Performance-based fees or payments contingent on tax savings could be incentivising misconduct, according to the chair of the Parliamentary Joint Committee on Corporations and Financial Services, Deborah O’Neill.
At the Senate inquiry into consulting services, Ms O’Neill said a TPB submission earlier this year raised the potential of remuneration based on tax savings to create conflicts of interest.
The TPB submission said tax practitioners should carefully consider performance-based remuneration or contingency payments.
“Such arrangements raise an inference that the tax practitioner’s financial and professional obligations may conflict, in perception if not in reality, with other obligations to their client, their ethical or legal responsibilities,” the submission said.
“For example, some tax advisers who design tax schemes, involving avoidance or evasion, may seek consideration based on a percentage of the ‘tax saving’.”
Ms O’Neill said arrangements like this were a “fundamental failing in the system” where practitioners were being rewarded for tax schemes.
At the inquiry, TPB chair Peter de Cure said there were examples of tax practitioners operating ethically under contingency fee arrangements but acknowledged that the arrangements could be incentivising misbehaviour in some cases.
“Contingency fees have been around in the profession for some time,” Mr de Cure said. “It’s not impossible to work on a contingency basis ethically, but there’s a clear monetary incentive to push the envelope.
“I’ve seen very ethical jobs done on a contingency basis but there’s a lot of work that’s been done in the R&D space in particular, [with] concessions, where I think it would be fair to conclude that it’s incentivising the wrong sort of behaviour.”
Ms O’Neill said the recent tax scandal involving PwC partner Peter Collins was the perfect example of “the pursuit of profit over ethical behaviour driven by financial gain”.
“There’s nothing wrong with profit, but profit when ethics is jettisoned is another matter,” said Ms O’Neill.
Mr de Cure said draft legislation released this month in response to the PwC scandal would assist the TPB and improve the profession, with changes proposed to information sharing, whistleblower protections, promoter penalty laws and reforms to the TPB.
Mr de Cure said extending the time frame for completing investigations from six to 24 months would reduce the pressure on preliminary inquiries and allow the TPB to move into a formal investigation sooner.
“It also means that we can extend the focus of a formal investigation,” he said. “With a longer investigation time frame, we might be able to do a more thorough job.”
Meanwhile, enhancements to the information provided in the TPB Register would help improve transparency, he said.
“These changes mean that if there’s a sanction imposed on a practitioner, that sanction can stay on the register for up to five years, which is the maximum length of a termination,” he explained. “Previously there was a restriction of 12 months.
Ms O’Neill said the sooner the draft legislative measures were passed by Parliament “the better integrity there will be in the system”.