EY Australia Faces Legal Battle Over Alleged Secret Commissions in Tax Scheme

EY Australia, a prominent accounting firm, is facing legal action from a former client who alleges that a former partner received secret commissions totaling A$700,000 as part of a failed tax-loss scheme. The Australian Taxation Office (ATO) has accused the former partner of promoting three tax loss access schemes to seven clients over a five-year period ending in April 2021.

According to documents from the New South Wales Supreme Court, the ATO reviewed the tax affairs of the aggrieved client's corporate and family entities, resulting in an increase of A$18 million in taxable income. Additionally, A$1.7 million in related-party tax benefits were canceled, with penalties incurred.

The dispute between the former EY client and the ATO remains ongoing. The ex-client alleges that the former EY partner received secret payments through a trust in exchange for providing the company with losses. Furthermore, it is claimed that the EY partner had a pre-existing business relationship with the company but failed to disclose this association.

In response, the ATO initiated legal proceedings against the ex-EY partner in August 2023, whose identity has been temporarily suppressed by the court pending an appeal. The former partner denies the allegations but has cross-claimed against EY, contending that the firm should cover his defense costs.

EY, on the other hand, denies any liability and has countersued its former partner, alleging breaches of the partnership agreement related to the partner's purported tax scheme advice. An EY spokesman stated, "As the matter is before the courts, we're unable to provide further comment."

EY terminated the partner's employment in August 2022 following an internal review. These legal disputes come at a crucial time for EY, as Janet Truncale is set to assume her role as the firm's global chair and CEO in July.

By fLEXI tEAM