4 December, 2017
An exposure draft released by the Treasury sets out what would be Australia's first legislated tax whistleblowing regime.
What you need to know
If passed, the regime will apply from 1 July 2018 to protect whistleblowers in relation to certain disclosures of non-compliance with a taxation law and/or tax avoidance.
The proposed measures are broad in two senses. Expansive definitions mean a large number of disclosures will be protected and a variety of legal mechanisms will shield whistleblowers from consequences that might otherwise discourage blowing the whistle.
Individuals and businesses should note the broad operation of the provisions in the exposure draft and monitor developments, having regard to the fact that the regime will operate alongside similar measures proposed for the Corporations Act.
Background
On 23 October 2017 the Treasury released an exposure draft of the Treasury Laws Amendment (Whistleblowers) Bill 2017 (the Bill). The Bill proposes amendments to the Taxation Administration Act 1953, to insert a whistleblower protection regime into Australia's federal taxation law. No such regime currently exists.
The Bill follows an announcement in the 2016/17 Budget that the Government would introduce measures to protect individuals who disclosed information on tax issues to the Australian Taxation Office (ATO). If passed into law, the regime will apply from 1 July 2018, alongside the whistleblower measures introduced into the Corporations Act by the Bill. While this Alert will focus on the taxation whistleblower regime, further information and commentary on the Bill, including in relation to the Corporations Act measures, is available in a previous Ashurst publication.
Summary of proposed measures
The provisions in the Bill create three categories of entities, broadly:
A whistleblower entity means an "entity" (as defined in the Income Tax Assessment Act 1997) other than a body politic. This captures individuals, incorporated and unincorporated bodies, trusts, partnerships and superannuation funds (among others).
An eligible whistleblower is an individual who is, among other things, an officer, an employee, a contractor (or employee of a contractor) or an "associate" of a whistleblower entity (as well as a spouse, a child, or a dependant of one of those individuals).
A whistleblower disclosee includes the Commissioner of Taxation (Commissioner), an auditor of a whistleblower entity and the controlling entities of some whistleblower entities (eg the director of a body corporate, the trustee of a trust).
The regime protects specific disclosures of information. Broadly, a disclosure of information will qualify for protection where:
- the discloser is or has been an eligible whistleblower;
- the disclosure is made to a whistleblower disclosee (or to a legal practitioner, for the purposes of obtaining legal advice); and
- the discloser has reasonable grounds to suspect the information disclosed indicates that the whistleblower entity (or its associate) has not complied with a taxation law and/or has avoided tax.
A discloser has the benefit of a range of protections in relation to a protected disclosure (and in some cases, a potential disclosure):
- the disclosure is not generally actionable in relation to the discloser (civilly or criminally), although conduct of the discloser revealed through the disclosure is actionable;
- information disclosed to the Commissioner is generally not admissible in criminal proceedings;
- a court may make an order reinstating an employee whose contract of employment is purportedly terminated because that employee made a disclosure;
- victimisation of a person (conduct causing or threatening to cause detriment) is an offence where it occurs by reason of a belief or suspicion (held by the person engaging in that conduct) about a disclosure or potential disclosure;
- an individual can seek compensation from those who cause them damage through victimisation or other relevant conduct related to a disclosure or potential disclosure (in some circumstances, officers and employees of a body corporate that is liable to pay compensation will also be personally liable to pay compensation);
- except where necessary, a court may not publish the name of a discloser nor may it require persons to identify or give information likely to lead to the identification of a discloser; and
- an unauthorised disclosure of the identity of a discloser (or a disclosure of information likely to lead to identification) is an offence.
For the purposes of the victimisation offence, "detriment" is defined very broadly and extends to reputational damage.
Potential impact and takeaways
The introduction of the whistleblower laws is intended to encourage disclosure of tax wrongdoing to the ATO, whether directly or indirectly (ie through an auditor or a controller of a whistleblowing entity). While the ATO currently accepts anonymous disclosures, the wide range of protections offered under the regime might embolden individuals embedded within whistleblower entities to take action. Where a large number of officers or employees of an entity have access to or insight about an entity's tax affairs, the risk of disclosure might increase. While the provisions are not limited to internal whistleblowers, disclosures by employees and officers are likely to be the highest risk for businesses.
The regime might also introduce a risk of disclosures being made by advisers, about their taxpayer clients.
Generally, the employees of an adviser should be prevented, or at least deterred, from making such disclosures by their contracts of employment, the contract of engagement between the adviser and the taxpayer and in relation to legal advisers, their duty of confidentiality. Because many advisers and their employees will be eligible whistleblowers, the proposed laws may apply to prevent employees of advisers who disclose from being terminated by the adviser (as well as offering them the other protections). A question remains as to how the regime would intersect with an Australian legal practitioner's duty of confidentiality, and the exceptions to that duty.
Businesses and individuals should note the breadth of the proposed regime. Most entities will be "whistleblower entities". The whistleblower protections cover all federal tax laws, such as income tax, GST and fringe benefits tax laws. It will therefore be important for businesses to ensure they comply with their tax obligations and maintain tight controls on who has knowledge of their tax affairs and practices.
In addition to this, some aspects of the regime have a wider remit than a first reading might reveal. For example, under the victimisation and compensation provisions, the person victimised or damaged by the relevant conduct need not be the discloser (or potential discloser) for the offence to be made out or for liability to arise. Another example is the concept of "avoided tax" used for the purposes of determining whether a disclosure is protected. The explanatory material accompanying the Bill indicates that language might extend beyond the application of the general anti-avoidance provisions contained in the tax laws.
Whether the laws will be effective in encouraging disclosures or not, the prospect of personal liability for officers and employees of a body corporate which itself is liable for compensation should act as a deterrent against action (formal or informal) being taken against a whistleblower in relation to a disclosure. We do query, however, how the "belief or suspicion" required to make out liability for compensation is to be imputed to bodies corporate and other non-person legal entities.
Finally, amendments introduced to the Corporations Act by the Bill will require all public companies and large proprietary companies to adopt whistleblower policies by 1 January 2019. Due to the overlap between the taxation and the Corporations Act regimes, these companies should consider how their current and updated policies will apply in a tax context.
We recommend that all affected parties monitor developments, including the introduction of draft legislation to Parliament in December.
For further information, please contact:
Ian Kellock, Partner, Ashurst
ian.kellock@ashurst.com
