Huge Penalties to Crack Down on Rogue Consultants: Australian Government

People walk past a sign on a window on the exterior of the PWC London offices in London, on March 31, 2021. Leon Neal/Getty Images

Australia will raise the penalties for tax advisors and consultants by 100 times in the latest crackdown on tax avoidance and unethical practices in the consulting industry.

The Australian government has announced a new reform to combat multinational tax avoidance and misconduct among tax consultants following the PricewaterhouseCoopers (PwC) scandal that shocked the country.

The scandal involved a former PwC partner leaking confidential federal documents to other partners and staff, effectively allowing the consulting firm to devise a strategy to help its clients avoid taxes.

After the scandal was exposed, PwC had to sell off its Australian government consultancy business for $1 (US$0.66) while being subject to investigation from the federal police.

“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,” Treasurer Jim Chalmers said in a joint statement.

“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.”

Harsher Penalties for Consultants

As part of the reform, the Australian government will lift the maximum penalties for advisers and consulting firms from the current $7.8 million to $780 million to discourage them from using confidential government information to help their clients.

The tax promoter penalty laws will also be expanded to make it easier for the Australian Taxation Office (ATO) to punish violated individuals and firms.

In addition, the government will raise the time frame for the ATO to take legal action against tax avoidance promoters from four years to six years after the conduct occurred.

Labor Senator Deborah O'Neill said the reform would force consulting firms to change their business practice.

“Sadly, it seems that in the audit and assurance world, providers of this dodgy tax information have decided that a small fine or negotiation might just be the cost of doing business,” she told reporters.

“Those days are done.”

More Powers for Tax Regulators

The government will introduce measures to grant more powers to tax regulators to help them enforce the policy changes.

Specifically, some limitations in existing tax secrecy laws will be removed to allow regulators to respond more effectively to breaches of confidential government information.

The government will also permit tax regulators to refer ethical misconduct for disciplinary action, as well as provide more protection for whistleblowers.

The logo of KPMG, a multinational tax advisory and accounting services company, hangs on a building in Berlin, Germany, on Jan. 22, 2021. Sean Gallup/Getty Images

The Tax Practitioners Board, a government agency responsible for regulating tax agents, will be granted more time to conduct complex investigations while having its public register of practitioners upgraded to improve transparency among tax practitioners.

Senator O'Neill said the changes would improve the integrity of Australia’s tax system.

“Some people have operated out of a model in the past where they thought they were not only beyond the scrutiny of regulators but that they were above the law of the land,” she said.

“It’s time now (for companies) to work with the government, with national and international audit bodies and standards to lift their sights beyond pure profit-making and personal gain and undertake their professional responsibilities ethically and properly in the national interest.”

Separately, the government will consult with relevant parties to strengthen regulations in areas where there were loopholes allowing misconduct to occur and go undetected.

The Tax Institute, a peak industry body, welcomed the government’s announcement, saying that the recent scandals cast a shadow on the consulting profession.

“We are all–government, regulators, professional associations and practitioners–custodians of the tax system,” general manager Scott Treatt said in comments obtained by AAP.

“This is a positive step toward joint accountability and consistent but fair due process.

“That kind of transparency is crucial in maintaining trust and fairness in our tax system.”