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Managing conflicts of interest

Managing conflicts of interest

A conflict of interest arises when you have a personal interest or a duty to another person which is in conflict with the duty owed to your client in your capacity as a registered tax practitioner.

The Code of Professional Conduct (Code) does not prohibit you from having conflicts of interest. However, you must ensure you have adequate arrangements in place to manage any conflicts of interest that may arise in relation to the activities that you undertake in your capacity as a registered tax practitioner. This is item 5 of the Code.

A conflict of interest may be an actual conflict or a potential conflict and it can arise before you accept an engagement or at any time during the engagement. You have a duty to manage both actual and potential conflicts of interest.
 

How can you manage conflicts of interest

You should use your professional judgment to determine the most appropriate method to identify and manage a particular conflict. A number of mechanisms could be used, such as:

avoid – you may decide to decline to act for the client in situations where you will be unable to manage the conflicts of interest regardless of arrangements put in place

control – this involves identifying, assessing, evaluating, deciding and implementing  an appropriate response to manage conflicts of interest. For example,  depending on the particular circumstances, you may be able to control a conflict of interest by isolating the persons in your practice who will provide the relevant advice  from those who are privy to the material information which may influence the advice

disclose – you should sufficiently disclose conflicts of interest to your clients in a manner which will enable them to make an informed decision and give them a reasonable time to assess how the conflict may affect the services being provided and about  its management.
 

Examples involving conflicts of interest

The following examples illustrate how conflicts of interest could generally be managed in some common situations, noting that consideration will need to be given to the specific facts and circumstances.
 

Example 1 - Conflicts of interest arises by recommending software

Situation

Lance operates a small retail business and wishes to purchase a software package to assist him in managing his business affairs. Lance seeks advice from his long serving registered tax agent, Pop about a suitable software package.

Pop advises Lance to purchase ABCD Technology’s ‘evolution software package’, a cloud-based software system. Pop receives a commission from ABCD Technology for every client that Pop refers to purchase one of ABCD Technology’s software packages.

Conflict of interest

Pop has a financial incentive in referring Lance to purchase one of ABCD Technology’s software packages as opposed to another entity’s software package and, therefore, has a conflict of interest in the circumstances.

Managing the conflict of interest

Pop appropriately discloses his conflict to Lance by advising him that he will receive a commission if he purchases ABCD Technology’s evolution software package.

In this case, Pop has satisfied his obligations under Code Item 5 by disclosing his conflict of interest to Lance when referring him to ABCD Technology.
 

Example 2 - Marital break-up creates a conflict of interest

Situation

Terrence and Sandra have recently divorced. They have used the same registered tax agent, Craig, for the past seven years. In preparing their respective income tax returns for the current financial year, it becomes apparent to Craig that the claiming of a rebate or offset by Terrence would prevent the claiming of the rebate or offset by Sandra.

Conflict of interest

Craig has a conflict of interest if he acts for both Terrence and Sandra because they have competing interests in relation to the claim for a rebate or offset. Additionally, a perceived conflict may arise in regard to one or both of the clients holding any belief that Craig may not be able to objectively provide appropriate and impartial services to each of the clients.

Managing the conflict of interest

Craig appropriately discloses his conflict of interest to Terrence and Sandra and receives a waiver from both parties in relation to the conflict.

In applying his professional judgment, Craig determines that the rebate or offset is more properly claimable by Terrence. However, Craig also identifies that he is in a position wherein his duty to Sandra is in conflict with his duty to Terrence.

In this case, Craig has satisfied his obligations under Code item 5 by appropriately disclosing his conflict of interest and obtaining a waiver from Terrence and Sandra prior to preparing their respective income tax returns.

Alternative scenario

If Craig were unable to obtain the relevant waiver from Terrence and Sandra, it is unlikely that he would be able to adequately manage the conflict of interest, regardless of other arrangements that could be put in place, and should consider declining to act for one or both of Terrence and Sandra.
 

Example 3 - Personal gain from a referral creates a conflict of interest

Situation

Anthony is a long time client of Lucia’s, a registered BAS agent. Anthony asks Lucia to assist him to identify an appropriately qualified tax agent to provide advice in relation to his self managed superannuation fund. Lucia is aware of a number of suitable registered tax agents but refers Anthony to XYZ Accounting Pty Ltd because she receives a fee for the referral from this firm.

Conflict of interest

Lucia has a financial incentive in referring Anthony to XYZ Accounting Pty Ltd as opposed to another registered tax agent and, therefore, has a conflict of interest in the circumstances.

Managing the conflict of interest

Lucia appropriately discloses her conflict to Anthony by advising him that she will receive a commission if he engages the services of XYZ Accounting Pty Ltd.

In this case, Lucia has satisfied her obligations under Code item 5 by disclosing her conflict of interest to Anthony when referring him to XYZ Accounting Pty Ltd.
 

Example 4 - Potential conflict of interest arises from a personal interest

Situation

Christina is a registered tax agent and has a number of long time clients, one of which is Cold Cream, a large ice-cream retailing franchise. Christina has a 15 percent ownership interest in Cold Cream.

Christina is approached by Ice Cold, a rival ice-cream retailing franchise to provide tax agent services including tax planning work.

Conflict of interest

Christina has a potential conflict of interest if she provides tax agent services to Ice Cold because her ownership interest in Cold Cream could possibly impact her motivation to act for Ice Cold.

Managing the conflict of interest

Christina appropriately discloses her conflict of interest to Ice Cold. Further, Christina determines that, in the circumstances, she cannot objectively provide tax agent services to Ice Cold and therefore the conflict of interest is unmanageable and the only way to adequately manage the conflict will be to avoid it altogether. Accordingly, Christina declines to act for Ice Cold.

In this case, Christina has satisfied her obligations under Code item 5 by disclosing her conflict of interest, and avoiding the conflict by declining to act for Ice Cold.
 

Example 5 - Representing two clients in a potential merger transaction creates a conflict of interest

Situation

Victor Lance Accounting, a large accounting firm and registered tax agent, is engaged by Caxton Pty Ltd and Devon Pty Ltd, two publicly listed companies, to provide confidential tax advice in relation to a potential merger transaction with one another.

Conflict of interest

Victor Lance Accounting has an actual conflict of interest if it acts for both Caxton Pty Ltd and Devon Pty Ltd because both companies are seeking confidential tax advice from the same registered tax agent.

Managing the conflict of interest

Victor Lance Accounting appropriately discloses the conflict of interest to both Caxton Pty Ltd and Devon Pty Ltd. Further, Victor Lance Accounting advises each of the companies of how it intends to control and avoid the conflict of interest. Relevant strategies include identifying and evaluating the conflict of interest, implementing and enforcing strict policies and procedures in relation to controlling the conflict, and assigning separate teams in different offices to work for the two companies. Details relevant to each of the companies will not be discussed by the relevant teams. Finally, Victor Lance Accounting obtains a waiver from each of the companies in relation to the conflict.

By taking these steps, Victor Lance Accounting has satisfied its obligations under Code item 5 to have in place adequate arrangements for the management of the conflict of interest.
 

Failure to have adequate arrangements

If you do not have adequate arrangements for the management of conflicts of interest, the TPB may find that you have breached the Code and may impose sanctions for that breach.
 

Further information

For further information on managing conflicts of interest refer to:

Code of Professional Conduct – managing conflicts of interest TPB(I) 19/2014

 

Last modified: 16 December 2015