Secrecy laws that hampered the investigation of PwC’s tax leak scandal will be overhauled along with a huge increase in penalties for promoting avoidance schemes.
The treasurer, Jim Chalmers, will unveil draft laws on Wednesday to tackle “blatant misconduct in our tax advice industry”, including increasing maximum penalties for advisers and firms that promote tax avoidance schemes from $7.8m to more than $780m.
Chalmers will release four sets of legislation for consultation with the aim of strengthening the integrity of the tax system and increasing the powers of regulators.
The laws will expand tax promoter penalty laws so they are easier for the ATO to apply to firms that promote tax avoidance, not just individual advisers. The treasurer also wants to give the ATO six years, up from four, to seek such penalties in the federal court.
In a statement Chalmers said the PwC scandal had “exposed severe shortcomings in our regulatory frameworks that were largely ignored by the Coalition and we continue to take significant steps to clean up the mess”.
“Our crackdown on misconduct in the industry will help to prevent this from happening again and will ensure that if it does, our regulators have what they need to hold parties to account.”
PwC has been under pressure since January when it was revealed the firm’s former head of international tax, Peter Collins, had been deregistered as a tax agent for sharing confidential information from a government consultation on multinational tax changes.
Senate estimates hearings revealed that secrecy laws had prevented the Australian Taxation Office from providing Treasury any detail about a “possible breach of confidentiality” it was investigating when it sought Collins’s confidentiality agreements in September 2018.
The new rules will remove limitations in tax secrecy laws that were a barrier to regulators acting in response to PwC’s breach of confidence and enable the ATO and Tax Practitioners Board to refer ethical misconduct by advisers to professional associations for disciplinary action.
Whistleblowers would gain protection when they provide the Tax Practitioners Board with evidence of tax agent misconduct.
The Tax Practitioners Board will be given more time – up to 24 months – to complete complex investigations, and will publish more information on its public register of practitioners to improve transparency over agent and firm misconduct.
Submitters will have until 29 September to give their views on the new laws, which Chalmers described as “the beginning of a comprehensive process … to rebuild community confidence in the systems and structures that keep our tax system and capital markets strong”.
In May the Treasury referred the PwC tax advice scandal to the Australian federal police for criminal investigation for the alleged misuse of confidential commonwealth information.
At that time PwC Australia’s acting chief executive, Kristin Stubbins, apologised to the community, the Australian government, its clients and its 10,000 staff for “betraying the trust placed in us”.
Stubbins acknowledged the firm “did not have adequate processes and governance in place”, and had a culture in its tax business that “both allowed inappropriate behaviour and has not, until now, always properly held our leaders and those involved to account”.
In June a Senate committee concluded PwC had engaged in a “calculated” breach of trust by using confidential information to help its clients avoid tax in a “deliberate cover-up” over many years.
The report found Collins “intentionally shared confidential information obtained through Treasury consultations with PwC partners and personnel in Australia and overseas”, seeking to assist clients avoid new tax laws and putting at risk $180m of revenue.
The Australian Taxation Office commissioner, Chris Jordan, told estimates it became aware in 2016 of a “handful of multinationals suspiciously and quickly seeking to restructure” in response to a new multinational tax avoidance law.
The ATO began audits because it was concerned by “artificial schemes marketed by PwC” and discovered an issue of “significant concern” in the Collins matter, he said in May.
Jordan said the ATO lacks “criminal investigative powers” so was not able to investigate further because the breach of confidentiality was “not a tax offence”.
The ATO referred information to the Australian federal police in 2018 and 2019, and formally referred it to the Tax Practitioners Board in July 2020.
“We got on top of this early ... we stopped any tax loss from this egregious behaviour,” Jordan said.
