Dealing With Tax Practitioners Board Allegations
I through Sydney firm, Eakin McCaffery Cox (EMC) recently advised and represented an accountancy firm on the successful defence of five serious allegations against the accountancy firm for breach of various provisions of the Tax Agents Code of Professional Conduct. Imposition of penalties concerning the allegations, if proved, could have destroyed our client.
The allegations arose following an Australian Tax Office (ATO) audit of a taxpayer in respect of a particularly sophisticated structure set up by the client after consulting with and advice from a specialised tax lawyer.
The client had attended an investment seminar addressed by a number of speakers and thereafter made an appointment with our client to discuss investment options, some of which had been mentioned in the investment seminar.
Staff of our client advised, in response to the client’s request for additional suggestions on any possible alternative options not mentioned at the seminar, that:-
1. the structured option was so sophisticated a transaction that it required specialist expertise that our client did not have; and
2. our client would have to refer to client to another specialist firm as well as a tax specialist where that expertise could be found.
The client then liaised with those other firms. The client then set up various tax structures based on the views and advice which the other specialist firms held. That advice included advice on accounting and external legal advice as to the validity of the structures and operations, despite ATO practice notes and the like asserting an ATO view to the contrary the client chose to implement.
When tax return time arrived, the client returned to our client for preparation of the tax returns and advice to client consistently with the advice given by the external expert.
Following an ATO audit of the taxpayer’s tax returns, the ATO required amendments which effectively would require certain of the assets held within one of the structures to be disposed of.
The client chose to make an allegation of negligence against our client to the Tax Practitioners Board (TPB) and provided certain information and documentation to the TPB.
Based on that information, TPB chose to take matters further and, consistently with the provisions of the Tax Agent Services Act, formally raised allegations of noncompliance with provisions of the Tax Agents Code of Professional Conduct against our client for response.
Tax Agents subject to formal allegations by the TPB of this type must respond. If the Tax Agent concerned cannot adequately justify and explain its conduct as complaint with the Code of Professional Conduct, the TPB can make an adverse finding against it and impose various sanctions, including forfeiture of the Tax Agent’s licence to operate as well as publication of findings and any sanctions imposed.
The nature of the allegations initially raised included breach of Code provisions 30 – 10 (1) to do with acting honestly and with integrity and 30 – 10 (7) to do with ensuring that tax agent service provided is provided competently. Some very quick submissions led to the TPB withdrawing those two of the 5 allegations.
That left three sets of allegations to do with:-
- 30 – 10 (9) reasonable care in ascertaining a client’s state of affairs, to the extent that ascertaining the state of affairs is relevant to a statement the tax agent is to make or thing that taxation is doing on behalf of the client,. TPB alleged that, in the circumstances, our client had not demonstrated competence in preparation of relevant tax returns the relevant years;
- 30 – 10 (10) reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which a tax agent is providing advice to a client. TPB alleged there was a failure by our client to take reasonable care to ensure that the taxation laws were applied correctly to the circumstances relating to the advice given in relation to the entry into of a particular financial arrangement impugned by ATO;
- 30 – 10 (12) advising the client of the clients rights and obligations under taxation laws materially related to services being provided by a tax agent. TPB alleged that our client not properly advise its clients of their rights and obligations under taxation laws in related to the preparation and lodgement of tax returns for relevant years in respect of the impugned transaction.
In short, the allegations related to alleged inadequacy of advice in respect of setting up of structuring arrangements and inadequacy of advice in respect of preparation of tax returns relating to the entities having the structured arrangements. Our client was and remains a small firm which could ill afford an adverse finding, let alone a forfeiture of its licence to operate.
The TPB conducts this type of allegation and response process “on the papers”, so itwas important for our client to be able to clearly and distinctly outline its course ofconduct, particularly how it was, at all material times, compliant with therequirements of the Code of Professional Conduct and able to demonstrate that compliance.
EMC conducted a detailed analysis of the client’s files in conjunction with advice from and assistance from an expert tax auditor and took statements from a number of individuals from our client and others. Given the detail of the allegations raised by the TPB, it was basic to our client’s defence of its position that our client did not relevantly advise the client’s to enter into the structures and arrangements. Thankfully adequate paperwork was able to be located which clearly showed that the client, despite its submission to the TPB, had dealt with and paid other than our client in respect of the issues of setting up of structures and, in particular, the structuring arrangements queried by the ATO. Evidence in support of that included a series of external accounting and legal advices supportive of the arrangements impugned by the ATO and clear evidence from our client that it had advised the client that the issues were beyond the expertise of our client and so were referred to experts. Invoices relating to payment for the advices by the client were also called in aid.
The nature of the allegations related, not simply to the setting up of structures, but also to advice given in respect of preparation of tax returns relating to them in two distinct later years following set up of the impugned arrangement.
EMC persuaded the TPB that it was not appropriate, consistently with the provisions of the Code of Professional Conduct, to expect a local accountant / tax agent who had referred the client to experts for purposes of setting up structures and arrangements, when preparing tax returns, to have to revisit all the sophisticated issues which were the subject of referral for expert advice in the first place. To do so would be inconsistent with the very requirements of the Code (see paragraph 110 of the Explanatory Paper to the Code).
In the end, the TPB accepted the submissions prepared by EMC as clearly showing how the client had been referred to relevant experts by our client and that, in the circumstances, it was not appropriate to make any adverse finding against our client on any of the charges relating to setting up of the structures nor to advice given in respect of preparation of tax returns for relevant tax years. Our client was totally exonerated of all allegations raised by the TPB.
The moral of the story is to be familiar with the requirements of the Code of Professional Conduct for Tax Agents and have a clear paper trail to be able to demonstrate how one’s operations clearly fall within the requirements of the Code and the relevant Explanatory Memorandum issued by the TPB as to how it reads and implements the Code.
Gregory Ross
Partner
EAKIN McCAFFERY COX