Illustration: Matt Golding

Illustration: Matt Golding

Top tax officials want to put unprecedented levels of trust in big companies to be honest with the government about their tax affairs, Australian Taxation Office documents reveal.

The Tax Office has been working on a "transformational" plan for Australia's corporate tax system, with companies allowed to use their own accountants to sign off on their tax bills, in effect outsourcing some tax oversight to the private sector. But internal discussion papers obtained by Fairfax Media concede the plan, which will bring huge savings for the ATO, comes with dangers of conflicts of interest, greed or even intimidation corrupting the process.

The cash-strapped Tax Office, which plans to shed 900 jobs in the next six months, has been working behind the scenes for about 18 months on the scheme, which would be open to companies with annual turnovers of between $100 million and $5 billion.

Senior tax officers say their department would reap big savings from the proposal, but the big winners are expected to be the "big four" accounting firms - PwC, KPMG, Deloittes and Ernst & Young - which would reap tens of millions of dollars each year in fees for auditing work currently undertaken by the Tax Office.

Big four firms have paid hundreds of millions of dollars in the past decade in settlements over audits of failed companies or involvement in tax avoidance schemes. The Tax Office warned corporate advisers last May not to involve their clients in aggressive tax avoidance, before embarking on a series of crackdowns on various corporate tax minimisation schemes.

Discussion papers about the plan show the level of enthusiasm among key senior government tax executives over the "external compliance assurance process'', which could be subject to a trial as early as May. The plan involves the Tax Office accepting assurances from private-sector accounting firms that their clients are tax compliant.

Assistant deputy commissioner Stuart Hamilton says the process would save the Tax Office money and free up resources to be used elsewhere. He denies the office is stepping away from its responsibilities.

Mr Hamilton was frank last month with his colleagues, and senior "big four" executives who are also being consulted, about how the external assurance process would change the relationship between corporate Australia and the taxman.

"If we can get ECAP off the ground it will be the start of something quite transformational," he wrote to his colleagues.

"The whole thing will, in the end, hinge upon levels of trust, and the assurance that we can provide to those who we work to [sic] that things aren't happening because we've let our guard down. This is not about stepping away. It is about applying a level of assurance."

Robert Jeremenko, senior counsel at industry group the Tax Institute, acknowledged the big accounting firms stood to gain huge windfalls from external assurance but said there was no question of the "fox in charge of the chook house".

"With the high levels of professional ethics in the profession, companies are not going to get a free ride," Mr Jeremenko said. "The ECAP idea could fit very nicely with the federal government's push to abolish $1 billion worth of regulatory burden each year.

"It also has the potential to free up Tax Office resources to focus on areas of greater revenue risk - something the federal government would certainly welcome as it battles the bulging budget deficit."