Blowing the whistle on tax avoidance

by Stephanie Caredes CTA *

The Australian Government is looking to review the protections afforded to ‘whistleblowers’ who blow the whistle on misconduct.

The Government identified that there are no provisions in the tax law to effectively protect those who ‘blow the whistle’ on tax-related misconduct, namely tax avoidance and evasion and other potential breaches of the tax law. Hence, it has determined the need to ‘plug the hole’.

While undertaking a review of the existing corporate whistleblower protections, the Government is also considering how to design whistleblower protections for tax whistleblowers.

Of course, a number of questions arise:

  1. Who should be protected?
  2. To what extent should their identity be protected? Or disclosed?
  3. How can the whistleblower be protected from retaliation by the tax payer being exposed by the whistlelower?
  4. Should whistleblowers be compensated for reporting this information?
  5. Should whistleblowers be rewarded for reporting this information?
  6. Do we need to establish an oversight body to protect the interests of tax whistleblowers?

These are some of the many questions that members of The Tax Institute grappled with as they considered their views and the position that the Institute should take in relation to this proposal.

In response to the questions noted above, we determined the following:

  1. The Tax Institute formed the view that legal practitioners should be excluded from the proposed definition of a ‘tax whistleblower’ on account of their ethical duties owed to clients.
  2. The Tax Institute agreed that protection of the whistleblower’s identity is appropriate. However, we cautioned that, in the event that a whistleblower is not identified, a wider group may instead be regarded as the source of the whistleblowing.
  3. The Tax Institute is of the view that a whistleblower should be protected in relation to breaches of the tax law which they commit in the course of committing the act of whistleblowing. However, this is more complex than it appears to be, as the interaction with the desire to protect a whistleblower’s identity has to be considered.
  4. The Tax Institute does not agree with the proposal to use a process similar to the registered organisation amendment in the Fair Work Act 2009. The justification for tax whistleblowing is different and deals with matters external to an organisation.
  5. The Tax Institute does not consider that whistleblowers should be rewarded, as this may unduly influence a whistleblower’s propensity to ‘blow the whistle’.
  6. The Tax Institute is of the view that the answer depends on what part of the law the rules are to be inserted in. If they are inserted in the tax law, the Inspector-General of Taxation should be given relevant powers to protect the interests of tax whistleblowers. If a separate piece of legislation is enacted, then it would make sense for a separate oversight body to be established.

Other questions arise, such as whether the Commissioner should be able to use information disclosed by a whistleblower to issue an assessment. These questions demonstrate some of the great difficulty in determining whether it is even appropriate that whistleblower protections are inserted in the tax law.

One thing is clear though – at some point in time, answers will need to be found.

* Stephanie Caredes CTA is The Tax Institute’s Tax Counsel. This article first appeared in the March 2017 issue of the Institute's Taxation in Australia journal.


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