As part of our research into the Independent Review of the Tax Practitioners Board (TPB) and governing legislation, we have sorted the views of tax practitioner regarding Recommendation 5.1 which gives the Minister power to supplement the tax agents’ Code of Professional Conduct via legislative instrument.
Legislation has since been enacted with regards to Recommendation 5.1. In July, the Minister made use of this power for the first time with the introduction of the Tax Agent Services (Code of Professional Conduct) Determination 2024. The Determination will take effect from 1 August 2024.
Why the Minister’s power in the first place?
The rationale behind the recommendation was to supplement the Code by addressing emerging and existing behaviour. Not only was it about attending to undesirable behaviours and practices, but it was also about standardising the Code where possible.
However, the profession was unanimous in believing the Code should remain within the Act itself and retain its principles-based approach rather than becoming increasingly prescriptive. Further concerns setting the scene were with respect to the level of government control as well as the independence of the TPB.
Importantly, when the Government responded to the review, Treasury indicated they supported the recommendation but with the caveat that proposed changes would be firstly considered by the Tax Practitioners Governance and Standards Forum as an independent body comprising both government agencies and professional bodies.
However, this was not part of the wording of the legislation released in late 2023, although the Exposure Draft Explanatory Materials did reiterate the need for consultation – including parliamentary oversight.
Notably, this power does not allow for watering down of existing obligations within the Code. This means it is unlikely to provide any simplification of the Code. Rather, it is likely to become naturally more complex each time a determination is authorised resulting in the Code operating through two concurrent components (the Code within the Tax Agent Services Act 2009 and the Minister’s determinations).
Findings of tax practitioner perspectives
The first stage of our research – via survey data – found that on balance tax practitioners supported the provision of power to the Minister. In the initial survey analysis, the responses were tempered by several issues including concern over government control and independence as well as the Minister’s potential lack of expertise and political bias.
In delving deeper into these issues, in the second stage of our research we interviewed 20 tax practitioners throughout Australia with findings mixed over giving the power to the Minister. Whilst practitioners were in theory supportive of agility, timeliness, and responsiveness of the Code – for which a Ministerial power could provide such – there were no doubt concerns front of mind.
Trust, oversight, and proper process
Tax practitioners indicated a general trust that this power would not be abused and if concern arose, proper process and scrutiny would follow. Oversight is key – it is not the Minister working in isolation. However, the utilisation of this power needs to be appropriate. There is danger in power. We state that:
Appropriateness here is in terms of the reform’s objectives relative to existing processes, as well as in terms of the role and function of key stakeholders within the greater ecosystem. Reform, however, also needs to balance the impact on stakeholders, including tax practitioners… [T]he recommendations fundamentally interrelate with the livelihood and wellbeing of the tax practitioners, their teams, their clients (ie, taxpayers), and their respective families. In this instance, power affecting livelihoods is being placed in one person’s (the Minister’s) hands.
Tax practitioners had further indicated in our research that there needed to be detail around the use of the powers, in particular practice or behaviour of a particular level of severity, whether measures implemented would be temporary or permanent or whether they would be reserved as emergency powers only.
In addition, the profession had indicated that the powers should not be unfettered or opaque and that industry consultation was paramount including adequate communication and transparency.
Reflecting on the 2024 Determination
Consequently, reflecting on the 2024 Determination and tax practitioner outcry, the question that immediately comes to mind is whether we are seeing an erosion of proper process? The question arising perhaps is whether this is necessary? Particularly when debate comes down to issues of disclosure of mental health and other private issues.
Returning to our findings, from our deep dive into the issues and perspectives of tax practitioners, the Code having a principles-based approach inherently enables an agility to respond where necessary.
Principles against prescription is a core issue we face in 2024 with the Determination shifting towards prescription style obligations.
Is it merely the timing and overlap here that is challenged?
We have seen two major tranches of legislation come through following the Independent Review and the PwC crisis, with tax practitioners regularly attending continuing professional development events to make sense of it all and take stock of such regulatory reform.
Reflecting on the 2024 Determination, we may ask the question as to why did the Minister not see the changes already in progress being sufficient to manage the crisis and the potential loss of confidence in the profession?
In our research, a question was equally asked by one interviewee as what situations would require a response such as the ministerial instrument? Notably this was preceding PwC and the major scandal that expediated reform in this space:
In what circumstance would it be way too slow to be changed and just hive one person the power to do that without it going through the proper authorities?… What would be the urgency for something like that?… I can’t think of a situation where there would be such…
Reflecting on the 2024 Determination, to what extend could we interpret this authorisation as a signal that the Government did not feel the current reforms went far enough? Is there a lack of confidence in the profession being reshaped by these reforms particularly following the PWC scandal? Or is this about perceived response by government over the crisis that has ensued following the Independent Review?
Like the concern being raised currently in response to the authorisation of the Determination, our research also highlighted the concern over unnecessary overlap and increased complexity.
Some interviewees we noted, were concerned over perceived interference. Contemplate the role of the TPB in comparison to the role of the Minister. Our analysis highlights the importance in contemplating how the TPB interprets and issues guidance for practitioners.
Returning to the 2024 Determination, the problem in this instance, is that we have further complexity – further regulation which requires TPB interpretation and guidance information. This has been indicated by the chairman of the TPB, Peter de Cure, to be on the cards following consultation and following the imminent commencement date of the Determination. There is not much room in three weeks for meaningful consultation.
Whilst this determination did proceed through a consultation process beginning late 2023 with various submissions that resulted in amendments, the fact we have seen such heightened controversy perhaps flags the fundamental challenge in what now becomes more of a political issue. As recent as 15 July 2024, professional bodies have jointly sent an open letter to the Minister as a consequence of the determinations release. There is a clear message calling upon the withdrawal of the changes along with a petition by accounting software group ChangeGPS receiving over 1,000 signatures in two days and growing.
In our research, one interviewee said simply, “there is no real risk [in giving the Minister power] as long as there’s conversation”.
For the 2024 Determination, what may be interpreted here? Is the problem here perhaps the lack of rigour and sufficient timelines or the level of overlap in detail and contemporaneous nature given the tranches of significant reform already in play? If the TPB chairman suggests that the 2024 Determination provides clarity, why wasn’t this clarity within the tranches of reform presented and enacted to date?
In this instance did we need agility when we had concurrent reform underway to deal with the PWC crisis. This would have minimised overlap, complexity, tax practitioner concern and maintained independence. The reform packages have been subject to significant independent consultation but what is apparent from the 2024 Determination is a real concern when things fall outside the holistic process.
A further example of this was perhaps the amendments to the Treasury Laws Amendment (2023 Measures No 1.) Bill 2023 in November 2023 led by the Greens in the Senate. This similarly received significant concern throughout the profession. Those additions did proceed through the expected and consultative process.
Note, however, that the broader more holistic process is still underway. Take for example, the most recent iteration in Treasury’s announcement of a review of TPB registration requirements.
With agility, is there uncertainty and increased politicalisation?
Lastly, whilst the TPB chairman flags increased clarity coming from the 2024 Determination, there is arguably an inherent increase in uncertainty.
In our research, we found this came down to for example, the increased frequency and volume of changes as well as the evolving nature of the respective Minister with power. Fundamental to this is issues of political influence, pressure, expertise, and independence. Notably, political pressure could lead to biased decisions that lack collaborative and consultative approaches.
This brings us to the fundamental question of what extent should the Code be dependent on who is in government, who is the Minister? To counter this however, the public facing role of a Minister is likely to receive more scrutiny. Our findings contemplated the unlikeliness of Ministers challenging the profession. However following the PwC crisis, there is a clear shift in this positioning.
The profession has been significantly impacted by the PwC crisis. We found an expectation that the Ministers power would be something used sparingly. There was no certainty that the Minister would make use of the power. However, instead what has occurred is an immediate use of that power rather than a last resort.
Similarly, our research suggested that there would be reliance on the recommendations proffered by both the TPB and the profession for the Minister to obtain expert advice in utilising their power. However, the landscape appears to have shifted with the 2024 Determination highlighting what can happen when the profession experiences a significant instance of egregious behaviour.
Based on the 2024 Determination, we can ask whether a message is being sent loud and clear – as seen in the inclusion within the determination immediately an explicit obligation to uphold and promote the ethical standards of the tax profession, notwithstanding the more detailed challenges and nuances within the wording on the determination, as detailed by the professional bodies for example.
Final reflections on lobbying and consultation
From the developments through July, we can see significant lobbying activities ensuring the challenges stemming from the 2024 Determination are made clear to the Minister.
Reflecting on our research, which delved into the question of whether we truly need this additional layer and whether real change will ensue, which returns us to a key distinction over the tax profession as a whole being perceived as wrongdoers.
Part of this is also turning out minds to those that are doing the right and wrong thing; notions of red tape and cost impositions for those doing the right thing in comparison to whether those doing the wrong thing continue to simply ignore their responsibilities.
We conclude that the use of Ministerial powers should not be a knee-jerk reaction but a tool that is judiciously used. As part of the broader regime, collaboration and consultation should start with the Tax Practitioner Governance and Standards Forum leading to further TPB guidance. The Ministerial power should not endanger the collaborative process. That process is still well underway.
Lawyers with any sense of English constitutional history have a proper loathing for Ministerial legislation by decree. Whoever asks why is it necessary at all? Tax evasion is a crime, aiding and abetting it is a crime – who needs more?
From a practical point of view, it is silly policy. If people can’t get properly independent advice, they will take their own – and that will end in tears all round – loss for taxpayers and wasted time and money for tax administrators.
I don’t see what’s so difficult. You don’t lie but you don’t take the Commissioner’s Rulings or IDs as the law. They are his views of the law. You just give your client your honest view of the law. You owe them no less and no more and you certainly don’t encourage them to lie – and if they do, you terminate the engagement.