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The Tax Office has filed a civil case in Federal Court under the promoter penalty legislation.
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ATO pursues former EY partner for alleged tax exploitation scheme
01 November 2023
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11 minute read
The ATO is pursuing promoter penalties against a former EY partner over an alleged tax exploitation scheme and has filed an application in the Federal Court, it revealed today.
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“The Commissioner of Taxation has lodged an application in the Federal Court seeking orders for the imposition of a civil penalty under the promoter penalty legislation,” the office said.
“The Commissioner will allege a former Ernst & Young (EY) tax partner, promoted a tax exploitation scheme.”
“As the matter is before the courts and no findings have been made, the ATO is limited in making any further comments.”
The Australian Financial Review reports the allegations concern Tax Loss Access Schemes promoted to seven clients from November 2016 to April 2021. It said the former partner had not been named after requesting a suppression order but the AFR said they had claimed colleagues at EY “helped draft and review documents” for the schemes.
The ATO said it would use the promoter penalty laws to take action against alleged promoters of tax exploitation schemes, regardless of the firm’s size, occupation, position in their organisation or standing in the tax community, and was working with the TPB on the case.
“Promoter penalty laws are in place to deter and disrupt the promotion and implementation of aggressive tax avoidance and evasion schemes,” the ATO said.
“The promotion of tax exploitation schemes undermines the integrity of the tax and super system and challenges community trust and confidence. These schemes create an uneven playing field for everyone, including businesses and advisers.”
“The ATO expects the utmost integrity of those providing advice in the tax system and will continue to take serious action against anyone who attempts to exploit or undermine the integrity of the tax system.”
Last month in response to the PwC tax secrets scandal the government filed draft legislation that includes substantially increased promoter penalties, a broadening of the definition of “promoter” and of “tax exploitation”, and an extension of the time limit to commence civil proceedings.
In two recent Insight columns for Accountants Daily, Robyn Jacobson of the Tax Institute spelled out the current provisions and what the government seeks to change with legislation currently under review, including the substantially increased penalties.
“Currently, the maximum civil penalty the Federal Court can impose under the PP regime is the greater of:
- 5,000 penalty units (equal to $1.565 million, based on the value of one penalty unit currently being $313) for an individual or 25,000 penalty units (equal to $7.825 million) for a body corporate; and
- Twice the consideration received or receivable, directly or indirectly, by the entity or its associates in respect of the scheme.”
“The draft legislation proposes to increase the maximum penalty and extend the penalties applying to corporate entities to also include non-corporate significant global entities (SGEs), irrespective of their legal structure. All partners in a partnership are proposed to be jointly and severally liable for a contravention by any partner acting in their capacity as a partner of the partnership.”
“The two components of the existing maximum penalty for bodies corporate (and SGEs) will increase from 25,000 to 50,000 penalty units and from a two-fold multiple of the benefit received to a three-fold multiple. Additionally, a new element based on 10 per cent of the entity’s aggregated turnover for the most recent income year ending before the breach occurred will be introduced.
“Accordingly, the new maximum civil penalty under the PP regime is proposed to be:
For individuals other than SGEs the greater of:
– 5,000 penalty units ($1.565 million) and
– Three times the consideration received or receivable.
For bodies corporate and SGEs (whether incorporated or unincorporated) the greater of:
– 50,000 penalty units ($15.65 million)
– Three times the consideration received or receivable, and
– 10 per cent of aggregated turnover — where this exceeds an amount equal to 2.5 million penalty units ($782.5 million), this is capped at 2.5 million penalty units.”
The revised penalties could apply from as early as 1 July next year.
EY said it was too early to respond to the ATO’s allegations.
“We are still waiting for the court orders to be issued to this effect and will share a statement once this decision has been issued,” a spokesperson said.
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