For most tax practitioners, the value of being recognised as an intermediary is not something they think about every day—until the rules change. Access to Inland Revenue systems, the ability to act for clients, and the obligations that come with intermediary status are all fundamental to how advisers operate. That is why a recent Inland Revenue officials’ issues paper on the future regulation of tax intermediaries deserves attention. While many of the proposals are aimed at modernising rules that have not kept pace with changing technology and business models, some could have significant implications for who can act as a tax intermediary and under what conditions. 

This article looks at two key proposals in the issues paper and summarises CA ANZ's response.

The why

Broadly, the objective of the proposals is to modernise the legislative provisions for tax intermediaries, so the rules are aligned with commercial practice and the functions in Inland Revenue’s computer system, START.  

Currently, there are separate regimes for different types of intermediaries, for example, tax agents, tax representatives and nominated persons.  However, rapid changes in technology in recent years has resulted in the adoption of new and more digitalised business models.  Legislation for intermediaries has not kept up with these developments.   

The proposals

Suggested changes in the issues paper include:

• adding new categories of intermediaries for digital services providers and data consumers;
• replacing the requirement for a person to act for at least 10 clients to qualify for registration as a tax agent (the 10-client rule);

There is also brief discussion on whether changes would be needed to the rules for representatives and nominated persons.  For example, feedback was invited on the suggestion to widen “the Commissioner’s discretion to disallow someone from being a nominated person to any circumstance that puts the integrity of the tax system at risk.”   

New categories

Digital services providers

The digital services providers category is described to be “for digital intermediaries whose services support users to fulfil tax obligations and access social policy entitlements.”  It is intended to capture tax agents and other types of intermediaries.  

The stated objective of creating this new category is to create a flexible regulatory environment capable of accommodating evolving business models.  Therefore, it is suggested eligibility criteria in the legislation will be broad with more detailed requirements to be included in the terms of use for access to START.

Data consumers 

This new proposed category of intermediary is targeted to those who do not prepare tax returns, calculate or advise on a client’s tax liabilities, or provide data to Inland Revenue.  Generally, a data consumer will want to access a person’s information in START for a particular purpose, for example, to assist in determining eligibility for a rates rebate.

To qualify as a data consumer a person will be required to not adversely affect the integrity of the tax system.  They will also be required to meet accreditation standards set by the Commissioner of Inland Revenue.  However, the issues paper did not elaborate on what the standards would be.

CA ANZ comment

For flexibility and future readiness, we favour a principles-based approach to defining intermediaries in the tax system, rather than following the model of specific categories (which has proven to be restrictive and unresponsive to technological and commercial change).   That said, as an interim measure while work on related key Inland Revenue projects continue, we support the objective of introducing a broad and flexible intermediary category such as digital services providers.  However, more thinking is needed to define the scope, design and implementation of the regime.  Furthermore, the rules should include measures to prevent the digital services providers category being used inappropriately to regain intermediary status if removed from another category.  

Additional work is required to address the fundamental aspects of allowing access by data consumers (third parties) to confidential information in START.  For example, taxpayer consent and the risks or unintended consequences that could arise if this was to be obtained using standard form contracts; control over taxpayer data; and transparency of process and access. 

10-client rule for tax agents

The issues paper explores replacing the 10-client rule for tax agents with a requirement that the tax agent be a member of an ‘approved advisor group’ (currently this is comprised of five approved professional bodies, including CA ANZ).  The reason stated in the consultation paper for this proposal “is to have a more effective screen for quality while not excluding persons who provide good services to their clients and who do not impose an undue cost on Inland Revenue.” 

CA ANZ comment

While we welcome discussion on replacing the 10-client rule, we consider professional body membership should not be the sole pathway to be registered as a tax agent.  A mandatory requirement based on membership of a limited number of professional bodies could create barriers to entry and exclude capable practitioners from becoming a tax agent.  Further, the proposal ignores the “significant proportion of tax agents” (as expressed in the issues paper) who are not currently members of a professional body.  There is also no data to support the view that there is a difference in standard between members and non-members of professional bodies.

The tax system, business and taxpayers would benefit greatly if integrity and competence-based measures are applied consistently across all tax agents, irrespective of whether they are a member of a professional body.  The rules should not favour one group or business model over another.  A robust approach is required.  CA ANZ therefore recommends at a minimum that the revised rules replicate criteria relating to requirements to comply with a code of conduct, ethics, continuing education and a disciplinary process to address non-compliance.