TASA determination could upend agents’ client lists: Tax Institute
Section 15’s wording could force practitioners to end relationships with big corporate clients over a single entity’s misconduct.
Tax agents with complex corporate clients need more clarity on how the TASA code determination applies to their professional obligations, the TPB has been told.
The Tax Institute said it was still unclear when agents should sever ties with clients suspected of making false or misleading statements in breach of section 15 – one of the determination’s most controversial provisions.
“It is not clear whether the ‘client’ would be the individual entity or could be the whole group,” it said in a recent submission to the TPB, warning agents could be forced to end lucrative relationships with a big group over a single entity’s misconduct.
The TPB is consulting on draft guidance for changes to the TASA code made by Assistant Treasurer Stephen Jones’ determination earlier in the year.
The industry is relying on the guidance to resolve unsettled issues with the eight new obligations imposed by the determination.
Exposure draft D57/2024, released by the TPB in a set of six draft information sheets last month, addresses obligations imposed by section 15.
The section requires practitioners to either correct a false or misleading statement or advise clients to correct it or withdraw from the engagement if the client fails to act. If the client’s actions cause substantial harm, practitioners must also “dob in” the client by notifying the ATO and TPB.
The Tax Institute’s submission raised concerns about how section 15 would apply to complex corporate structures.
While the TPB’s guidance said the “obligation to withdraw will not extend to related entities of the client” and that it was “confined to the client who made the false or misleading statement”, the professional body said that would not always be the case in practice.
“In certain practical situations, a client may serve as a parent entity or be part of a consolidated entity framework, leading to the withdrawal of a relationship with the client affecting the tax advisory or other advisory services offered to related entities,” it said.
Additionally, its submission said: “the question of ‘who is the client’ may arise in a situation where multiple entities in a group are covered by the same engagement letter and the behaviour of one entity in the group results in a practitioner needing to withdraw from the relationship with the ‘client’.”
It meant practitioners could be forced into a position of potentially sacrificing lucrative client relationships due to the actions of a single subsidiary or because of a shared engagement letter.
The Tax Institute said the TPB’s guidance should include practical examples demonstrating how these withdrawal provisions would operate in practice.
It also sought clarification on whether an engagement letter’s terms might influence the scope of mandatory withdrawals under section 15.
“It would be useful if the guidance could explain whether related entities covered by the same engagement letter are considered to be individual entities that can be separately considered … or a single client (given there is only one engagement letter),” the submission said.
“It would be useful to indicate where certain terms [of the engagement letter] may indicate that the requirement to withdraw would extend to the entire group.”
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