The Tax Practitioners Board (TPB) has released practical guidance to help tax practitioners understand their obligations in relation to outsourcing and offshoring, emphasising that the Australian firm engaging offshore partners is ultimately responsible for work quality.
The TPB’s practice note "TPB(PN) 2/2018 Outsourcing and offshoring of tax services — Code of Professional Conduct considerations" is aimed at helping registered tax agents understand their responsibilities under the Code of Professional Conduct in the Tax Agent Services Act 2009 regarding outsourcing and offshoring.
Emphasising on appropriate disclosure, the TPB has reminded tax practitioners that it must not disclose any information relating to a client’s affairs to a third party, unless they have the client’s permission or have a legal duty to do so.
“While there is no set formula or methodology used to obtain client permission, the TPB suggests that registered tax practitioners be clear in explaining to their client where information may be disclosed (including, among other things, where a component of work or add-on activity is completed elsewhere),” said the TPB in its release.
“For example, to avoid any likelihood of clients being misled, the TPB suggests that registered tax practitioners do not imply or state that all their work is completed in Australia, if that is not the case.”
Likewise, the TPB has singled out competence as an area of focus, warning that registered tax practitioners are ultimately responsible for the quality of work by the unregistered third party, including ensuring there are appropriate supervisory arrangements.
“When contemplating or using an outsourcing or offshoring arrangement, there is a need to carefully consider the extent to which this may impact on the ability to supervise work, noting that supervision and control should be commensurate with the nature and extent of the work undertaken,” said the TPB.
“It is also important to recognise that while supervisory arrangements may be an important factor in ensuring services are provided to a competent standard, it will not of itself ensure competency. It is not sufficient to simply say that 'supervisory work' is being undertaken and that work is being reviewed.”
However, the TPB notes that there is no standard process to determine if registered tax practitioners have adequate supervisory arrangements in place, although several factors such as quality assurance mechanisms, whether there is substantial supervision, and the physical or geographic proximity of the tax practitioner to the third party may be considered in the determination.
Tax practitioners have also been warned to take reasonable care in ascertaining a client’s state of affairs and ensuring that taxation laws are applied correctly to the circumstances.
Failure to ensure adequate procedures and policies have been applied to outsourcing and offshoring arrangements may result to administrative sanctions from the TPB, including a written caution, an order, a suspension of registration, or a termination of registration.
“Where modification is required, the TPB will take a pragmatic approach in assessing whether a registered tax practitioner has implemented adequate procedures and policies in relation to their outsourcing or offshoring arrangements,” the TPB said.
“Ultimately, determining whether a registered tax practitioner has complied with their obligations under the Code will be a question of fact. This means that each situation will need to be considered on a case-by-case basis having regard to the particular facts and circumstances.”
New data laws
Australian firms with offshoring partnerships should also be aware that the new data breach laws, which came into effect on February 22, include offshore providers within an Australian tax agent’s realm of responsibility.
Julian Plummer, managing director of Kamino Cyber Security and Midwinter Financial services, recently used a common example of firms that procure administrative services overseas.
“Any SMSF firms that are using offshore administrators or service providers must also study the obligations closely as the mandatory data breach legislation also impacts overseas-located service providers,” he said.
“So if you've got an SMSF administrator located overseas, and you're offshoring that work, and they get hit by a data breach, you will have to report on behalf of them. That's something that SMSF advisers may not be aware of.”
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