A few days ago the Tax Practitioners Board (TPB) released draft Practice Note TPB(PN) D38/2017 to provide practical guidance and assistance to registered tax practitioners in understanding their obligations under the Code of Professional Conduct in relation to the use of outsourcing and offshoring.
It should be noted that this is a draft practice note, and submissions and comments are invited up to 12 October 2017.
The TPB has been active in this area for many years, and this release likely comes as a result of the massive takeup of outsourcing and offshoring within the tax profession. At the same time, it highlights the increasing significance of this issue as outsourcing and offshoring now becomes the “norm” for many firms in the provision of their services.
This isn’t the first time the TPB has raised these issues, and they are continuing to reinforce key issues within this exposure draft.
It does have a good clear simple definition of Outsourcing “To obtain (goods or a service) by contract from an outside supplier”, and Offshoring “The practice of basing some of a company’s processes or services overseas”
Interestingly, Offshoring occurs where an entity enters into an arrangement to transfer a process, function, service or activity to a country other than Australia. Offshoring does not necessarily involve the use of outsourcing.
Labour hire of a labour force outside Australia, where the employees are hired by a non-related entity, would consist of both offshoring and outsourcing. Section 9 defines this as “outsourced offshoring”. This would be applicable to many labour offerings in the Philippines.
Interestingly, code item 6 goes one step further to indicate third parties can include an overseas party that shares the same brand/name as that in Australia but is a different legal entity.
Section 11 has general considerations regarding offshoring and outsourcing which should be read, and the code obligations set out in item 14. These continue to be issues the TPB deems important: appropriate disclosure, competent standard of services, adequate supervision and control, reasonable care in ensuring application of taxation laws, professional indemnity insurance is maintained.
Permission and notification regarding the release of information continues to be high on the TPB agenda. Section 20 notes: When obtaining client permission, it is recommended that the registered tax practitioner inform the client about the proposed disclosure, including noting to whom and where the proposed disclosure will be made (if known or reasonably ought to have known). However, it is also recognised that a general consent relating to disclosure to third parties may also be acceptable having regard to particular circumstances. Further, a registered tax practitioner is not excused from taking necessary steps to protect information just because it would be inconvenient, time-consuming or costly to do so.
Interestingly, the point 21 notes: “even in the context of a general disclosure, registered tax practitioners should require a positive step from their client to authorise the requisite disclosure. This may include an appropriate ‘opt-in’ type approach”. And section 22, “there is no set formula or methodology used to obtain client permission, the TPB suggests that registered tax practitioners be clear in explaining to their client where information may be disclosed (including, among other things, where a component of work or add-on activity is completed elsewhere). For example, to avoid any likelihood of your practices being seen as misleading, we suggest that you must not imply or state that all your work is completed in Australia, if that is not the case”.
There is one other interesting point. Code item 7 notes the competency of services where such services are provided by an unregistered external contractor, whether in Australia or abroad. Section 27 notes a registered tax practitioner (may) outsources part or all of the provision of tax agent services to an unregistered third party. This is interesting as it seems to open up the discussion on the provision of tax agent services by an “unregistered third party”.
Consequences of having inadequate outsourcing arrangements
If a registered tax practitioner has inadequate procedures and policies in relation to their outsourcing or offshoring arrangements, the TPB may find that the registered tax practitioner has breached the Code and may impose one or more of the following administrative sanctions:
- a written caution
- an order requiring the registered tax practitioner to do something specified in the order
- suspension of the practitioner’s TPB registration
- termination of the practitioner’s TPB registration.
This practice note reinforces the TPB’s commitment to the ongoing management of offshoring and outsourcing arrangements, and is a definite read for all Australian compliance firms.