An Assessment of the Code of Professional Conduct under the Tax Agents Services Act 2009 – Six Years On

A significant body of research has developed over the years concerning the factors that influence and impact taxpayer compliance. In particular, a number of recent studies have examined tax practitioners’ ethical behaviour and the implications this has for taxpayer compliance [See epublications.bond.edu.au]. Fewer studies, however, have conducted systematic empirical research into tax practitioner ethics in Australia, specifically with regard to the Code of Professional Conduct (CPC) under the Tax Agents Services Act 2009 (TASA2009), since it commenced in March 2010.

Tax practitioners lodge returns on behalf of approximately 75% of Australian individual taxpayers. Accordingly, there is great potential for them to influence the compliance landscape. Failure of the Commissioner to investigate the discrepancies between tax practitioner ethics/practices and that stipulated in the CPC could potentially result in professional malpractice and excessive revenue leakage for the government. This preliminary study addresses this research gap by specifically investigating tax practitioners’ level of commitment to, and compliance with, the CPC.

The research study conducted both a survey of 214 Australian tax practitioners and a further 10 semi-structured interviews. Four specific areas or issues  were identified as influencing tax practitioners’ commitment and compliance with the CPC. These four included: professional standards, penalties, other ethical issues and demographics. Under the first two issues a set of scenarios was depicted based on key elements of the CPC. The third issue encompassed a set of scenarios based on specific ethical concerns, while the fourth issue included an expanded list of demographic factors relevant to tax practitioners. Based on the four issues four specific research questions were developed.

Main findings

With regard to the four research questions posed, the main findings included the following:

First, it was evident that the influence of tax practitioners’ perceptions of professional standards under the CPC upon their own compliance was generally fairly positive. Both the statistical results and interview findings indicated that four of the five elements were strongly endorsed. These included, the elements of honesty and integrity, independence, confidentiality and the proper administration of the tax laws.

However, there were some mixed results reported in both the survey and interviews when it came to the issue of competence. Respondents were divided as to whether one should go beyond their client engagement or scope. This issue could be addressed through the formalisation of client engagement letters to clarify the range of client work and the agents’ potential liability.

Given that past research indicates that overall accuracy of returns and the absence of errors are highly regarded by clients, engagement letters would appear to be one option worth pursuing. Generally, practitioners were supportive of the professional standards stipulated in the CPC and indicated that it did improve compliance.

Second, with regard to the influence of tax practitioners’ perceptions of the appropriateness of penalties under the CPC upon their own compliance, results varied between both the survey and interview responses. The survey results clearly indicated that both the administration and civil penalties imposed were totally appropriate in the scenarios presented. However, this was not the case in the interviews where there was evidence that either a part penalty or no penalty at all was appropriate in the circumstances presented herein.

There was also generally a poor awareness of the penalties per se among most of the interviewees, which suggests that it could be an educational issue. In particular, there was a lack of awareness of the disciplinary measures and the level of monetary fines available for the breaches of the Code. An interesting point raised by a couple of interviewees was that tax practitioner reputational damage as opposed to monetary fines could act as a stronger deterrent.

There has been a lot of previous research undertaken on both the positives and negatives of naming and shaming taxpayers for their breaches [See “Naming without shaming: the publication of sanctions in the Dutch financial market”]. Whether this can be extended to tax practitioners may be an avenue worth exploring. Overall, there were mixed findings regarding practitioners’ perceptions of the penalties under the CPC and the impact of the penalties upon their own compliance.

Third, regarding the influence of tax practitioners’ perceptions of particular ethical issues they could encounter impacting their own compliance, results varied within both the survey and interview responses. There was consistency in both the survey results and interview findings regarding the issues of privacy and declarations. In particular, privacy like confidentiality was held in very high regard.

However, this was not the case with regard to the issue of outsourcing of tax work, which included for example, the preparation of tax returns. On this issue, there was a strong negative influence amongst most interviewees but the statistical results were mixed. While recognising that outsourcing of work was becoming more popular, the majority of interviewees also indicated that if clients were happy to sign off on the risk, they would accommodate them.

Likewise, with respect to the transfer of information, mixed results were reported in both the survey statistics and interviews. Some tax practitioners reported that they had experienced problems while others reported a smooth transition. Due to the lack of guidelines and regulation in place to monitor this activity, it is not surprising that tax practitioners are left to negotiate the vagaries of past practitioners.

Results were also mixed when it came to the related issue of maintaining in-house ethical guidelines. A few interviewees had kept them as part of their quality assurance and risk management requirements, but some didn’t, indicating it was overkill for a sole practitioner. Overall, there were mixed findings regarding practitioners’ perceptions of specific ethical issues impacting upon their own compliance.

Finally, the statistical results regarding the influence of selected tax practitioner demographics upon practitioners’ own compliance produced some interesting findings. In particular, being of Australian nationality, middle-aged, male, located in NSW or Victoria, operating as a sole practitioner and being of CPA affiliation, were common characteristics of this sample. However, without subjecting the data to further statistical testing, the overall results are similar to that of previous studies regarding the influence of personal characteristics upon ethics to a certain degree.

Tax policy implications

Suggested tax policy implications do arise from this study. Clearly tax professional representation is high in Australia and is accepted largely due to issues of tax complexity and the strong desire to minimize tax payable. However, this heavy reliance on tax practitioners can be unhealthy and puts pressure on the tax profession. As tax practitioners’ ethics are constantly challenged, the current measures put in place to deal with this, such as the CPC may need to be strengthened and enhanced to ensure continued compliance. The integrity of overarching principles which aim to bring about compliance with the spirit of the law, as opposed to the letter of the law, need to be defended so as not to compromise tax practitioners’ ethics.

It is also apparent from the views of these tax practitioners that while the CPC is endorsed by the majority, further steps could be taken to enhance and support the CPC. For example, this study supports the requirement of compulsory engagement letters to be installed in all client/practitioner relations to assist in defining the scope of the services rendered.

In addition, clear guidelines and/or legislation could be passed regarding the compulsory maintenance of in-house ethical guidelines. In particular, the level of guidelines required by all types of practices. Guidelines could be developed around the outsourcing of client services. Although predominately an in-house decision, some working rules around protocol and data security would be welcomed. As this study revealed that the transfer of client information between accountants was still an issue, the introduction of guidelines to ensure fairness in business dealings, is also highly recommended.

Finally, although the study indicated that the level of penalties imposed under the CPC appear to be adequate, there was a glaring deficiency in the general knowledge of tax practitioners with regard to the penalties per se. Based on this finding, it is suggested that educational requirements be amended and that the training of tax practitioners in this area be targeted. Further to penalties themselves acting as a deterrent, the potential “black listing” of agents in public documents who commit serious offences could also be explored, given the impact of reputational damage, raised by some interviewees.

Overall, it is evident that tax practitioners’ ethics will continue to be challenged and constantly need to be monitored. When compared to the results of previous studies of New Zealand [See Attwell and Sawyer (2001) New Zealand Journal of Taxation Law and Policy], tax agents’ with ethics barely passing at 60%, clearly there is no room for complacency. Based on the results of this preliminary study, there is further action that could be taken in order to maintain desired professional standards.

These findings provide useful information for the Tax Practitioners Board, professional tax and accounting organisations and the Australian taxation authority.