Welcome to my first attempt at a website for my firm Fawcett and Company. The thought of creating a public presence terrifies me. However, if you believe the literature the forthcoming avalanche of digital disruption will render past business models obsolete usurping even the good old-fashioned word of mouth that we have relied upon for 21 years.

I am tempted to name my blog ‘bristle’ as I have a reputation for bristling when responding to stupidity (whilst conveniently ignoring my own).It seems to work unless I have little self-awareness.

But I do like a good rant.

I have been reflecting on press coverage of tax matters of recent weeks. It seems that we, of the accounting and tax profession, are about to experience a period of significant change.

First, if the recent backlash afforded to some practices of international companies is anything to go by, we appear to be heading towards an era of international taxation cooperation to avoid revenue leakage. However, the interests and political agendas of nation states will change from time to time and always in my view take precedence over “the greater good”. Governments crying poor when facing an ongoing struggle to “put the budget in order” or “stimulate the economy” as we are presently witnessing here, will become the norm rather than the exception.The response will be short termism either through introducing retrograde measures as the temporary and politically expedient quick fix or simply turning a convenient blind eye.

The press reported over the weekend how the ATO is grappling with the pending cuts of thousands of jobs.It is reported that many of these cuts are in key areas including its audit teams responsible for enforcing tax compliance of high net worth individuals and multinational companies (the twin devils of taxation). The AFR reported that the ATO is halfway to meeting its target of shedding 4700 persons.Conveniently our government reports that this is a legacy inherited from its predecessor.

I presume that partially in response to the strains upon headcount our commercially focused Tax Commissioner announced a pilot program titled external compliance assurance process in (CAPD). The CAPD pilot will test the effectiveness and viability of taxpayers using registered company auditors to conduct assurance into factual matters, in the belief that the approach will reduce compliance costs and red tape for business tax payers. This move is designed to outsource some of the compliance activities of the ATO which is consistent with a small government model, with the buck stopping with the company auditor. I find this to be an intriguing development and I wonder out loud, whether the professions possess the ethical base to assume such an odious an onerous responsibility. In the end we are mere commercial persons ourselves.

The recent release at the start of November by the by the International Consortium of Investigative Journalists of a large number of private rulings obtained by PWC for their clients from the principality of Luxembourg (also known as #luxleaks) illustrates the potential for complicity between the profession and the nation state to deliver a better tax result for the customer.By the way I am not suggesting there is any illegal in these plans and rulings but there is a taint of suspicion in the reporting and the leaks.

How will our profession respond should it fundamentally disagree with the position taken by its client? Where the tax adviser and auditor come from the same international firm, the inevitable tension between aggressive (and legal) tax planning and the escalation of the company auditor’s duties and responsibility will become inexorable. I will watch with great interest to see how the auditor will disclose this inevitable conflict whilst maintaining the integrity and the privacy of the original tax advice? In my experience, accountants do not like to share clients and do not deal with conflict of interest well. The industry developed frame work for self-regulation in settling conflicts of interest may well be out of date.Significantly there is no base in tax law for such a program just general ethical standards.It may be time as a minimum to introduce statute driven rotation of auditors as part of a solution to inevitable conflicts of interest.

Recently I attended the excellent PCI Partners Insolvency Network conference in Torquay. I was very privileged to attend a presentation by a senior officer of the Australian Taxation Office titled “allocation of profits within professional firms”. The tone of the presentation left me wondering whether I had inadvertently stepped into the TARDIS and had gone back to around 1988. I could sense the room shifting uneasily as this presentation (which had excellent factual and technical content) proceeded down a sinister path:

  1. A tendency to project the most aggressive practices identified in a study to appear as being the norm; and
  2. The pre-disposition of the speaker to roll out the threat of rolling out the general anti-avoidance provisions (Part IVA) as the front line (somewhat prematurely) as a cure to any perceived mischief.

I pick 1988 as back then I witnessed the ATO empower its audit teams to target our top 100 companies.The teams were combative, aggressive and threatened to tackle nearly every complicated transaction with Part IVA with no acknowledgement of the commercial ends of the deals.There were rumours that auditors received a bonus based upon tax recovered.I hope we are not reverting back to those dark days.

One of the critical elements of a sensible, equitable and robust tax system is the existence of a strong deterrent, primarily the general anti-avoidance provision.

Regrettably, over the past 50 years the ATO has been less than discerning in its efforts through the courts to deploy this code effectively against what they see as deliberate tax avoidance.Courts have been loath to enforce the provisions thereby reading them down in some cases to the point of irrelevance.Therefore their brooding menacing pit bull is reduced to a yapping annoying poodle.The ATO needs to be more discerning and patient in the application of these provisions and even the threat of its use to regain the mystery of this code as a base for deterrent.There has been a suck it and see attitude rather than looking at the bigger picture of an effective deterrent.The lack of discernment has demystified the provision and opens the door to base erosion.Each loss in the Courts weakens the code rather than clarifying it.

Strange days indeed.

I call on governments the profession and industry to get their act together, lead with teamwork formulate cohesive policy and settle down this mess.And for heaven’s sake for the ATO to ease up playing their Part IVA card.

I look at these developments and again wonder whether income is the best base for taxation.One man’s income is always going to be another man’s capital. One man’s interest will always be another man’s dividend.I notice that there has been some preliminary debate surrounding a shift in our tax mix towards an increase in the indirect taxation base (such as increasing the GST). I hope that there will be some momentum in this debate in order to make our system less arbitrary than it is today.

Thank you for taking the time to read my first bristle and I welcome any feedback.

Join to newsletter.

Curabitur ac leo nunc vestibulum.

Continue Reading

Get a personal consultation.

Call us today at (555) 802-1234

Request a Quote

Aliquam dictum amet blandit efficitur.