In a paper delivered to large market tax advisory firms, ATO second commissioner Jeremy Hirschhorn said tax advice from such “systemically important” firms would attract the Tax Office’s attention over those provided by smaller firms.
“To make this more tangible, where a partner in a boutique firm comes up with a ‘cute’ piece of tax planning, which is then implemented by one taxpayer, the ATO will see this as a ‘one-off’,” Mr Hirschhorn said in his paper.
“If, by contrast, a partner in a systemically important firm comes up with the same idea, the potential (or reality) of that idea being rolled out across Australia’s highly concentrated corporate tax base will mean that the ATO must respond more forcefully.
“As such, a systemically important firm cannot simply view itself as a club of boutiques. If you describe a partnership as like a franchisor/franchisee model, where each partner runs their own franchise, this means that a systemically important firm must have much tighter controls over each of the franchise businesses, to ensure that they are operating consistently with the core brand.
“For those at big four firms, the concept of a ‘systemically important’ firm plays out even more at a broader level: you are systemically important in terms of your broader effect on the capital markets, and I would put it to you this affects your licence to operate across a range of areas (as is currently playing out), but provides a further system constraint on ‘clever’ advice.”
Mr Hirschhorn also sent a warning to “overconfident” advisers who assumed they were above the tax system.
“I would note that I have seen some advisers who seem to operate almost on the basis that tax is discretionary or for people who are not as clever as them or their clients,” Mr Hirschhorn said.
“In my experience, this category of adviser can be overconfident in their own ideas and fail to put appropriate rigour in their technical analysis.
“As an aside, I would also caution that if you have come up with a new and clever idea which gives non-policy outcomes, you should be very careful: very few ideas are truly new, and often there will be an old provision, so successful that the behaviour stopped and the provision is ‘forgotten’, that is directly relevant to your idea. There have been many very clever tax advisers, and it would be a rare idea indeed that is completely new.”
Jotham Lian is the news editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.