PwC reforms a ‘disproportionate response’: CA ANZ

Chartered Accountants Australia and New Zealand has warned that the scale of proposed policies foreshadowed the government in response to the PwC tax leaks may increase compliance costs, financial risk and regulator scrutiny for accountants.

The accounting body is critical of the government’s decision to release legislative and administrative changes progressively over a two year period.

Treasury published the first lot of proposed legislative changes last month when it released draft legislation on proposed changes to the tax promoter penalties, the tax secrecy laws, the Tax Practitioners Board and changes to the whistleblower laws.

“These are the first of many legislative and administrative changes which will result from a two-year program of work outlined in the government’s statements,” CA ANZ said in a submission on the draft legislation.

“Exactly what lies ahead is unclear, and it is no understatement to say that tax intermediaries have entered uncertain, disruptive times.”

CA ANZ said regardless of whether accountants work in large or small firms, the government’s policy agenda may result in increased compliance costs, particularly in the areas of internal governance procedures and professional indemnity cover.

It may also result in increased financial risk for owners of firms and expose accountants to more frequent, uncoordinated and lengthy regulatory scrutiny, it stated in its submission.

It also warned that the changes might make it more difficult for accounting firms to attract and retain talent, with heightened personal risk discouraging individuals from accepting ownership positions within professional firms.

“For professional associations such as CA ANZ, the policies foreshadowed by the government will lead to increased demand for additional support in areas such as such as education, technical support, professional standards and governance,” the submission said.

Promoter penalty regime changes to impact partnership structures

The accounting body noted that the draft bill that makes changes to the promoter penalty regime is only one part of comprehensive package of measures.

“The measures should therefore be the subject of an over-arching consultation process, rather than hasty consultation on individual measures published in a piecemeal, drawn-out fashion,” the submission said.

CA ANZ also said that proposed amendments also include two provisions which will “disadvantage professional partnership structures”.

Under the current law, each partner in a partnership is jointly and severally liable. However, there are exemptions for certain offences.

Sub section 444-30(4) of the Taxation Administration Act 1953 (TAA) provides a defence against prosecution involving a partnership if it can be proved that the entity:

• Did not aid, abet, counsel or procure the action or omission which triggered the prosecution, and
• Was not in any way knowingly concerned or party to the act or omission.

The draft bill removes these protections for significant global entities (SGEs) but not for other types of partnerships.

CA ANZ stated in the submission that the larger the partnership, the more likely it is that a significant number of partners will be unaware of behaviour attracting promoter penalty sanctions.

The proposed introduction of s290-55(7A)(a) under the measures would also remove access to protection currently available in s290-55(7) for partners who “did not know, and could not reasonably be expected to have known” that the conduct would attract the promoter penalty provisions.

“It is unjust to enact a law which removes recognition of the fact that there will usually be partners in a partnership who had no knowledge of, or involvement with, a partner (or small number of partners) promoting a scheme,” said CA ANZ.

“The larger the partnership, the more likely it is that most partners have no knowledge or involvement.”

Amendments to the TPB Register too broad

CA ANZ has also outlined concerns about the proposed measure to expand the amount of details published about tax practitioners on the Register for tax practitioners.

Publishing information about all levels of breaches and orders relating to tax practitioners has the potential to severely damage the reputation of a tax of BAS agent in a way that was disproportionate to the severity of the conduct, the accounting body wanted.

“CA ANZ considers that the totality of the new rules are too broad in their scope and could unnecessarily muddy the water between more routine breaches involving shortfalls below standards and those involving more serious and egregious conduct,” it said.

“The fact that this existing power to publish an order is coupled with the change to allow the information to be published for a period of 5 years, not just 12 months, is an additional factor that exacerbates the situation.”

In aspiring to proactively take an educative and ameliorative approach to the tax profession by ordering training courses to lift standards to ‘best practice’, the TPB should not treat all of those activities and orders as worthy of publication on the Register for five years, the submission said.

“To do so risks doing more reputational harm than good and would impair other critical objectives to be achieved by the Register,” it stated.

“If the amendment is to proceed with its current breadth, there should at least be an avenue for an agent to apply to have a training course sanction removed from the Register once the course is completed and say 6 months have passed since it was completed. This would also operate as an incentive to complete the training promptly and to show the Board evidence of completion.”