TPB presentation National Tax Practitioners Conference 2014 - Drivers - - PDF document

TPB presentation National Tax Practitioners Conference 2014 - ‘Drivers for change’

17 June 2014 at 2:40pm in Sydney. Presented by the Acting Chair of the Tax Practitioners Board (TPB), Professor Cynthia Coleman

Topic

Challenges for regulators – it is not just tax practitioners that will need to evolve, the role of the regulators in the tax system will also need to adapt.

Key presentation points

• 1. While the environment is changing and evolving, the role of the TPB and the obligations and responsibilities
• f tax practitioners remains the same.
• 2. The TPB will need to adapt to recognise changing business practices (arising from technological

improvements and globalisation of the tax system).

• 3. How does the Code of Professional Conduct apply in this evolving environment?

Opening remarks

• The focus of this conference is to discuss fundamental shifts into the next decade for the tax practitioner
• environment. As we have seen already and can anticipate, these shifts will be significant are changing rapidly.

It is therefore important that these shifts are understood and embraced so that we can leverage off the benefits that will inevitably arise.

• The number of shifts and initiatives are numerous and for the purpose of my presentation today, I will be

focussing on the impact of technology and the prevalence of off shoring arrangements, as the global ‘marketplace’ continues to expand rapidly.

• The program outline for this session talks about not just tax practitioners needing to evolve, rather the role of

the regulators in the tax system will also need to also.

• Considering what this may mean goes to a consideration of the purpose of the TPB, and we uphold this

purpose in how the TPB interprets and acknowledges different business practices. What does change however is how the TPB interprets business practices to ensure that tax practitioners continue to meet appropriate standards of professional and ethical conduct.

• Our primary purpose is consumer protection. We give assurance to users of tax services that the registered

practitioners they engage have the necessary skills and ability to provide them with a competent service. We cannot see this purpose changing.

Background information – scene setting

• In March 2010, the TPB replaced the six separate State-based Tax Agent Boards and also commenced the

registering and regulating BAS agents.

• From 1 July 2014, the TPB will also commence the registration and regulation of financial advisers who

provide tax advice in the context of providing financial advice services (tax (financial) advisers).

• Currently, there are approximately 55,000 registered tax practitioners:
• 39,000 tax agents and 16,000 BAS agents (made up of individuals, companies and partnerships).
• Australia’s tax regulatory environment is multifaceted, resulting in a high level of interaction between

taxpayers and tax administration.

• Individual taxpayers – high proportion lodge annual income tax returns:
• 12.6 million individual income tax returns lodged in 2010-11

• 71% of these, or around 8.95 million, are lodged by tax agents.
• Other entities (companies, partnerships, trusts, super funds):
• 2.3 million income tax returns lodged in 2010-11
• 90% of these, or around 2.07 million, are lodged by tax agents
• plus activity statements (mainly quarterly) and various other returns.
• With statistics such as the above, the role of tax practitioners and those that regulate them is of utmost

importance.

Regulatory objective

• Our objective is to ensure that tax agent services provided by tax practitioners are provided to the public in

accordance with appropriate standards of professional and ethical conduct.

• Apart from ensuring practitioners have the necessary educational qualifications and experience, Coupling the

educational qualification and experience requirements for tax practitioners, there is an overarching compliance framework to complement this.

• At the core of this compliance framework is the legislative Code of Professional Conduct.
• The Code comprises of the following five key principles:
• honesty and integrity
• independence
• confidentiality
• competence, and
• ther (professional) responsibilities.

Code of Professional Conduct

• As previously stated, I am of the view that the role of the TPB does not change, and indeed the obligations and

responsibilities of tax practitioners, in the face of fundamental shifts in the tax practitioner environment, remain largely the same as well.

• To demonstrate this point, I would like to draw upon two obligations that exist under Code of Professional
• Conduct. In particular:
• Code item 6: confidentiality and the on-disclosure of client information without consent
• Code item 10: taking reasonable care to apply tax laws correctly.

Code Item 6 – confidentiality

• Elements
• Unless there is a legal duty to do so, tax practitioners must not disclose any information relating to a

client’s affairs to a third party without the client’s permission.

• Information refers to the acquiring or deriving of knowledge and includes, but is not limited to,

capturing information known about a client.

• Importantly, the information does not have to belong to the client, or have been directly provided by

the client to a registered agent. It is only necessary that the information relates to the affairs of a client.

• A third party is any entity other than the client and the registered agent and may also include entities

that maintain offsite data storage systems (such as ‘cloud storage’).

• Example
• It is common practice for Australian firms to minimise their operating costs by entering into

agreements with overseas business to assist in the performance of certain accounting and bookkeeping services.

• Consistent with the increasing use of global businesses and smarter technology, it is foreseeable that

such arrangements will only increase, it is just a matter of by how much.

• Under Code item 6, such arrangements are not prohibited, however, in order to send client

information to overseas, the Australian firm must disclose its arrangement with the overseas firm, perhaps in a letter of engagement, and obtain the explicit permission of their clients.

• Subject to the terms of the agreement, the Australian form will have primary responsibility for the

provision of the relevant tax agent services, including the work undertaken by the overseas firms.

• Therefore, regardless of whether you are sending client information to Parramatta or Brazil, the role

and obligations on tax practitioners remain unchanged and the manner in which the TPB ultimately views these arrangements is unchanged.

• Example
• An agent who wished to save paper printed draft tax returns to show to a client for checking. That

agent used both sides of the paper so the details of two taxpayers were revealed to the taxpayer who was only checking their own return

• I mentioned earlier that ‘third parties’ includes offsite data storage. The increasing use of cloud

technology, including by the TPB, also raises issues about confidentiality. Tax practitioners who wish to take advantage of cloud technology must disclose such data arrangements with their clients and

• btain permissions from each client to disclose the information to an external IT provider.

Importantly, appropriate confidentiality between the tax practitioner and the external IT provider needs to be in place. Code item 10 – reasonable care to apply tax laws correctly

• Code Item 10 requires registered agents to take reasonable care to ensure that taxation laws are applied

correctly to the circumstances in relation to which the registered agent is providing advice to a client.

• As technology becomes smarter and the ability to automate certain functions increases, where is the line drawn

when it comes to taking reasonable care to apply tax laws correctly. I ask the question, can technology exercise reasonable care? I think the answer to this question is that it cannot.

• The TPB sees technology as tool to assist practitioners, technology does not become the practitioner itself.
• The TPB have recently seen examples of tax practitioners who are dealing with their clients in a purely online
• environment. In particular, we have seen examples of clients who are essentially filling in a non-ATO version
• f e-tax and submitting that to their tax agent for lodgement to the ATO. Unfortunately, the tax agent simply

submits the client completed return to the ATO and does not turn their mind to whether tax laws have been applied correctly.

• Practices such as these concern the TPB because, while highly sophisticated, we do not believe that technology

is a surrogate for a human mind, a mind that has met the competency and eligibility requirements to be registered with the TPB as a tax practitioner.

• Example
• A third party asks a tax agent to complete returns on behalf of co-workers who have marginal
• English. The agent never sees the client, rarely bothers to check the portal to ascertain the identity of

the taxpayer and doesn’t consider whether there is a nexus between the taxpayer’s occupation and the work related expenses. Often the work related expenses were similar for all the taxpayers, for example steel capped work boots.

• The agent has breached Code Item 10 and not considered the client’s individual circumstances when

applying the law.

Conclusion

• The TPB recognises, as do other regulators and the professional bodies, that there are changes and fundamental

shifts in the tax environment. In addition to conferences such as this, the TPB will always engage and consult with stakeholders to better understand these changes and what they mean for tax practitioners. Through processes such as these, we will be best placed to provide useful and practical guidance to assist tax practitioners understand and comply with their obligations under the Code of Professional Conduct.

• The regulatory framework that governs the TPB’s operations is principles based and is able to ‘move with the

times’.

• The principles and obligations contained within the regulatory framework are timeless and give taxpayers

greater confidence that they are dealing with tax practitioners who have, and maintain, appropriate ethical and professional standards.

• Consumer protection is paramount.
• The benefits of regulation are difficult to quantify, mainly because the risks involved (to consumers and to the

integrity of the tax system) in having an unregulated market for tax agent services are potentially very high. Last modified: 30 June 2014

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