The Albanese Government will oversee the biggest crackdown on tax adviser misconduct in Australian history.
The PwC scandal exposed severe shortcomings in our regulatory frameworks that were largely ignored by the Coalition, and today we’re taking significant steps to clean up the mess.
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.
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.
The package of reforms announced today cover three priority areas:
- Strengthening the integrity of the tax system
- Increasing the powers of our regulators
- Strengthening regulatory arrangements to ensure they are fit for purpose
Legislation to strengthen the integrity of our tax system and increase the powers of regulators will be introduced this year, with consultation on the reforms beginning shortly.
The strong and substantial action we’re taking today builds on the work already underway to improve government processes in the wake of the PwC tax leaks scandal, including:
- New legislation to strengthen the Tax Practitioners Board introduced to Parliament earlier this year.
- A $30 million funding boost for the Tax Practitioners Board to increase compliance activities in the October 2022‑23 Budget.
- Action to strengthen Commonwealth procurement frameworks by directing PwC to remove any staff involved with the confidentiality breach from contract work until the outcomes of the Switkowski review are known and by enabling departments to terminate contracts with parties that receive adverse findings against them from a legal body.
The Australian Federal Police commenced a criminal investigation into PwC over the tax leak scandal following a referral from Treasury.
In addition, inquiries are currently being undertaken by the Parliamentary Joint Committee on Corporations and Financial Services and the Senate Finance and Public Administration References Committee into issues related to the PwC matter.
THREE PRIORITY AREAS FOR ACTION
Strengthening the integrity of the tax system
Tax agents and others who advise their clients to avoid Australia’s tax laws must be penalised.
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.
- Increase maximum penalties for advisers and firms who promote tax exploitation schemes from $7.8 million to over $780 million;
- Expand tax promoter penalty laws so they’re easier for the ATO to apply to advisers and firms who promote tax avoidance;
- Increase the time limit for the ATO to bring Federal Court proceedings on promoter penalties from four years to six years after the conduct occurred.
Increasing the power of our regulators
Our regulators need the right tools to identify and discipline those who break the law.
- Remove limitations in the tax secrecy laws that were a barrier to regulators acting in response to PwC’s breach of confidence;
- Enable the ATO and Tax Practitioners Board to refer ethical misconduct by advisers (including but not limited to confidentiality breaches) to professional associations for disciplinary action;
- Protect whistleblowers when they provide the Tax Practitioners Board with evidence of tax agent misconduct;
- Give the Tax Practitioners Board more time – up to 24 months – to complete complex investigations;
- Improve the Tax Practitioners Board’s public register of practitioners, so that people have more transparency over agent and firm misconduct.
Strengthening our regulatory arrangements
The PwC scandal has shown some regulatory frameworks are 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.
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.
Treasury will be co‑ordinating a whole of Government response to the PwC matter and the systemic issues raised.
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.
This work will deliver options to Government progressively over the next two years.
Consultation to ensure options are targeted and effective will begin in coming months. It will include:
- Implementing remaining recommendations from the independent review of the TPB, including strengthening the range of sanctions available to the TPB;
- A Treasury review of the promoter penalty laws to ensure they address the types of promoter activity prevalent today, including schemes that are bespoke, complex, and/or operate across jurisdictional boundaries;
- A Treasury review of emerging fraud and threats to clamp down on systemic abuse of our tax system perpetrated by tax agents and other bad actors;
- A Treasury and Attorney‑General’s Department joint review of the use of legal professional privilege in Commonwealth investigations, with options for Government to respond to concerns that some claims of privilege are being used to obstruct or frustrate investigations;
- A Treasury examination of the regulation of consulting, accounting and auditing firms to consider whether reforms are needed. This work will require collaboration with states and territories, given cross‑jurisdictional regulation of partnerships, as well as engagement with ongoing Parliamentary committee inquiries;
- A Treasury review of the compulsory information gathering powers of the ATO to ensure it has the right tools to perform its role effectively and enable it to assist law enforcement agencies to investigate serious criminal offences perpetrated against the tax and superannuation systems;
- A Treasury review of the secrecy provisions that apply to the ATO and Tax Practitioner Board to consider whether there are further circumstances in which it is in the broad public interest for information obtained by these regulators to be shared with other regulatory agencies;
- A Department of Finance review into the use of confidentiality arrangements across all Government agencies to ensure they are fit for purpose, legally binding and enforceable. The review will also identify opportunities to strengthen the management of conflicts of interest in contracts;
- A Department of Finance review to explore options to increase the transparency and visibility of where Commonwealth contracts have been terminated for material breach.