Thin capitalisation: eroding asset values and increasing debt ... - PwC

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TaxTalk – Electronic Bulletin of Australian Tax Developments Legislation update Tax consultation enhanced through launch of Tax Issues Entry System On 20 November 2008, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs announced the launch of the Tax Issues Entry System (TIES) which, as explained by the Assistant Treasurer “is a single entry point for tax professionals and the community to raise minor policy and administrative issues relating to the care and maintenance of the tax and superannuation systems.” With the launch of TIES, the Government is delivering on one of the recommendations from the Tax Design Review Panel’s report Better Tax Design and Implementation. The Panel was chaired by Neil Wilson, chief operating officer of PricewaterhouseCoopers. Action to enhance market integrity On 19 November 2008, the Minister for Superannuation and Corporate Law announced that the Government has commissioned the Corporations and Markets Advisory Committee (CAMAC) to review a range of market practices with a view to further enhancing the integrity and transparency of the Australian market. The Minister said that these include the use of margin lending by company directors, ‘blackout’ trading by company directors, the spreading of false rumours, and the potential disclosure of market sensitive information at analyst briefings. In order to assist the completion of the project, the Government has approved a grant of $100,000 to fund the CAMAC investigation. CAMAC is to report its findings to Government on these matters by 30 June 2009. A new regime to regulate the provision of tax agent services On 13 November 2008, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs introduced the Tax Agent Services Bill 2008 into Parliament. The Bill proposes to reform the registration and regulation of entities providing tax agent services for a fee. In introducing the Bill, the Assistant Treasurer said that “the introduction of this Bill indicates the Government’s commitment to strengthening the tax industry and the integrity of the tax system by improving the registration and regulation of tax agent service providers, thereby giving greater protection and certainty to taxpayers. Reform in this area is long overdue. An updated regulatory regime that is appropriate for the modern tax environment has been on the drawing board for almost 15 years.” The Assistant Treasurer also announced the Government’s intention that a formal post-implementation review of certain aspects of the regulatory framework be conducted three years after implementation to ensure the new framework operates effectively. In introducing the Bill, the Assistant Treasurer outlined the key elements of the proposed tax agent services regulatory framework, including: • A single national Tax Practitioners’ Board will replace the existing statebased Tax Agents’ Boards, with its key functions being to register and regulate tax agents and Business Activity Statement (BAS) agents. The Board will also have certain powers to ensure that unregistered entities are not holding themselves out as registered. • The Board will be able to investigate matters and impose sanctions where appropriate. • Entities that provide ‘tax agent services’ or ‘BAS services’ for a fee or other reward, who advertise the provision of such services, or who hold themselves out as being registered, will be required to register with the Board. In default, the Board may instigate civil penalty proceedings against the entity in the Federal Court. • The registration requirements for tax agents will consist of a ‘fit and proper person’ test as well as minimum educational qualifications and relevant work experience requirements. PricewaterhouseCoopers : 22
TaxTalk – Electronic Bulletin of Australian Tax Developments • BAS agents will not be required to demonstrate the same degree of formal education and relevant experience as ‘tax agents’. This reflects the narrower scope of services that they may provide. • In the case of partnerships and companies seeking registration, compliance with the requirements will be demonstrated by sufficient organisational qualifications and experience. • Entities that specialise in a particular area of the taxation laws or that only provide a type of tax agent service (for example, tax compliance work or advice rather than both) will be eligible to register, with scope to operate in their specialty. • Because BAS agents are not currently regulated, a significant transitional period for their registration is proposed to allow sufficient time for applicants to meet the requirements. • Tax agents and BAS agents will be governed by a legislated Code of Professional Conduct. There will be a broad range of sanctions that the Board may impose for non‐compliance with the Code. • New civil penalty provisions (including substantial monetary penalties) will apply where the conduct being sanctioned is not serious enough to warrant a criminal conviction or imprisonment. Situations where these will apply include where a registered agent makes a false or misleading statement, employs or uses the services of an entity whose registration has been terminated due to misconduct, or signs a declaration in relation to a document prepared by an entity that is not qualified to prepare that document and was not appropriately supervised. • The Board may also apply to the Federal Court of Australia for an injunction to prevent or compel certain conduct. The Assistant Treasurer noted that a major direct benefit for taxpayers will be the introduction of two ‘safe harbours’ for taxpayers who engage a tax agent or BAS agent. The safe harbours will exempt taxpayers from liability for an ‘administrative penalty’ imposed by the Commissioner where: • having made a false and misleading statement to the Commissioner (which would result in an administrative penalty applying), the taxpayer can demonstrate that they had taken reasonable care by engaging a tax agent or BAS agent and gave all relevant taxation information to the agent • having failed to lodge a document on time and in the approved form (which failure would result in an administrative penalty), the taxpayer can show that they had engaged a tax agent or BAS agent and had provided all necessary information to the agent to enable them to provide the document to the Commissioner on time and in the approved form, but the agent carelessly failed to do so. The safe harbours will not apply where either the taxpayer or the agent has intentionally disregarded a taxation law or been reckless as to the operation of a taxation law. Other revenue legislation Tax Laws Amendment (2008 Measures No 5) Bill 2008, introduced into the House of Representatives on 25 September 2008, was referred to the Senate Economics Committee for review. In its final report, that Committee recommended that the Senate pass the Bill. The Bill proposes to make amendments to give effect to a number of taxation measures, namely: • amendments to the goods and services tax (GST) law to maintain the integrity of the GST tax base by ensuring that the interaction between the ‘margin scheme’ provisions and the ‘going concern’, ‘farmland’ and ‘associate’ provisions does not allow property sales to be structured in a way that results in GST not applying to the value added to real property on or after 1 July 2000 by an entity PricewaterhouseCoopers : 23
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