frameworks that had been largely ignored.
“Our crackdown on misconduct in the industry will help to prevent this from happening again and will ensure that if it does, our regulators have what they need to hold parties to account,” the Treasurer said.
“This will help rebuild confidence in the industry and the vast majority of advisers who do the right thing.
“The government has already introduced legislation to strengthen the Tax Practitioners Board earlier this year, provided a $30 million funding boost to the Board in the October 2022-23 Budget and strengthened Commonwealth procurement frameworks.”
The four sets of draft legislation released for public consultation on Wednesday (20 September) focus on the first two of three priority areas announced last month.
The three areas of focus are strengthening the integrity of the tax system, increasing the powers of our regulators and strengthening regulatory arrangements to ensure they are fit for purpose
The draft legislation aims to strengthen the system’s integrity by:
- Increasing maximum penalties for advisers and firms that promote tax avoidance schemes from $7.8 million to over $780 million
- Expanding tax promoter penalty laws so they’re easier for the ATO to apply to advisers and firms that promote tax avoidance, and
- Increasing the time limit for the ATO to bring Federal Court proceedings on promoter penalties from four years to six years after the conduct occurred.
It will also increase the power of regulators by modernising tax secrecy rules and removing the very limitations that were a barrier to regulators acting in response to PwC’s breach of confidence.
The TPB will be given up to 24 months more time to complete complex investigations.
Improvements will be made to the TPB’s public register of practitioners so that people have more transparency over agent and firm misconduct.
“The reforms we’re progressing today are the beginning of a comprehensive process the government is undertaking to rebuild community confidence in the systems and structures that keep our tax system and capital markets strong,” Dr Chalmers said.
“Consultation on reforms to further strengthen our regulatory arrangements will begin in coming months.”
Stakeholders are invited to provide feedback on the draft legislation before 4 October.
Former PwC partner Peter-John Collins lost his registration as a tax agent for two years after a TPB investigation found him guilty of integrity breaches while a PwC partner in leaking confidential Treasury information about improving laws to stop multinational tax avoidance.
The investigation began shortly after Mr Collins left PwC in October last year.
It was subsequently revealed that PwC went to great lengths to help its clients avoid paying the very taxes the firm was advising the government about.
After the scandal became more widely known – causing a public outcry and sparking multiple inquiries – the matter was referred to the Australian Federal Police for investigation.
It also put the spotlight on all consultancy firms working in the Australian Public Service, with a particular focus on the ethics of the big four – PwC, Deloitte, KPMG and EY.