Why didn’t the tax office refer the PwC partner to the police?

Sporting analogies are often seen as clichés and best avoided, but they do have a novel application when it comes to explaining how a penalty regime works for tax agents who are not playing nice.

It has become more important to understand how this works because the body that registers and disciplines tax, the Tax Practitioners Board (TPB), has been in the spotlight because of the role it played in disciplining Peter Collins, a former PwC partner, and his old firm for a breach of a confidentiality agreement.

It wasn’t any old confidentiality agreement because it involved the design of tax provisions to clamp down on multinational tax avoidance. That knowledge was then used by PwC to work through strategies for winning work from companies that would be affected by the changes.

Collins had his registration terminated and was put in the naughty corner for two years while PwC copped an order requiring the firm to keep itself nice where keeping track of conflicts of interest that arise in government consultations is concerned.

What does all this mumbo-jumbo about terminations and orders mean to somebody who’s not a nerd specialising in regulatory affairs impacting tax professionals? Here’s the lowdown.

The TPB registers tax professionals under its regime provided they meet its conditions of entry. Once a practitioner or an organisation — an entity can be a registered tax agent too — is registered, they must then follow a bunch of rules.

There is a disciplinary committee at the TPB that’s a bit like the tribunal fronted by football or rugby players when a report is made regarding some conduct on the playing field that breaches the rules of play.

Tax agents have a code of professional conduct embedded in the Tax Agent Services Act 2009, and when an allegation that somebody has flouted the rules — the legislated code — is made to the TPB, it must consider whether there is a case to answer.

The TPB found there was a case to answer at PwC because Collins had circulated confidential information to other people within the domestic and international tax network of the firm, despite having signed multiple confidentiality agreements. The agreements with Treasury and the Board of Taxation specified that Collins was not to share any material without the prior approval of the relevant authority.

A decision by the TPB was published online in January and set out the details of Collins’ penalty. It said he had breached a code requirement to act with honesty and integrity, and also a requirement that specifies a registered agent much have a place for managing conflicts of interest that “may arise in relation to the activity that you undertake in the capacity of a registered tax agent or BAS agent”.

The penalties available to the TPB under its legislation are an order, a suspension and a termination.

An order is a bit like a yellow card in the round ball game. The TPB uses it to impose conditions on a practitioner or a firm where it believes the breach is not significant enough to warrant one of its other penalties.

An individual tax agent who cops an order might be asked to do additional training in an area where the TPB believes the practitioner’s knowledge is deficient or there might be some conditions imposed on the practitioner’s registration.

PwC copped an order in the Collins-related matter because it was deemed the firm did not have sufficient systems in place to keep track of conflicts of interest. This was acknowledged by the firm earlier this week when acting CEO Kristin Stubbins spoke of a poor culture in the tax practice at the time the breach of confidence occurred.

The penalty above an order is a suspension. A practitioner is still in the game, but can’t play for a while.

Collins copped the most severe penalty available to the TPB when it handed him a termination, meaning he is delisted and no longer able to provide tax advice.

What the TPB also did was put in place a prohibition or ban on Collins reapplying for registration. It has the power to prohibit somebody from applying for registration for up to five years.  There is no such thing as an automatic return to being registered if the TPB takes your ticket to ride from you.

These TPB penalties are separate to any other investigation or inquiry. Federal Treasury referred the breach of confidence matter involving Collins to the Australian Federal Police for its consideration as a criminal investigation last week, the second time the AFP has encountered the Collins issue.

The Australian Taxation Office revealed that it shared information about the Collins confidentiality breach in 2018 with the AFP, but the information provided by the tax office was not enough for a proper referral to the AFP at the time.

Treasury Secretary Steven Kennedy told Senate estimates that the recent cache of emails tabled in the Senate provided further evidence of the extent of the PwC breach.

“The Tax Practitioners Board’s tabling of emails in Parliament on 2 May 2023 which were uncovered during its investigation has highlighted the significant extent of the unauthorised disclosure of confidential Commonwealth information and the wide range of individuals within PwC who were directly and indirectly privy to the confidential information,” he said.

“In light of these recent revelations and the seriousness of this misconduct, Treasury referred the matter to the Australian Federal Police (AFP) to consider commencement of a criminal investigation. Following consultation with the AFP, I issued a public statement on 24 May 2023 about the referral of the matter to the AFP.”

All of this is before we even get to the tug-of-war over whether people who were involved in the tax scheme saga that has made the world of accounting more lively ought to be named by their firm or by the Senate.

One of the challenges with naming everyone who appears on emails is that an appearance on an email may not mean a person has been involved and nor that a person knew about the confidentiality breach.

The modern digital world creates a further hazard. Do you think Twitter users would show any sort of restraint with a list of names that was published or tabled somewhere without proper due diligence?