Large business and tax compliance

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Large business and tax compliance

NAT 8675-05.2014

Overview for Large business

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA, 2014

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

PUBLISHED BY

Australian Taxation Office Canberra May 2014 JS 31118

OUR COMMITMENT TO YOUWe are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations.

If you follow our information in this publication and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we must still apply the law correctly. If that means you owe us money, we must ask you to pay it but we will not charge you a penalty. Also, if you acted reasonably and in good faith we will not charge you interest.

If you make an honest mistake in trying to follow our information in this publication and you owe us money as a result, we will not charge you a penalty. However, we will ask you to pay the money, and we may also charge you interest. If correcting the mistake means we owe you money, we will pay it to you. We will also pay you any interest you are entitled to.

If you feel that this publication does not fully cover your circumstances, or you are unsure how it applies to you, you can seek further assistance from us.

We regularly revise our publications to take account of any changes to the law, so make sure that you have the latest information. If you are unsure, you can check for more recent information on our website at ato.gov.au or contact us.

This publication was current at May 2014.

LARGE BUSINESS AND TAX COMPLIANCE iii

Large businesses contribute significantly to Australia’s economy and society, providing employment, infrastructure and tax revenue to support our nation and its people. This updated edition of the Large business and tax compliance publication reaffirms our commitment to fairly administering the tax and superannuation system and our continued commitment to operate with you in an environment of mutual respect and honesty.

As trusted stewards of our tax and super system, we must keep pace with the expectations of our clients. Simplifying our processes, increasing our electronic interactions, streamlining our website, and offering contemporary and innovative services are some of the ways we’re reducing red tape to make compliance faster and easier for you and your business.

Other ways we’re working to improve our systems and interactions include:

■ Engaging early with you on ruling requests, to ensure a much more timely service.

■ Adopting a more tailored and streamlined approach to review and audit processes.

■ Offering an independent review of decisions made as a result of our compliance activities.

■ Working with Treasury to shape law and policy design. ■ Engaging with stakeholders to understand the position of taxpayers and advisers, industry groups, partner agencies and government – working with the right people, on the right issues, at the right time.

■ Revamping our external consultation processes and seeking your feedback about what’s working and what’s not, particularly when we are developing new services and products.

■ Greater online access to ATO systems.

We are ensuring our management of compliance risk remains contemporary. We are working with G20 members to address the challenges of an increasingly global and digitised world, utilising multilateral, automatic exchange of information agreements.

We know that meeting your tax obligations takes time and resources. That is why we are working to transform our approach and streamline our interactions – to help you spend more time getting on with business and to help us better serve the community.

Chris Jordan Commissioner

FOREWORD

LARGE BUSINESS AND TAX COMPLIANCE 1

CONTENTS

Foreword iii

Introduction iv

01THE LARGE BUSINESS MARKET 3

Large business is important – compliance matters 3

Working together 3

Large market profile 3

Key roles in tax management 5

Role of the corporate board 6

Our role 6

Role of external scrutineers 6

02OUR APPROACH 7

How we approach compliance and how large business can expect to interact with us 7

Compliance in focus 8

Risk management approach 8

Checklist of what will attract our attention 9

BISEP model 9

If you are not satisfied 9

03GOOD TAX GOVERNANCE 10

Sound tax risk management processes 10

What does good corporate governance look like? 10

Strategic level 10

Operational level 10

Record keeping 10

How we support tax-risk management 11

Tax-risk management and governance checklists 11

04WORKING TOGETHER WITH LARGE BUSINESS� 12

Services we provide and how we work together 12

Working together on the system 12

How we communicate with you 12

General services 13

Client services 13

Specialised services 14

Your feedback 14

05OBTAINING CERTAINTY 15

Our law advice services and how to use them effectively 15

How we provide advice 15

Types of information we provide 16

06COOPERATIVE COMPLIANCE 19

Taxpayer initiated processes 19

Voluntary disclosures 19

Self-amendments 19

Reportable tax position schedule 20

Annual compliance arrangements 20

Advance pricing arrangements 21

Mutual agreement procedure 21

Tax issues entry system 21

CONTENTS

2 LARGE BUSINESS AND TAX COMPLIANCE

09RESOLVING DISPUTES 35

Cooperative approach to resolving disputes 35

Collecting tax when there is a dispute 35

Alternative dispute resolution 35

Objections 36

Early engagement 36

Settlements 36

Litigation 37

Prosecutions 37

10APPENDIXES 38

appendix 1 – The Bisep model 38

Appendix 2 – Consultative arrangements 39

Appendix 3 – Rulings process 40

Appendix 4 – Review types 42

Appendix 5 – Pre-lodgment compliance review process 43

Appendix 6 – Post-lodgment compliance review process 45

Appendix 7 – Audit process 47

Feedback 51

07HOW�WE�MANAGE�TAX�RISK� 22

How you choose to manage tax risk determines how we engage with you 22

Risk-differentiation framework 23

Factors we use to determine your RDF categorisation 23

How we use the RDF to address tax risk 24

Our approach 25

Identifying compliance risks 25

08ACTIVE�COMPLIANCE�APPROACHES� 26

Our typical processes for addressing tax risks and issues 26

Assurance and indirect taxes 26

Risk reviews 27

Audit 28

Mutual expectations during compliance activities 28

Escalating issues 28

Understanding your business 29

Gathering information 29

Informal approaches 29

Formal approaches 30

Determining our position 31

Independent review of position papers 31

General Anti-Avoidance Rules Panel 32

Assessment and amendment periods 32

Penalties and interest 32


01WORKING TOGETHERWe are committed to building relationships with you through consultation and developing mutual expectations.

The importance of large business and its overall contribution means it plays a significant role in the tax system. Collaboration allows us to ensure that the tax system operates as efficiently as possible.

LARGE BUSINESS IS IMPORTANT – COMPLIANCE MATTERSLarge business is important to the Australian economy and to our whole tax system. Our aim is to work with you to improve how the tax system works for your business. Developing a better understanding of each other is an essential first step.

Large business plays a crucial role in the revenue system by paying and withholding taxes and contributing to and managing superannuation on their employees’ behalf. You also act as intermediaries in managing tax related transactions between us and other taxpayers by providing financial facilities used by others.

To support your important role in the tax system, we work to ensure our services are focused on making it easier to comply with tax laws, helping to reduce your compliance costs and supporting voluntary compliance. This approach seeks to ensure that the right amount of tax is paid in Australia.

THE LARGE BUSINESS MARKET

LARGE MARKET PROFILE

FIGURE 1: Supporting voluntary compliance in the large business market

Scanned using a variety of risk filters 100%

390 355 320 285 250 220 185 150 115 80 40 0

1300 390 0

Audited (5.5%)

Reviewed (30%)

Adjusted (4.0%)

Disputed (1.0%)

Settled (0.3%)

Confirmed as compliant by the courts (0.3%)

Formally risk reviewed 30%

Reviewed in detail

Formally risk reviewed 30%

01 THE LARGE BUSINESS MARKET


There are 1,800 economic groups and entities in the large market, encompassing over 35,000 businesses. The types of entities include mainly companies, but also government departments, partnerships, trusts, non-profit organisations and superannuation funds. Of the 1,800 economic groups, approximately three-fifths (1,000) are public companies and 1,100 have an annual turnover greater than $250 million. The remainder are businesses that due to their unique characteristics are managed within the large market.

Large market taxpayers are registered for a range of tax obligations, including GST, fringe benefits tax (FBT), income tax, fuel tax credits, luxury car tax and wine equalisation tax (WET), and may also be licensed for excise purposes.

In the 2010–11 financial year, total tax receipts collected from large business were:

■ 43% of total net income tax, comprising – 63% ($35.1 billion) of company tax – 100% ($0.8 billion) of petroleum resource rent tax – 43% ($1.4 billion) of FBT – 82% ($5.3 billion) of super fund income tax – 33% ($43.9 billion) of pay as you go withholding tax on behalf of individuals

■ 46% ($21.3 billion) of total net GST ■ 98% ($25.3 billion) of excise tax.

At the same time, the large market encompasses: ■ 80 large super funds that report a total of 19,000,000 member accounts

■ more than $200 billion in international related party dealings, accounting for 36% of Australia’s trade.

In monitoring compliance for income tax (figure 1), 100% of large corporate groups are scanned using a variety of risk filters to detect financial patterns that may indicate potential non-compliant positions, for example, abnormally low tax payments compared to industry peers or high-risk transactions or arrangements that have not been disclosed.

Additionally, about 30% of the large population are formally risk reviewed each year, focusing on those considered to present higher relative risk, taking into account likelihood of non-compliance and the potential consequences.

About 18% of those reviewed are then audited, and approximately 70% of those audited have adjustments. About 30% or so of those adjustments are disputed, and about 30% of those disputes will be settled, under strict guidelines.

Of the relatively few cases that continue through to the court system, between 30% to 50% will be found to have been ultimately compliant by the courts. Our view is confirmed in 50–70% of cases taken to the court, providing certainty to the market.

In monitoring compliance for GST and excise, we constantly monitor activity statements and other information relating to GST and excise to identify potential risks and issues. Each year, we contact about 10% of large businesses and undertake a risk review relating to GST or excise. About 9% of these reviews proceed to an audit, with 21% of these cases requiring an adjustment.

The majority of large businesses are compliant, however we still have concerns about opportunistic tax planning in a relatively small group of large businesses and we will have an intense focus on these businesses.

In 2011–12, for the first time we informed most large business in a single letter about our view of their relative risk of non-compliance for GST, income tax and excise. Figure 2 shows the risk categorisations for large businesses with GST, income tax and excise obligations. For these large businesses:

■ 13 were categorised as higher risk and were advised that they could expect fairly intense and constant interactions with us regarding their tax affairs

■ about 130 were regarded as key taxpayers and were told that we would work closely with them to monitor their tax liabilities and provide certainty

■ about 400 medium risk taxpayers were told that our preliminary risk assessment had identified that there were one or more areas of tax risk where we may need to make further enquires about their tax affairs

■ about 680 were lower risk and told we had no further queries and that their income tax return and/or GST affairs and excise returns for 2010–11 were now finalised.

FIGURE�2: Risk categorisation by tax

Lower risk

Medium risk

Key taxpayer

Higher risk

GST

Excise

Income tax



KEY ROLES IN TAX MANAGEMENTThere are many roles within a large business that are pivotal in managing tax responsibilities, including the public officer, tax manager, chief financial officer and the board. Depending on the structure of your business, your tax function will be managed in a number of different ways.

People with these responsibilities set the business’ compliance, operational and financial approaches to tax. As demonstrated in figure 3, an awareness of new and emerging risks and the implications for businesses will improve the management of tax implications of major transactions as they occur.

We encourage those responsible for tax functions to ensure that sound organisational governance is in place to manage tax risks. We also encourage you to develop and maintain an open and cooperative relationship with us.

Our relationship with large business is ongoing and we need to work cooperatively to make the administration of the tax laws work well. We work together by engaging in open and frank dialogue on material tax issues. This allows us to:

■ have a common understanding of your business to facilitate the identification and evaluation of tax risks

■ ensure documents are readily accessible, whether stored as a physical document or electronically

■ discuss the basis of any claim you make for legal professional privilege, accountants’ concession or corporate board documents on tax compliance risk

■ escalate concerns.

Our aim is to assist you and encourage you to have adequate tax governance and tax risk management controls in place for transactions in Australia and internationally.

We expect you to: ■ pay the right amount of tax in the correct jurisdiction ■ lodge and pay on time ■ provide your staff with adequate taxation training and resourcing

■ regularly report to your board.

FIGURE 3: Tax operating model

Cash tax management

Tax compliance

Tax authority management

Management reporting

Planning and transaction support

Forcasting and budgeting

Tax accounting

TAX RISK MANAGEMENT

TAX STRATEGY

TAX POLICIES

TAX RISK MANAGEMENT

TAX STRATEGY

TAX POLICIES

STAND

ARD

PRO

CESSES

COMMON TECHNOLOGY TOOLS

STR

ON

G T

ECH

NIC

AL T

AX T

EAM



ROLE OF EXTERNAL SCRUTINEERSWe are open and accountable in our administration of the tax system and are subject to review by external scrutineers including:

■ Parliamentary committees ■ the Inspector-General of Taxation ■ the Commonwealth Ombudsman ■ the Australian National Audit Office.

We work closely with Treasury in developing new tax policy and legislation. We may refer matters to Treasury if the tax law is not consistent with policy, or produces unintended consequences or significant compliance costs.

If appropriate we will collate and forward the concerns of large business to Treasury. However, we are not generally in a position to disclose these referrals to you because it is government policy that all interactions between the ATO and government are confidential.

In addition, the Board of Taxation: ■ advises the Treasurer on improving the general integrity and functioning of the tax system

■ commissions research and other studies on tax matters approved or referred to it by the Treasurer.

We encourage you to contribute to enquiries by our external reviewers as you consider appropriate.

ROLE OF THE CORPORATE BOARDBoard members play a crucial role in ensuring that strong corporate governance structures are established and maintained. We encourage board members to check that their business has a sound framework in place to manage tax risks and comply with tax obligations – see chapter 7. Such governance and process obligations include:

■ demonstrating an understanding of your risk categorisation ■ ensuring a well resourced in-house tax governance capability exists to mitigate tax risk and provide a capacity to regularly audit tax governance systems

■ having in place appropriate review and sign-off procedures for material transactions and reporting requirements, which ensure that significant tax risks are elevated to the board

■ having systems to identify, assess, monitor and approve material tax issues.

OUR ROLEWe are responsible for the care of Australia’s tax and superannuation systems and the Australian business register.

In undertaking these responsibilities, we seek to achieve confidence in the administration of these systems.

As part of our approach to encourage willing participation in these systems, we seek to create an environment that is conducive to high levels of voluntary compliance.

You can expect us to: ■ help you understand your rights and obligations ■ make it as easy as possible for you to comply ■ offer help in a variety of ways, including online services, publications and by phone

■ deal with risks as they emerge or magnify ■ administer the tax law at the minimum cost to you and other stakeholders.


02OUR APPROACH

Taxpayers’ CharterThe Taxpayers’ Charter guides our interactions with all taxpayers. It sets out the way we conduct ourselves when dealing with you. It helps you understand your rights, your obligations and what you can do if you are not satisfied with our service or actions.

In keeping with the Taxpayers’ Charter principles you can expect that we will:

■ act in a professional, courteous and respectful manner and demonstrate integrity, fairness and impartiality in the conduct of our duties

■ maintain open and frank dialogue, including informing you regularly of the progress of any compliance activity

■ aim to make information requests clear and unambiguous ■ complete a case in the shortest time practicable, with minimum inconvenience and disruption

■ communicate in a timely manner ■ advise you of delays or where timelines were extended and the reasons why

■ notify you if an error is detected that has resulted in you paying more than the correct amount of tax

■ recognise your right to have advisers present during discussions and meetings and allow you to confer with them as necessary

■ recognise your right to claim legal professional privilege, the accountants’ concession, or that documents are corporate board documents on tax compliance risk.

In turn, we expect that you will work with us cooperatively and communicate with us in a timely and open manner.

For more information about the Taxpayers’ Charter, go to ato.gov.au/taxpayerscharter

Our compliance modelOur broad approach to compliance is captured in our compliance model. The model provides the framework we use to assess taxpayers and develop an appropriate response according to the nature and level of risk we identify, the causes of non-compliance and your level of cooperation with us.

For more information, go to ato.gov.au/compliancemodel

HOW WE APPROACH COMPLIANCE AND HOW LARGE�BUSINESS�CAN�EXPECT�TO INTERACT�WITH�USOur tax system is based on self assessment and voluntary compliance. We aim to have an open and cooperative relationship to support and facilitate you meeting your tax obligations.

Our approach to working with large business is guided by the principles in the Taxpayers’ Charter and the compliance model. We differentiate our approach and level of engagement with you according to our assessment of your risk categorisation, as outlined in chapter 7.

Our approach involves consulting, collaborating and co-designing with you to support voluntary compliance, manage tax risk and minimise compliance costs. We do this based on our understanding of tax law, the global tax environment, causes of non-compliance, your business environment and from a whole of tax system perspective.

We work closely with large business, reflecting your importance in the effective operation of the tax system, and wherever possible provide certainty of tax outcomes for large complex transactions as they occur. We aim to help you manage your affairs by promoting open dialogue, strong corporate governance and a focus on how you can identify and manage tax risks.

We work with you by: ■ providing information to help identify and manage tax obligations

■ developing administrative processes for new laws ■ addressing your concerns about administrative matters or bringing them to the attention of Treasury

■ providing forums, such as the Large Business Liaison Group and the National Tax Liaison Group to raise issues and explore the administration and operation of the tax system.

To support an environment of self assessment we provide a range of products, advice and assurance services. This helps to reduce your compliance costs.

We also work with foreign tax administrations and with our Joint International Tax Shelter Information Centre partners on international tax risks as they emerge, to support effective risk management around the world.

02 OUR APPROACH


RISK MANAGEMENT APPROACHIn considering which large businesses may need to be reviewed and the frequency and intensity of the review, we assess the relative likelihood of you not meeting your tax obligations and the consequences of potential non-compliance. All large businesses are grouped into one of four broad risk categories each of which, from our perspective, has a suggested compliance approach for us to take – see chapter 7.

How we seek to understand your businessWe recognise that to establish a foundation for achieving cooperative compliance in the large market, we need a well-developed and thorough understanding of the world in which you operate and the realities of the commercial environment. This understanding takes into consideration both your domestic and international operations.

We recognise that large business operates in a globally dynamic social, political and economic environment. Understanding these factors, as well as the policy, legislative and administrative processes of the law, enables us to make more informed judgments on large business behaviour and its possible impact on compliance.

We use the ‘business, industry, sociological, economic and psychological’ (BISEP) model to help us consider business behaviour in both domestic and international context. These broad areas reflect the fact that your compliance decisions are affected by a wide set of related factors – see figure 5.

Additionally in our risk profiling, which we undertake twice a year, we consider a number of other factors including your effective tax rates, your major transactions and other interactions with us, which we derive from a range of public and tax return data. We also undertake research to better understand issues possibly impacting on your compliance, see chapter 7.

FIGURE 4: Compliance model

Use full forceof the law

Have decided not to comply

Deter bydetection

Don’t want to comply

Help tocomply

Try to, but don’t always succeed

Makeit easy

Willing to do the right thing

Nurturing willing

participationLevel of com

pliance costs

HIGH

LOW

Compliance strategyAttitude to compliance

COMPLIANCE IN FOCUSOur publication, Compliance in focus, outlines how we encourage high levels of compliance with Australia’s tax and super laws and details key areas of risk to compliance. It is our way of being transparent with the community about what risks we are seeing and what we will focus our resources on for the coming year. It outlines specific issues that will receive increased focus. We aim to encourage voluntary compliance, identify areas of the law that need clarification or are high risk, and address non-compliance.

For more information, go to ato.gov.au/complianceinfocus

02 OUR APPROACH


BISEP MODEL

FIGURE 5: BISEP model

IF YOU ARE NOT SATISFIEDIf you are concerned about how a compliance activity is proceeding, we encourage you to discuss the issues with your nominated ATO case officer.

If discussion with the case officer does not resolve the issue, we encourage you to refer the issue to the senior officer whose name you will have been given at the start of the compliance activity. The senior officer will review the issue, including the relevance and scope of any information requests, and will discuss it with you and your case officer.

The senior officer will work with you and your case officer on a process for addressing your concerns.

CHECKLIST OF WHAT WILL ATTRACT OUR ATTENTION

■ Financial or tax performance that varies substantially from industry patterns

■ Significant variations in the amounts or patterns of tax payments compared to past performance, relevant economic indicators and industry trends

■ Unexplained variation between economic performance, productivity and tax performance

■ Unexplained losses, low effective tax rates, and cases where a business or entity consistently pays relatively little or no tax

■ History of aggressive tax planning by the corporation, group, board members, key executives or advisers

■ Perceived weaknesses in the compliance structures, processes and approaches

■ Tax outcomes that are inconsistent with the policy intent of the tax law

■ Promotion of tax exploitation schemes ■ Implementation of a transaction in a way that is materially different to that described in a product ruling relevant to the transaction

■ Businesses experiencing rapid growth, restructure, mergers or de-mergers, deploying new accounting software or undergoing changes of accounting staff

■ Businesses employing strategies that may lead to an erosion of the corporate tax base


GOOD TAX GOVERNANCE03A robust approach to tax risk management will function on two levels:

■ how you manage your tax risk on a strategic level ■ what controls you have in place to meet your operational obligations.

STRATEGIC LEVELManaging tax risk can be considered in terms of what relationship you want to have with us. Your approach to tax risk will determine the nature of your interactions with us and whether we:

■ work with you on a prospective, cooperative basis to identify tax risks and agree on mitigation strategies, or

■ proceed via the use of risk reviews and audits.

Ideally you should have robust board and corporate decision-making processes for major transactions and corporate strategies that incorporate appropriate coverage of tax matters.

We expect that taxpayers with strong corporate governance and tax risk management have board members who are properly supported by underlying processes that inform decision-making and play a crucial role in establishing and maintaining strong corporate governance structures. Board members should be informed of and consider material tax issues associated with proposed major transactions, arrangements and strategies and understand the effects on their business.

The board should determine what aspects of tax risk are within its control and what level of risk is acceptable, while pursuing the objectives of having:

■ controlled and transparent management of tax activities on a day-to-day basis

■ decision-making that is able to be understood by non-tax personnel

■ an enhanced ability to anticipate issues (such as changes in law and relevant court decisions).

OPERATIONAL LEVELEffective accounting and control mechanisms help you to meet your day-to-day compliance and reporting obligations. They reduce your on-going compliance costs and enable robust and transparent tax-management systems and controls.

RECORD KEEPINGGood record keeping is part of robust corporate governance. Under tax law, you must keep records to support your liabilities and claims. These records include documents evidencing an intention, election, choice, estimate, determination or calculation. Documents include both paper and electronic communications including emails.

SOUND TAX RISK MANAGEMENT PROCESSESManaging your tax risk well is core to good corporate governance, particularly if you are operating in international markets. We work with you to build an environment that fosters good corporate governance and supports your tax risk management.

We are committed to engaging with you and the agencies that develop corporate governance codes to assist you to incorporate tax compliance into your risk management processes, both strategically and operationally.

We are committed to developing a better relationship with you in the interests of an efficient, internationally competitive tax system. In Australia, corporate reporting and disclosure laws make it important for boards to be appropriately informed about material tax risks.

By being transparent, accountable and engaging constructively with us, you demonstrate good corporate citizenship and lower your tax risk profile, with the benefits to reputation that follow. Our experience with corporate governance and relationship based products – such as our annual compliance arrangements – shows that better relationships with large business lead to fewer audit interventions and improved certainty for both of us.

At an international level, open and transparent relationships are increasingly being seen as key to promoting better governance practices that enhance relationships and are of mutual benefit to both the authority and large business. The Organisation for Economic Cooperation and Development (OECD) Multinational Enterprises Guidelines recognise tax risk management as a key component of good corporate governance.

Because of the additional tax compliance implications of international transactions and arrangements, businesses operating in Australia with international dealings must be aware of and meet Australian corporate governance requirements, especially record keeping obligations.

For more information on international risk, go to ato.gov.au/complianceinfocus

WHAT DOES GOOD CORPORATE GOVERNANCE LOOK�LIKE?You should have appropriate corporate governance arrangements in place to manage your tax responsibilities

Key people within your business should ensure that governance arrangements are being met by having appropriate oversight, sound systems, clear accountabilities, strong controls, ethical behaviours and highly skilled people supported by robust processes and procedures. Your business should have the capacity to identify, assess and mitigate tax risks.

03 GOOD TAX GOVERNANCE


■ you understand the risk stance of your tax adviser and are comfortable that it aligns with your business

■ you are satisfied with the way your business manages any major disagreements with us

■ any potential tax liabilities are adequately provided for ■ the amounts of tax you are paying are in line with your business results

■ if your business results do not align with your tax payments, that there is a reasonable explanation

■ you do not have any transactions or arrangements that may be viewed as not making commercial sense or be perceived as seeking a tax benefit

■ if your business is consistently reporting losses, that these are real economic losses and can be satisfactorily explained in terms of overall performance.

At an operational level, your tax risk management frameworks and governance processes should ensure:

■ the roles and responsibilities associated with overall tax compliance are clearly defined

■ your tax function has adequate resources to manage tax risks effectively and provide reasonable assistance when dealing with us

■ the tax information used for your internal accounting and provided to us is accurate and reliable

■ you are confident that your records and control systems enable you to properly assess and meet your tax obligations

■ changes relating to tax and super laws or their interpretation (for example, due to court decisions) are appropriately implemented

■ processes are in place to identify, assess and escalate relevant matters

■ tax risks are monitored within your business, and the board and senior management are regularly updated

■ your information systems provide ready access to important information and that there are no gaps in corporate memory

■ your reporting deadlines are met.

For more information, see chapter 7, or go to ato.gov.au/rdf

For multinational companies or those operating cross-jurisdictionally, you are obliged to follow the requirements set out by Australian tax law.

For more information, go to ato.gov.au/recordkeeping

HOW WE SUPPORT TAX-RISK MANAGEMENTWe provide a number of services to help you accurately assess and manage tax risks, including:

■ annual compliance arrangements (ACAs) which help you achieve practical certainty and reduce compliance costs

■ advance pricing arrangements (APAs), like ACAs, which provide practical certainty and reduced compliance costs for international dealings

■ pre-lodgment compliance reviews (PCRs) which assist our largest taxpayers to identify and manage risk soon after major transactions occur

■ Compliance in focus, our publication outlining the tax risks attracting our attention

■ our rulings program, where you can seek our view on a transaction, issue or product

■ the GST governance and risk management guide ■ assurance-based risk and governance workshops.

For more information, go to ato.gov.au/GSTgovernanceriskguide

More information on corporate governance guidelines can be found on the OECD website at oecd.org

TAX-RISK MANAGEMENT AND GOVERNANCE CHECKLISTSAt the strategic level, your tax risk management frameworks and governance processes should ensure:

■ you have a documented tax risk management policy that is adhered to by all stakeholders

■ you are aware of your risk-differentiation framework (RDF) categorisation, and the relevant matters we considered in establishing your categorisation

■ you understand the consequences of your risk categorisation ■ your business is aware of and, where appropriate, effectively uses the services and compliance products we offer to reduce your tax risk and compliance costs

■ your process for implementing your tax risk framework is appropriately presented to your board


04 WORKING TOGETHER WITH LARGE BUSINESS

National Tax Liaison GroupThe National Tax Liaison Group (NTLG), a stewardship committee, focuses on significant matters in the national interest. It supports key relationships reflecting the broader community. Like the LBLG, the NTLG provides an opportunity to discuss the strategic direction of the tax system. It also specifically provides opportunities for improvements to the administration of the tax and super systems.

The role of the NTLG is to raise and address: ■ concerns about aspects of the administration of the tax and superannuation systems which are not functioning properly

■ technical issues associated with policy implementation and application.

Membership comprises senior ATO executive officers, professional associations and a representative from Treasury.

For more information, including access to minutes, go to ato.gov.au/ntlg

HOW WE COMMUNICATE WITH YOUWe want to provide you with the best possible service and relationship management. To do this we work closely with you, your tax advisers and industry groups to improve tax administration.

When we need to talk to you we will contact your public officer or another authorised contact.

Our information services aim to give you timely information and advice to help you understand your rights, entitlements and obligations and give you greater clarity on the application of the tax law and on our strategies and approaches.

We keep you informed through the services listed below.

SERVICES WE PROVIDE AND HOW WE WORK TOGETHERWe are committed to the continuous improvement of our service and relationship with you. We provide a number of ways for you to obtain information and communicate and transact with us.

At a strategic level we facilitate: ■ the Large Business Liaison Group (LBLG) ■ input to the National Tax Liaison Group (NTLG) ■ stakeholder relationship management arrangements with industry associations and taxpayer representatives, technical and special purpose consultations

■ industry-specific forums ■ liaison with industry associations.

At an operational level we provide: ■ general services, such as information on our website ■ client services, giving information directly to you through our phone service, email subscriptions and the Business Portal

■ specialised services, tailored to the circumstances of key clients in large business.

WORKING TOGETHER ON THE SYSTEMWe regularly consult with large business key industry bodies and professional associations to improve our understanding of specific business environments and your perspectives on key tax issues.

These forums focus on partnering and co-designing compliance practices and approaches. This enables us to help you comply with a changing legislative environment and guides our approaches to reduce compliance costs and improve the administration of the tax system.

Large Business Liaison GroupThe Large Business Liaison Group (LBLG) is a stewardship committee representing our key relationships with the large market. It focuses on significant matters where the outcomes are considered to be in the national interest. The LBLG discusses the strategic direction of the tax and super systems. Membership of the LBLG comprises senior ATO executive officers, industry representatives, tax managers from some of the top 100 corporates and a representative from Treasury.

For more information, including access to minutes, go to ato.gov.au/lblg



Large business bulletinThe bulletin is a by-subscription quarterly online publication aimed at large business. It contains up-to-date information on income tax, GST, excise and super matters with links to recent rulings, speeches and media releases.

To view or subscribe, go to ato.gov.au/lbbsubscribe

Large business alert serviceThe alert is a subscription-based email service for communicating directly with you when important issues arise.

To view or subscribe, go to ato.gov.au/lbasubscribe

Business PortalThe portal is a secure website for managing your business tax affairs, protected by the AUSkey pass system. You can use this to:

■ prepare, lodge and revise activity statements ■ view and arrange transfers to or refunds from income tax, excise, fringe benefits and some super accounts

■ communicate with us using a variety of forms or via the portal mail function

■ update contact and some registration details (for example, financial institution details, business and postal addresses and ATO contact details)

■ lodge objections ■ apply for private binding rulings.

For more information on our online services, go to ato.gov.au/onlineservices

Compliance teamsOur compliance teams have responsibilities that include monitoring and reviewing economic and tax performance, lodgments, media alerts and significant events. During compliance activities – such as risk reviews or audits – we will give you contact information for your compliance team.

GENERAL SERVICES

Businesses homepageOn our Businesses homepage you will find a range of up-to-date information on new law, announced changes to the law and administrative changes. You can also access our legal database.

Go to ato.gov.au/business

International tax essentials for businessesThis homepage offers detailed information on international tax issues affecting large business. You will find details of new measures impacting your business such as the review of international tax agreements, transfer pricing and tax treatment of foreign income.

Go to ato.gov.au/international

Compliance in focusOur annual Compliance in focus publication outlines how we encourage compliance with Australia’s tax and super laws and details our areas of particular focus across all taxpayer markets.

Go to ato.gov.au/complianceinfocus

CLIENT SERVICESTo build and maintain strong relationships with large businesses we offer a range of services to help you understand and manage your tax rights and obligations.

Large business phone serviceYou can use this service for quick and easy access to officers experienced in dealing with large business account inquiries about debt and lodgment obligations. This covers both income tax and GST.

Phone us on 1300 728 060 or fax your query to 1300 724 793.

International callers can contact us by phoning +61 2 6216 1111 between 8.00am and 5.00pm (EST or daylight-saving time) and asking for your call to be transferred to the appropriate area within the ATO.

Alternatively, you can fax us on +61 2 6216 2830. Other phone numbers may not work from some countries.



YOUR FEEDBACKWe encourage your feedback at any stage throughout our interactions. Talking to us early will help resolve issues and, if issues need to be escalated, you will have access to our decision makers.

You have the Commissioner’s guarantee that you can provide open and honest feedback, or raise concerns without it influencing our view or future interactions with us.

ComplaintsIf you are not satisfied, you can phone our complaints line on 1800 199 010. Alternatively, tax practitioners can phone 13 72 86 Fast Key Code 3 2 1.

For more information on how to make a complaint, go to ato.gov.au/complaints

Feedback questionnairesWe send out a short questionnaire following the completion of a risk review, audit, private ruling, public ruling or objection, and analyse the responses to help us improve our processes.

Professionalism surveyWe will be measuring the professionalism of our staff as part of our service commitments. A single perception and satisfaction survey of the community, including large businesses, will be used to collect your opinions. With your help we can measure our performance and focus on areas needing improvement.

To view the results of the survey, go to ato.gov.au/professionalismsurvey

SPECIALISED SERVICESWe recognise the importance of the largest businesses in Australia. Given the size and nature of your business we have a range of specialised services tailored to the particular circumstances of key clients. Listed below are some examples of these services.

Relationship managersWe offer relationship managers to key large market taxpayers to help provide a more streamlined service and foster two-way communication.

Large Service TeamLarge market taxpayers without a relationship manager can email [email protected] for assistance relating to online, transactional and administrative issues and information on your risk categorisation.

Relationship management meetingsWe have a program of regular visits with our largest businesses. Senior tax officers will meet with you to discuss significant events that may have tax implications, revenue performance, risk, technical and service issues and the progress and conduct of any compliance activity.

Senior executive relationship managersWe have expanded the lead relationship manager service previously offered to selected large businesses. Senior executive relationship managers are offered as a contact point for over 100 key taxpayers categorised under our risk-differentiation framework. These officers work collaboratively with the large business to facilitate, coordinate and prioritise high level engagement across the ATO, resolve blockages and issues where other avenues have failed, and arrange access to decision makers for significant issues.


OBTAINING CERTAINTY 05HOW WE PROVIDE ADVICETo give you certainty we offer a number of ways for you to seek advice on an issue.

We encourage you to come to us early so that we can help you to meet your commercial timeframes, as shown in figure 6. Early discussions help clarify technical issues, identify the most appropriate advice product, clarify information requirements, case plan and manage expectations.

For more information on who to contact, see ‘Client services’ on page 13.

Interpretive assistanceProviding written advice on how the tax laws apply is a feature of our self assessment system and is central to our role. A ruling is our opinion on the tax interpretation of the law and is binding on us but not on the taxpayer. For class, product and private rulings, you will need to provide a full and true disclosure of all the material facts to allow us to form a view. If all material facts are not disclosed the ruling cannot be relied upon.

We may engage in compliance activities to ensure the advice sought is implemented in materially the same manner as described in the request.

For more information on the advice process, see ‘Rulings process’ on page 40.

For more information on the advice and information services we provide, go to ato.gov.au and search for ‘Taxpayers’ Charter – helping you to get things right’.

OUR LAW ADVICE SERVICES AND HOW TO USE THEM�EFFECTIVELYWe offer a range of advice services to help reduce uncertainty and clarify ambiguity about how the tax law works.

If law is clearWe have a duty to apply the law. If the law is clear but gives rise to unintended consequences, anomalies, or significant compliance costs inconsistent with the policy intent, we have a responsibility to advise the government – usually through Treasury. We do this regardless of whether the existing law favours taxpayers or the revenue, giving the government the opportunity to consider legislative change.

If law is open to interpretationIf the words in the Act are open to interpretation in different ways, our approach is to adopt the interpretation that is consistent with the policy intent. If more than one of the available interpretations achieves the policy intent, we will generally favour the interpretation that reduces your compliance costs.

New legislationWe are responsible for ensuring that new legislation is implemented efficiently and effectively through consultation, collaboration and co-design with taxpayers, professional associations, representatives, industry bodies and Treasury.

We work with all stakeholders to ensure that the law, administrative systems and information products are consistent with the policy intent and compliance costs are minimised.

04 OBTAINING CERTAINTY


Product rulingsProduct rulings enable us to rule publicly on the availability of claimed tax benefits from ‘products’. A ‘product’ refers to an arrangement in which a number of taxpayers individually enter into essentially the same transactions with a common entity or group of entities.

Product rulings give certainty about the tax consequences of entering into a particular arrangement – provided the arrangement is carried out in accordance with details in the product ruling. We expect the highest levels of disclosure in rulings applications.

We do not sanction or guarantee products as investments. We give no assurance that products are commercially viable, that charges are reasonable, appropriate or represent industry norms, or that projected returns will be achieved or are reasonably based. You and your financial advisers must form your own view about the commercial and financial viability of the product.

Private rulingsPrivate rulings allow you to self assess if the law or factual circumstances make you unsure of the correct tax treatment of a transaction.

To reduce uncertainty you can apply for a private ruling – you can ask to be ‘assessed’ in relation to an existing or proposed transaction, including the application of a general anti-avoidance provision.

We will work with draft material for prospective transactions however the draft documentation must be materially similar to the end product. We may also ask for more information and can make assumptions in some circumstances based on our understanding of the information you have provided.

We must determine your tax position by the proper application of the tax law to the facts of your case.

You may not need to seek a private ruling if there is an existing public ruling and there are no material differences between it and your particular circumstances.

Private rulings can be useful in obtaining our views on uncertain legal positions. Under the law, you can object to a private ruling decision. If you object, we may ask you for further submissions to support your argument.

TYPES OF INFORMATION WE PROVIDEWe provide two categories of information:

■ published information about how the law generally applies ■ information specifically for you.

Our general information, such as our electronic and paper publications, provides information about how the tax law works. As this information is general in nature, it is unlikely to cover all possibilities.

These include: ■ public rulings ■ class rulings ■ product rulings.

If general information does not fully cover your circumstances, or you are unsure how the law applies to you, another form of advice should be sought.

You may also ask us to provide advice specifically for you. Different types of advice are available:

■ private rulings ■ administratively binding advice.

Public rulingsPublic rulings provide our interpretation of the tax law on priority issues that need clarification. They can help you to understand the law better and, from our perspective, they play an important role in improving voluntary compliance in a self assessment environment. In terms of your business, they give you more certainty in making decisions. Rulings can only interpret existing law and are not designed to fill gaps or amend deficiencies in legislation.

We identify the types of matters and priority topics suitable to be covered in our public rulings in consultation with your representative bodies.

There are also two specialised types of public ruling: ■ class rulings ■ product rulings.

Class rulingsClass rulings enable us to provide legally binding advice in response to a request from a client seeking advice about the application of a tax law to a specific class of people about to enter a particular arrangement. The purpose of a class ruling is to provide certainty about the way the law applies to the arrangement and remove the need for each individual affected to seek a private ruling.



General anti-avoidance ruleYou may consider requesting a private ruling on the application of one of the general anti-avoidance rules (GAARs) to a specified scheme and any particular tax benefit in connection with or from that scheme. GAARs that may apply include Part IVA in the Income Tax Assessment Act 1936 (ITAA 1936) and section 165 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Private rulings on the application of a GAAR will need a thorough examination of the facts and purpose of each step in the overall scheme and this may delay the issuing of the ruling or result in a qualified ruling.

To minimise delays, you may wish to consider asking us to consider the application of a GAAR about specific issues or concerns (that is specific tax, including indirect tax, benefits) rather than asking us to consider if a GAAR will apply to the scheme in general.

Resolving disputesThe GAARs Panel helps us to administer these rules.

The panel is comprised of a range of business professionals and senior ATO officers – see ‘General Anti-Avoidance Rules Panel’ on page 32.

Administratively binding adviceAdministratively binding advice is written advice that we give you in limited circumstances – usually when the law does not allow us to give you a private ruling.

For example advice about: ■ the tax consequences to a company planning a takeover bid of another company (without the consent of the target company)

■ a scheme proposed by a company that is not yet incorporated

■ a scheme where private or public infrastructure matters are raised and there are no entities yet in existence that can request a private ruling.

For further information, refer to PS LA 2002/13 Authorisation of written binding advice.

FIGURE�6: Ongoing dialogue

PRE-LODGMENT DISCUSSION TO AGREE SCOPE AND TIMELINES

CHOOSE ADVICE PRODUCT (based on commercial drivers, that is, timeframes,

level of certainty required)

INFORMATION PROVIDED BY TAXPAYER

FACTS ANALYSED BY THE ATO AND APPLICATION OF THE LAW

DISCUSS WITH TAXPAYER

RULING ISSUED

DECLINED TO RULE

RULING WITHDRAWN

Priority ruling processWe recognise that significant transactions can sometimes arise quickly and you may need an urgent ruling from us. Certain private and class rulings may qualify for inclusion in our priority ruling process.

We use this process to manage tax risks associated with time sensitive, prospective transactions that:

■ are of major commercial significance and require consideration at board level

■ have a tax outcome that is a critical element of the transaction ■ have complex law or facts that need to be analysed.

For inclusion in our priority rulings process, the entity must: ■ notify us as soon as practicable after the transaction is first seriously contemplated

■ agree to provide an application incorporating a full brief with – all relevant information – all issues identified – position for and against – timeframes identified.

For more information, go to:■ ato.gov.au/publicrulingprocess■ PS LA 2009/2 The priority ruling process.



We expect you to: ■ contact us as early as possible so that we can give you the best opportunity to meet your timeframes

■ understand that complex cases may take more than 28 days ■ maintain open dialogue on the issues and facts ■ supply information within agreed timeframes ■ provide us with a central point of contact.

We will tell you of any concerns we have as early as possible. If we become aware that our interpretations of the law diverge, we will inform you, while we are still working through the issues. It is only the final ruling that can be relied upon.

We encourage you to discuss the issue at hand with us and we will include our decision makers in these talks.

Indicative adviceAs part of our ongoing relationship, or in the course of preparing a private, class or product ruling, you may ask us to indicate our likely view of the law about a situation.

We provide indicative advice only if certain exceptional criteria are met and you acknowledge that the advice is not binding on us and should not be relied on as representing our view of the law on the matter.

For more information on our position, refer to PS LA 2008/3 Provision of advice and guidance by the Tax Office.

A note about general advice and our publicationsGuidance may be given in writing or orally, including by one of our publications.

We provide guidance to help taxpayers understand their obligations and entitlements under the laws we administer. Guidance is not binding on us.

Mutual expectationsYou can expect us to:

■ progress matters within the agreed timeframes ■ maintain open dialogue and keep you informed of the progress of rulings, including where complex cases may take more than 28 days

■ make information requests clear and unambiguous ■ contact you in order to understand the facts and discuss any concerns we might have

■ provide you with a central point of contact and access to the relevant decision makers.

A full and true disclosure of the material facts will allow us to form a view. If all relevant material facts are not disclosed the ruling cannot be relied upon.

To help us provide advice in timeframes that meet your business needs it is best to:

Talk to us early Talk to us about transactions as early as possible to help us meet your deadlines. Even if there is not enough information available to start formal discussions, early notification helps us to plan ahead so we can have the right people available once you are ready to proceed. It also gives us the opportunity to understand the commercial context you are working in.

Have information ready (pre-ruling)

Be ready to explain the transaction and the technical issues that concern you at a pre-lodgment discussion. We will help you work out what should be included in your application, including information we will need and issues you should address.

Work within timeframes

Send us your comprehensive application and the information we need by the agreed times. We understand that tax is not your only concern when a major transaction is being developed and it is a busy time for you.


COOPERATIVE COMPLIANCE 06you may still be entitled to a reduction in penalty. If a voluntary disclosure is made after notification of an audit or a review, the voluntary disclosure itself is not a ground for remission.

If you provide us with information that you identify as being a voluntary disclosure (or could potentially be regarded as a voluntary disclosure) we will discuss it with you. In these discussions, we will advise you if the information is sufficient for it to be considered a voluntary disclosure or if you need to provide additional information. There may also be a need for us to review the situation to determine whether it can be accepted as a voluntary disclosure.

If you do not have sufficient information to meet the requirements of a voluntary disclosure, we can help you. Contact the large business phone service on 1300 728 060.

Our policy on the treatment of voluntary disclosures is set out in MT 2012/3 Administrative penalties: voluntary disclosures.

SELF-AMENDMENTSAs a general rule, if you need to correct something on your tax return, even if it has not yet been processed, you request an amendment. However, if you want to dispute the facts or the law, you use the objection process.

Our early engagement process for amendments and objections can assist you to work out which is the most suitable option for your circumstances.

The early engagement process is available when you want to: ■ correct a mistake you have made on a previously lodged income tax return

■ change a technical position you have adopted in an income tax return

■ object to an income tax return you have already lodged.

To request an early engagement meeting, email [email protected] Include a brief summary outlining what you want corrected or changed, and the reasons why.

For more information on what you need to provide for a self-amendment, go to ato.gov.au/correctionsandobjections or ato.gov.au/amendmentsandobjections

TAXPAYER INITIATED PROCESSESAn environment of self-assessment and cooperative compliance is the cornerstone on which our tax system is built. Supporting your voluntary compliance is our preferred way to work with you. If something is not right or your understanding of a situation has changed, we offer a number of processes that you can initiate to sort it out and fulfil your tax obligations. By using these processes you can achieve greater certainty for your business and help minimise your compliance costs.

VOLUNTARY DISCLOSURESWe accept that errors can and do happen and that changing circumstances, reflection or review may mean that you adjust your view on how a particular transaction should be treated. If this happens, let us know of any changes in your position or any error by making a voluntary disclosure. Making a voluntary disclosure if you identify issues helps keep the tax system fair and efficient. If we contact you about your return or activity statement, it usually means that we have already found something that does not fit with the information we have available.

If you are genuinely trying to report correctly or are genuinely trying to correct an error, you may receive a reduction in the penalty treatment and in some cases, interest charge remissions.

Contact us about any changes in your position or any errors in your tax affairs as soon as you find them. If the transaction has already occurred or your tax return has already been processed, make a voluntary disclosure.

Making a voluntary disclosure is where you: ■ advise us of an error or omission in a statement that leads to you having to pay more tax (shortfall amount) for that accounting period

■ provide information in an agreed format sufficient for us to identify the shortfall amount.

A voluntary disclosure can be triggered by: ■ you through internal audit processes, internal business reviews, advisers, new acquisitions, or information in the media

■ us through questionnaires, risk reviews, rulings, or issues identified in our publication, Compliance in focus.

Voluntary disclosures may be given in writing, electronically or by phone. To assist us to determine the shortfall amount include relevant facts and sufficient information to enable us to work out the correct amount of tax to be paid.

If you make a voluntary disclosure before we notify you that we are starting a review or an audit, you will generally not have to pay any shortfall penalty for making a false or misleading statement. In certain circumstances, if you make a voluntary disclosure after you have been advised of a review or an audit,

06 COOPERATIVE COMPLIANCE


ANNUAL COMPLIANCE ARRANGEMENTSACAs are the centrepiece of our efforts to build enhanced positive relationships and compliance outcomes with large business. ACAs are most suited to those large businesses we classify as key taxpayers under our RDF. ACAs are available for income tax, GST, excise, petroleum resource rent tax, minerals resource rent tax and FBT or any combination of these taxes.

An ACA improves practical certainty for you by considering tax risks as they are identified and complements other products and services such as our rulings program. It offers a ‘no surprises’ approach which benefits both of us.

The ACA is an administrative arrangement developed to manage the compliance relationship with you in an open and transparent environment. As an administrative arrangement, the terms of an ACA will not override the application of the law and the policies administered under those laws. By committing to work in a frank and transparent environment with an assurance based approach we can tailor your compliance relationship and experience, rather than working through traditional compliance approaches such as audits and risk reviews.

Building upon the broad principles of an ACA we will collaboratively develop your arrangement to ensure that it is suitable and takes into account your business operations. Collaboration, transparency and trust are the key features throughout the ACA process.

The ACA process facilitates a lower compliance cost when compared to alternative compliance approaches for example audits and reviews.

ACAs ensure that all interaction with us is coordinated, prioritised and managed across the ATO. Subject to true and full disclosures, and a commitment to adhering to the corporate governance principles (see Good tax governance on page 10), ACAs provide practical certainty for your tax return, shortly after lodgment. This certainty is subject to issues that we advise may need further examination.

A compliance plan will be developed outlining agreed processes and timelines to resolve any unaddressed issues.

Key benefits of entering into an ACA include: ■ a speedier resolution of technical issues ■ administrative solutions to resolve compliance irritants ■ centralised points of contact and ongoing dialogue on technical matters

■ a closure of returns to further ATO review ■ concessional treatments of penalties and interest ■ a plan outlining agreed processes and timelines ■ the possibility of extension of thresholds for correcting GST errors for a GST ACA

REPORTABLE TAX POSITION SCHEDULEThe reportable tax position (RTP) schedule for income tax is part of our integrated approach to working with our largest business taxpayers. It supports a more contemporaneous review of, and engagement with these taxpayers, supporting increased taxpayer transparency in a targeted and efficient manner.

Our largest businesses must disclose their most contestable and material tax positions.

For the 2012, 2013 and 2014 income tax years, the RTP schedule is being piloted with a small number of taxpayers who have been advised in writing that they need to lodge the RTP schedule. Taxpayers that have entered into an income tax annual compliance arrangement (ACA) for the relevant income year will not need to complete the RTP schedule.

RTPs are material and contestable positions that come under one or more of the following categories:

■ a position that is about as likely to be correct as incorrect, or is less likely to be correct than incorrect

■ a position where uncertainty about taxes payable or recoverable is recognised or disclosed in the taxpayer’s or a related party’s financial statements

■ a reportable transaction or event.

You only need to disclose in the RTP schedule material tax positions that have not been previously disclosed either:

■ in an application for a private binding ruling ■ under an advance pricing arrangement (APA) or an application for an APA that has been accepted into the APA program

■ in a Reportable tax position early disclosure form.

We will use RTP disclosures to: ■ better understand tax risk for taxpayers, industries and the large market

■ further refine our risk-differentiation framework (RDF) categories to enhance the risk-based choices we make to prioritise our work

■ improve our dialogue with large businesses about their risk categories and corporate governance

■ help us focus our compliance activities ■ identify areas of uncertainty in the tax law that may need

– law clarification or legislative improvements – further advice and guidance by us.

For more information on how we will use RTP disclosures, go to ato.gov.au/rtp

06 COOPERATIVE COMPLIANCE


MUTUAL AGREEMENT PROCEDUREAt times, international transactions can lead to exposure to double taxation. For example, a transfer pricing adjustment in one country arising from an audit can result in the same income being taxable in two jurisdictions.

If you believe you have been or will be subject to double taxation you can apply for relief to the tax administration of your jurisdiction. If your application is accepted we will discuss your case with the other tax administration and try to resolve it in accordance with the relevant double tax agreement. This process is known as a mutual agreement procedure (MAP).

We, and other tax administrators, will endeavour to resolve any double tax issues and inform you of the agreed outcomes.

A MAP is part of the dispute resolution process and is in addition to your objection and appeal rights.

For more information, go to ato.gov.au/map

TAX ISSUES ENTRY SYSTEMThrough the tax issues entry system (TIES) you have an opportunity to raise issues about the care and maintenance of the Australian tax and superannuation systems. We jointly manage TIES with Treasury.

Care and maintenance issues are about making sure the existing law operates in the way it was intended, by correcting technical or drafting defects, removing anomalies and addressing unintended outcomes. Care and maintenance issues could involve minor policy changes, though they typically would not have a significant revenue impact.

Through TIES we try to find the best solution to issues, whether that can be done by way of a change to our existing administrative practices or by raising with the government the possibility of changing the law. Law changes will be subject to the government’s other legislative priorities.

For information about TIES, how to submit an issue for consideration and a list of issues currently being managed, refer to TIES go to ties.gov.au

■ not being subject to post-lodgment risk reviews or audits for periods and income years covered by an ACA

■ not needing to complete the RTP schedule for income years covered by an ACA

■ not being subject to a pre-lodgment compliance review.

For more information on ACAs, go to ato.gov.au/aca

ADVANCE PRICING ARRANGEMENTSAPAs provide you with the opportunity to reach an agreement with us on the future application of the arm’s length principle to your dealings with international related parties. APAs may be unilateral which involves your business in Australia and us, or bilateral or multilateral which involves an agreement between two or more tax administrations and their respective taxpayers.

The arrangement generally covers a period of three to five years and may be reviewed if the trading circumstances materially change. APAs are also subject to an annual reporting requirement.

APAs can provide certainty with the benefit of: ■ ensuring the fair application of the arm’s length principle to related party international dealings

■ eliminating or reducing the risk of double taxation on related party international dealings (particularly in bilateral and multilateral APAs)

■ eliminating the risk of a transfer pricing audit on the related party international dealings covered by the APA.

Before committing to an APA, we need to consider whether the cost and effort of obtaining an APA is proportionate to the benefits obtained. An APA application needs to contain a properly developed and documented solution.

Our role involves critical analysis rather than undertaking original work to establish the arm’s length outcome. Our pre-lodgment process provides an opportunity for issues to be identified up front with the aim of facilitating successful applications.

For more information on APAs, go to ato.gov.au/apa


HOW WE MANAGE TAX RISK07

FIGURE 7: Managing large business tax risk

Deal with controls

DEAL WITH

■ Advise for the future

Educate & exemplify

■ Assist to comply■ Adjust if appropriate

Engage & encourage

■ Penalise if needed■ Prosecute if warranted

Enforcement as remedy

Champion good:■ Policy charges■ Law changes■ System changes

Enable & empower

■ Public rulings■ Speeches■ Articles■ Booklets & guides

Educate & exemplify

Deterrent controls

DETER

Voluntary compliance = Effective engagement Credible compliance+

■ Governance guides■ Consult, collaborate

& co-design aspects■ Relationship

management work

Engage & encourage

■ Calculators & forms■ Pre-filling forms■ Private rulings

Enable & empower

■ Media release■ Reminders■ Alerts

Enforcement as deterrent

Knowledge■ Those who don’t

know what our view of compliance is

Not ready

Causal aspects

Attitude■ Those who don’t

want to comply with our view

or■ who don’t take

reasonable care to comply with our view

(Influences: effort/ease, experiences, economics, equity, ethics, emotions)

Unwilling

Capability■ Those who are

unable to comply with our view

Unable

Quantitative intelligence

(analytics, outliers)

Qualitative intelligence (eyes, ears & experience)

Detection controls

DETECT

■ Register in the system■ Lodge correct forms■ Report accurately on them■ Pay or make transfers

Compliance obligations

Review frequency

Risk likelihood

Non-compliance

What is the risk?

Who has the risk?

Rev

iew

inte

nsity

Ris

k co

nseq

uenc

e

Key client Continuous monitoring

Higher risk Continuous

review

Lower risk Periodic

monitoring

Medium risk Periodic review

Each year, we review your risk-differentiation framework categorisation. In many cases, the risk categorisation will not change. We will formally notify you of your categorisation, and may highlight specific focus areas during this process.

For the relatively few taxpayers with whom we have more significant concerns, our approach may have more of an enforcement focus if this is considered appropriate.

HOW YOU CHOOSE TO MANAGE TAX RISK DETERMINES HOW WE ENGAGE WITH YOUFor the majority of taxpayers who willingly participate in the tax system and implement sound compliance practices, our main engagement focus is the provision of advice and support to facilitate cooperative compliance. This may also include seeking information about large claims to provide assurance that the correct amount of tax is being paid.

07 HOW WE MANAGE TAX RISK


FIGURE 8: Risk-differentiation framework

Key taxpayers

Lower risk taxpayers

Higher risk taxpayers

Medium risk taxpayers

SERVICE FOCUS

ASSURANCE FOCUS

ENFORCEMENT FOCUS

LIKELIHOODLess likely More likely

Higher

Lower

CO

NS

EQ

UE

NC

E

FACTORS WE USE TO DETERMINE YOUR RDF CATEGORISATIONBecause our view of your risk is informed by our understanding of other large businesses, you may have a different perception of your tax risk. It is likely that there will always be some large businesses that we perceive have a relatively higher risk compared to other large businesses, and understandably these will face more intense scrutiny by us.

Our perception of the likelihood of non-compliance is an informed professional judgment based on assessing a range of risk factors for each tax type. We undertake a moderation process to ensure the RDF categorisation is consistent and supported by evidence.

While no one factor is definitive, the evidence that we consider includes:

■ your compliance history, including – the level of disclosure and engagement around significant transactions you undertake

– the history of adjustments from previous compliance activity – the fullness of disclosure and cooperation demonstrated in response to any enquiries

– your lodgment and debt history ■ the level of transparency demonstrated by you in keeping us informed about proposed significant transactions or potentially contentious issues

■ whether or not you may have adopted a potentially contentious tax position

■ your effective tax rate ■ an organisational structure that facilitates transactions through secrecy and low-tax jurisdictions, with no commercial basis other than to reduce tax paid in Australia

■ the quality of your tax risk management and governance processes

RISK-DIFFERENTIATION FRAMEWORKIn line with our Strategic statement 2010–15, we are committed to supporting and protecting those willing to properly fulfil their civic and legal responsibilities and to be fair, but firm with those who don’t.

To assist with this, we use the risk-differentiation framework (RDF) to form a view of your relative tax risk and determine the intensity of our response in a coherent and considered way.

Rather than being a report card on performance, we see the risk categories and the framework as another way of increasing transparency: letting you know how we see you, which in turn allows you to make informed choices to work more effectively with us if need be.

The RDF provides a strategic approach for directing our resources more efficiently and effectively. It provides for greater differentiation of our risk management approaches based on our considered view of taxpayers’ compliance history and status.

(Speech by Bruce Quigley, Second Commissioner of Taxation to the Corporate Tax Association Convention, 7 June 2011, Melbourne)

The RDF is based on the premise that our risk management approach to tax compliance should take account of our perception of both the:

■ estimated likelihood of you having a tax position that we disagree with or having through error or omission misreported your tax obligations (as evidenced by your behaviour, approach to business activities, governance, and compliance with tax laws)

■ consequences (dollars, relative influence, impact on community confidence) of that potential non-compliance.

Using the framework, we place you into one of four broad risk categories (higher risk, medium risk, key taxpayer and lower risk) for each relevant tax type (income tax, GST, excise). The risk categorisation does not in any way influence the outcome of a possible risk review, but it does influence the formality and intensity of it.



Key taxpayersIf you are identified as a key taxpayer, we have a particularly keen interest in your risk management and governance frameworks to mitigate tax compliance risks. We expect key taxpayers to fully disclose potentially contentious matters to us as they arise.

We will assign the necessary resources to develop our relationship with you and increase our understanding of your business.

If a potentially contentious matter is identified, we will work with you to resolve the matter and evaluate your compliance with the law. We are less likely to use our formal powers of access and questioning when seeking additional information, though we will still escalate matters if we are unable to obtain the information and evidence needed to form a view in a timely manner.

Key taxpayers are encouraged to enter into an annual compliance arrangement. These arrangements can provide timely, practical certainty and reduced compliance costs.

Medium risk taxpayersFor taxpayers identified as medium risk, we will undertake targeted activities to deal with identified tax compliance concerns. These activities are more likely to be reviews and audits. We may also contact you to seek assurance that a particular transaction has been treated correctly.

To achieve greater consistency in the way we address specific issues we may use project based approaches that group large businesses with similar tax risks. These risks are normally identified in our publication, Compliance in focus.

Lower risk taxpayersThe majority of large businesses have a lower risk categorisation. For these taxpayers, we monitor intelligence to confirm your lower risk categorisation. This can involve activities such as requesting targeted information about specific issues we have identified in the market, visiting you to gain information about your business operations and our normal internal review processes.

Each year, we will formally notify you of your risk categorisation for each relevant tax type and be available to discuss this with you.

For more information on the risk categorisation of your business, go to ato.gov.au/rdf or email [email protected]

■ the capability of your staff, systems and processes that produce your tax records

■ information collected from industry associations, domestic and foreign regulatory bodies, and our own internal intelligence areas

■ your business performance over time compared to your tax outcomes and that of your industry peers

■ the output of various risk filters, generally for risks identified in our publication, Compliance in focus.

Our perception of the consequence of non-compliance is made by examining and understanding your business, including factors such as your market share, ability to affect the tax compliance of competitors in the industry, annual turnover, taxes paid, assets, amounts reported on activity statements, and amounts reported for excise obligations including WET and fuel tax credits.

It should be noted that your position on the consequence axis of the RDF model does not influence our perception of your compliance behaviours. For example, key taxpayers and lower risk taxpayers are both equally regarded by us as being relatively more likely to fulfil their responsibilities and likely to have a positive attitude to compliance.

HOW WE USE THE RDF TO ADDRESS TAX RISKIf we identify a potential risk or issue, we use the RDF to suggest how we will initially engage with you to resolve the issue. We apply the most appropriate treatment strategy based on your position within the RDF (figure 8). By doing this, we ensure your circumstances and our perception of the likelihood and potential consequences of the issue are taken into account to select the most effective method of resolution.

Four broad groupings are identified in the RDF.

Higher risk taxpayersFor higher risk taxpayers, we assign appropriate resources to allow for continuous review. Our activities may include comprehensive audit and other intensive risk analysis approaches. This will enable us to identify and understand risks as they arise and provide information about our possible concerns; allowing the taxpayer to make a more informed choice about their compliance approach.

While we take all relevant facts and circumstances of a case into account, if you are identified as a higher risk taxpayer, we are more likely to use our formal powers of information gathering in the event you are not open and transparent with us.



IDENTIFYING COMPLIANCE RISKSThe value, volume and complexity of transactions undertaken by large business have inherent risks for tax compliance.

We apply a level of risk analysis to all large businesses.

One of our approaches is to closely examine significant transactions and business results that show inconsistencies between tax and economic outcomes. We also assess the effectiveness and accuracy of your business systems, including tax risk management and governance systems.

Specific compliance risks that we focus on are detailed in our publication, Compliance in focus, which is updated each year.

For information about issues we are currently focusing on, go to ato.gov.au/complianceinfocus

Your checklist of what may constitute a risk: ■ Related party cross-border and tax haven dealings if a tax deduction is made in Australia with no corresponding and appropriate amount of assessable income.

■ Unintended or inappropriate outcomes if there are complex interactions between the consolidation provisions, other parts of the tax law and external regulatory frameworks.

■ Complex structures and intra-group transactions associated with generating tax benefits unrelated to the economic substance of your commercial activity, including exploitation of the GST groups and joint venture provisions.

■ Tax benefits from financial and other arrangements that are disproportionately high compared to your limited financial exposure, or if there is a divergence between the real and claimed economic substance of your business activity.

■ Arrangements to transfer or create tax benefits in circumstances not contemplated by the law.

■ Characterisation of transactions, for tax purposes, that is at odds with their economic substance.

■ Distortions and inconsistencies in market valuations. ■ Lack of capacity and/or capability in tax governance processes and personnel.

■ Not fully disclosing information on contentious transactions or only disclosing selected information on parts of a transaction.

■ Not disclosing the most contentious transactions. ■ Implementation of a transaction in a materially different way to that described in a product ruling or public ruling relevant to the transaction.

OUR APPROACHWe aim to work with you cooperatively to resolve any tax related issues and agree on mitigation strategies. We try to do this as close to the transaction as possible. This will give you greater confidence on the tax positions you take and will make it easier for you to comply.

The framework we use is dynamic and as we obtain more information about your compliance approach, our view of your risk may change.

Communicating our view is an important part of our relationship with you.

We have a duty to ensure that we have sound reasons for taking a view. To achieve this, we have developed a corporate approach to ensure our interpretive and analytical skills are fully applied to these decisions, including the use of external experts in some cases.

This approach is complemented by open discussions about your risk categorisation. When there are two opposing views on the application of the law, we consider using alternative dispute resolution processes early in the process to resolve the dispute in the most informal, cost effective and efficient way possible.

Our approach is closely aligned with the OECD Forum of Tax Administration guidance papers on tax risk management.

For more information on alternative dispute resolution processes, see chapter 9.

For more information on OECD publications, go to oecd.org


08 ACTIVE COMPLIANCE APPROACHES

OUR TYPICAL PROCESSES FOR ADDRESSING TAX RISKS�AND ISSUESIn an environment of self-assessment our primary focus is on supporting you to voluntarily comply with your Australian tax obligations.

If we identify potential issues, our response includes a mix of service, help and active compliance approaches. How we initially approach you to address tax risk depends on how you have been categorised under the risk-differentiation framework (RDF), see chapter 7.

Australian law requires that the correct amount of tax is paid in Australia. To ensure this occurs we have developed a broad range of services and active compliance products. For active compliance we are mainly referring to risk reviews and audits.

Active compliance work starts when risks are identified. The specific nature of the risk determines the scope, depth and breadth of our approach. We will try to choose an approach that minimises inconvenience and disruption to you.

If non-compliance is the result of uncertainty, we will seek to reduce that uncertainty by explaining our view of the law. If non-compliance arises from administrative issues we will work with you to make compliance easier.

ASSURANCE AND INDIRECT TAXESWe are improving our compliance approaches for GST and excise to increase our focus on early intervention and prevention. Instead of relying solely on reviews and audits as the basis of our interaction, we are also using assurance based products that promote self-review and collaborative resolution of GST or excise issues.

We may use workshops for large businesses categorised in our RDF as key taxpayers or lower risk taxpayers.

Assurance workshops are an opportunity for you and your client relationship manager (CRM) to work together to identify and resolve potential GST or excise issues in an open and transparent manner. We encourage you to discuss the suitability of a workshop with your CRM.

We will co-design the workshop agenda with you. Depending on the workshop agenda, specialists from other tax areas may be invited.

There are two types of assurance workshops available:

Governance workshopsThese workshops are intended to help you identify and address weaknesses in your governance and tax risk management processes and may also enable us to improve and tailor our interactions with your business.

Risk workshopsThese tailored workshops will enable us to work with you to understand and resolve specific GST or excise issues. They allow us to jointly address issues as they arise, especially if complex or unusual transactions are about to take place (such as mergers or acquisitions) or if transactions that commonly result in errors have already taken place.

FIGURE 9: Risk analysis and case selection

RISK ANALYSIS AND CASE SELECTION –can include specific enquiries by phone, letter or questionnaire to better select cases for risk review or audit.

RISK REVIEW PROCESS NO FURTHER ACTION

ADJUSTAUDIT PROCESS

MOST (70%)

SOME (30%)

MOST (80%)

SOME (20%)

MOST (70%)

SOME (30%)

RARELY

ALL

100

%



RISK REVIEWSRisk reviews form a major part of our compliance work. We use these reviews to identify whether there may be tax risks. They help us to determine whether there are any compliance issues requiring a more in-depth investigation and response.

We conduct several types of risk reviews to support voluntary compliance. Our approach and engagement is differentiated according to our assessment of your risk using a likelihood and consequence of non-compliance approach in line with the RDF.

Broadly speaking, the type of risk review which will be applied will be influenced by your consequence of non-compliance, that is, higher consequence or lower consequence.

For income tax, we support the cooperative compliance approach applied to higher consequence taxpayers through the use of a pre-lodgment compliance review (see appendix 5).

In a risk review we place a strong focus on gaining an understanding of your business context and environment – by using the BISEP model – and of your tax corporate governance.

For more information on the types of risk reviews, see appendix 4.

The risk review process provides both of us with an opportunity to resolve concerns about compliance issues. In most cases this can prevent the need for an audit. We encourage you to contact us if you identify any errors. If you make a voluntary disclosure, you may be entitled to a penalty reduction.

The review process may be conducted without the need to contact you for additional information. Your risk category will indicate whether we need to focus on one or more specific risks or review your entire business operations and whether we need to develop an in-depth understanding or conduct a high level analysis. For income tax, your risk category will also indicate the extent to which we will review your business and key transactions before the lodgment of your return.

The information we need will vary depending on the stage of the process we are in. For example, a risk review may cover a wide context of materials, such as trial balance and key papers, where an audit may need a deeper level of information, such as contracts. Generally, we will ask for information from you first and then from third parties such as your intermediaries only if we need to.

Based on the analysis of information obtained and discussions with you, we will rate each of the risks that have been assessed. The risk matrix will provide the guidance to rate each risk in terms of consequence and likelihood. These two factors will combine to provide an overall risk category.

Risk review and audit processes (detailed in appendix 6 and appendix 7) show our generic processes for carrying out more detailed risk reviews and audits of large businesses. Although figure 9 reflects the usual progress of these processes, we may not necessarily follow every step depending on the circumstances. For example, you may make a voluntary disclosure during a risk review that resolves the issue.

We review all large business at a high level using our risk-filtering processes. In addition, if appropriate, we will use a cooperative compliance approach that provides for the identification and assessment of risk as it arises.

We will escalate some cases to audit to confirm whether non-compliance has occurred. The majority of audits lead to an adjustment.

In conducting a risk review (or audit) we focus on: ■ planning to agree on timeframes and the scope of active compliance activities

■ open dialogue with you, including initial discussions with you on any matter that has attracted our attention and sharing of the risk hypothesis

■ gaining an understanding of your business context and environment by using the BISEP model (see appendix 1)

■ gathering relevant information and evidence to get the full facts quickly

■ making the right tax decisions according to the law.

Risk reviews tend to have a wide context to establish if there are any material concerns for us. Their aim is to assess risks and their severity. However they are not an in-depth examination as this is the domain of an audit. The audit involves a deeper verification of the facts and a determination of our view about those facts.

In some instances, the nature of transactions and our knowledge of the compliance risks mean that the case proceeds directly to audit from the risk analysis process. These may include circumstances where we consider your business or particular arrangement is higher risk, the case involves carrying forward a previous audit, is time sensitive or we perceive a collection risk.



Timeframes for auditWe would expect a large business audit to be concluded within two years. Full cooperation is assumed in meeting this timeframe. It also requires the case manager to purposefully manage the case. While we prefer a cooperative and informal approach to information gathering, we will use our formal powers if there are delays that adversely affect planned case cycle times.

MUTUAL EXPECTATIONS DURING COMPLIANCE ACTIVITIESBoth parties will seek to:

■ have ongoing, open and frank discussions and agree on a case plan upfront

■ participate in meetings to identify any issues that could delay or disrupt the process and agree on contingencies

■ agree on realistic timeframes ■ provide relevant information about processes as well as facts and evidence in a timely manner

■ clarify issues as they arise so that they can be resolved efficiently

■ provide prompt and ongoing access to key personnel and escalation points

■ undertake genuine efforts to resolve disagreements, including consideration of dispute resolution processes, see chapter 9

■ recognise that sometimes we may have to agree to disagree ■ agree upfront on how to handle relevant documents covered by legal professional privilege, accountants’ concession or corporate board documents on tax compliance risk – refer to PS LA 2004/14 Access to ‘corporate board documents on tax compliance risks’.

ESCALATING ISSUESYou have the Commissioner’s guarantee that you can provide open and honest feedback, or raise concerns without it influencing our view or future interactions with us.

At the commencement of a review or audit, we will notify you of the key ATO contact for your case. If you have any issues with how the case is being conducted or the tax risks involved, you should raise these issues with the case officer first.

If you are not satisfied with the case officer’s response, you should contact the case officer’s team leader. You can also raise concerns and issues through your relationship manager as advised in your latest RDF letter.

If you remain unsatisfied with our response, you can escalate the issue to the team leader’s immediate manager, who will consider the matter and contact you to discuss your concerns.

Talking to us early will help resolve issues and, if issues need to be escalated, you will have access to our decision makers.

Risk review outcomesAt the end of any risk review we will discuss the outcomes with you, advising if we are satisfied with your compliance or consider further action is warranted.

If the risks are found to be significant, it is highly likely we would follow up with audit action. If the risks are not deemed to be significant, we would usually not proceed further unless there were other concerns raised.

If it has been determined that an audit is necessary, we will keep you informed about our plans. Depending on the nature of the risks, the discussions may also cover possible mitigation strategies which you might choose to apply to reduce the likelihood of an audit, or to mitigate any potentially adverse effects.

At the end of the risk review process we will write to you outlining the final outcome.

AUDITAudits are more comprehensive than a risk review and involve intensive case examination where material underpayment of income tax, GST or excise is a risk. Audits provide a means for us to:

■ verify whether the proper tax has been paid in cases where we identified risk – including gathering evidence or proof as needed

■ understand the causes of any non-compliance and address them for the past and the future

■ identify areas where the law may need clarification or where audit processes can be improved.

An audit typically arises following a risk review and will test the review’s conclusions. Refining the scope of the audit may include (but is not limited to):

■ eliminating issues ■ adding new issues ■ determining which income tax years will be subject of the audit.

If we identify additional risks during the audit, we may broaden the audit’s scope. This requires approval from a panel of senior officers, and the decision will be communicated to the taxpayer.

In most cases, an audit involves agreeing on a plan focused on collecting detailed information and undertaking analysis. During information collection phases, auditors will have more contact with you and may spend an additional amount of time at your premises, examining documents and processes and discussing issues with your key personnel. After the audit, we will provide you with our view.



Information includes documents evidencing an intention, election, choice, estimate, determination or calculation. Documents can include paper and electronic communications including emails.

Efficient information gathering relies on: ■ effective planning ■ full cooperation ■ early and ongoing dialogue ■ timely escalation if issues arise.

Ongoing and open discussion about information requirements helps us to:

■ understand your business and the environment that you operate in

■ keep the information gathering process informal and avoid unnecessary escalation

■ enhance the information flow and actively manage information requests

■ build and enhance our cooperative relationship.

INFORMAL APPROACHESWe prefer an informal approach to gathering information. Our informal approach can often lead to a resolution of matters, even in cases where there is a potential risk of litigation.

The informal approach is premised on the notion that you demonstrate your proactive support and action to meet our information needs. This means (as part of our expectations) assuring or advising us:

■ that searches for information within the large business group, (including, where relevant, within its overseas associates), have been undertaken to the greatest possible extent

■ that you have provided full details of what information is available to meet our requests, and when such information will be available

■ if a staged approach to providing information can be undertaken

■ that information provided is in user-friendly formats that enable us to properly analyse information or data readily

■ immediately if you encounter difficulties in meeting our timeframes and the actions you will take to mitigate delays.

When issues arise we expect that the compliance team will make every reasonable effort to resolve them and, if necessary, the matter will be referred to more senior officers.

UNDERSTANDING YOUR BUSINESSIn conducting risk reviews and audits we need to understand your business context and environment. If appropriate we will engage experts on particular industries or specific issues (such as financial analysts and market valuers).

In developing this understanding we use the BISEP model (see appendix 1).

This model covers a wide range of relevant topics and ensures that we have a common view of your business.

These topics are drawn from the audit accounting standard ASA 315 – Identifying and Assessing the Risks of Material Misstatement through understanding the Entity and its Environment.

GATHERING INFORMATIONThough we can use both formal and informal powers we prefer to work informally and build good relationships to minimise cost and disruption to both parties. Our approaches will be guided by your risk category, as described in chapter 7. There will be times when we’ll disagree and it’s important that we work together to reach an outcome.

We use formal powers only if the circumstances require it. Examples include when you request it, when informal requests for information have not been satisfied or if we have not been able to use an informal approach to gain access to senior personnel to obtain an exact picture of an arrangement.

We often need to gather substantial amounts of information and evidence when examining complex compliance matters. We realise that it is important you have a clear understanding of our request, why we need the information and how we think it relates to the matter under review.

Having the full facts quickly, along with the relevant supporting evidence, enables us to establish our position and inform you of it as soon as we can. To help resolve issues it is better for us to have the same factual position as your decision makers.

Timely information is essential for us to efficiently resolve compliance activities. We will develop timeframes and protocols concerning provision of information as part of the agreed audit plan. In our experience, delays in receiving information are one of the major reasons the time required to conduct a review or audit is extended.



FORMAL APPROACHESGenerally, when we decide that using formal powers is necessary, we will advise you that we intend to use them and the reasons for doing so.

We will use formal information gathering powers when the informal process is no longer productive or if your circumstances, history or behaviour indicate that a formal approach is warranted.

There are some situations where we may adopt a formal approach in the first instance. This includes where there:

■ is a history of uncooperative behaviour ■ are privacy, contractual, or confidentiality obligations – for example, former employees or third parties.

In other cases it may be necessary during the course of an audit or a review to move from an informal to a formal approach. This can occur where:

■ full cooperation is lacking ■ there are ongoing or persistent delays in providing information ■ it is necessary to obtain an exact picture of an arrangement or transaction.

Examples of when we would use formal powers include where: ■ the information provided informally only partially answers our requests

■ a response has qualifying statements attached to it or are redacted

■ access to senior personnel involved in the issues is restricted, for example, in cases where intention is an issue

■ representatives request that everything be put in writing and take a legalistic approach to responding

■ documents, people and other evidence are purposely placed outside our jurisdiction

■ claims of legal professional privilege or the accountants’ concession and corporate board documents on tax compliance risk are made without providing sufficient information to enable us to properly assess the veracity of their claims.

Scope and relevance of our requirements are matters for us to determine. For example:

■ If a document contains any information relevant to the issues under examination then the document in its entirety is a relevant document.

■ If there is an issue as to whether a document is relevant then the document should be made available for examination by us to determine its relevance.

■ Assertions that a document has information that is ‘commercial-in-confidence’, contains trade secrets or proprietary interests are not acceptable as a basis for redaction or non-disclosure.

Accountable conversationsYou should be aware of your obligation to provide full and accurate information and the consequences for failing to do so. An informal approach to information gathering still means you are accountable for the accuracy and completeness of information you provide.

An appropriate record of our conversations, including meetings and interviews, are an essential part of the informal approach. In normal circumstances we will provide you with a summary of the key issues discussed and the agreed action items resulting from the meeting. With prior consent, we may make a verbatim record of important meetings and interviews.

Remember, it is an offence to make a false or misleading statement to a tax officer even if the conversation or interview is undertaken on an informal basis (under Subdivision B of Division 2 of Part III of the Tax Administration Act 1953).

Mutual expectations during informal approachesInformal approaches presume full cooperation.

You can expect that we will: ■ engage you in constructive dialogue so that our information requests are clear and unambiguous

■ plan our information gathering around the risk hypothesis and clearly stated evidentiary needs – the plan will include agreed milestones and timeframes

■ have face-to-face discussions with you to develop the key information gathering questions if appropriate

■ actively manage information requests with timely escalation, if needed, when delays or unforseen events arise

■ adopt a transparent process before using formal powers.

We expect that you will: ■ engage in constructive dialogue with us ■ meet agreed timeframes ■ provide complete and timely information ■ provide access to key decision makers and senior personnel ■ work with us to ensure that the compliance activity proceeds in an efficient and timely way.

In some cases relationships can be tested. The change from a cooperative to a less cooperative relationship is often difficult to pinpoint because it generally results from several incidents or actions rather than a clearly identified single point. We acknowledge that differences will occur; however persistence, openness and a willingness to understand the other view or position will help in resolving any issues.

If there are any issues that need to be escalated, you will have access to our decision makers.



For more information, go to ato.gov.au and search for:■ Access and information gathering manual■ Taxpayers’ charter – fair use of our access and

information gathering powers■ PS LA 2004/14 Access to ‘corporate board documents

on tax compliance risk’

DETERMINING OUR POSITIONTo help determine our position, we sometimes engage external experts such as industry specialists, valuers, economists and legal counsel.

In some circumstances, for example, in complex or sensitive cases, we will appoint a specialist or case leader to help identify and resolve issues.

If we consider that general anti-avoidance provisions – such as Part IVA – may apply, we will refer the case to the ATO Tax Counsel Network for review. This will usually occur before we provide you with a position paper.

The position paper will set out our view on the issues including the details of who to contact to discuss the matter. You will have the opportunity to respond and we will consider your response and advise you of our decision.

INDEPENDENT REVIEW OF POSITION PAPERSThere will be an opportunity for you to request an independent review of the position paper after we have advised you of our final audit position. For income tax this is provided in the statement of audit position. The review will be conducted by a senior officer in Law who has had no involvement in the audit process.

There are specific criteria that apply for the independent review.

For more information, refer to ato.gov.au/positionpaperindependentreview

■ Where there are sensitivities around information sought, you should speak with the compliance team as soon as possible to resolve any concerns.

■ If a response containing factual information to an information request is made subject to some form of qualification, condition or caveat, such as ‘without prejudice’, then this may be considered to be a partial response to our requests and a formal notice may issue.

■ While we respect your right to assert that legal professional privilege, accountants’ concession or that documents are corporate board documents on tax compliance risk may apply in whole or in part to a document we still need you to provide sufficient information for us to determine if the tests for these rights or concessions properly apply.

■ If a document is withheld, or redacted in whole or in part, without appropriate justification, including not providing sufficient information to determine whether the test for legal professional privilege or other concessions properly apply, then this will constitute a partial response to our information requests and a formal notice may issue.

Mutual expectations during formal approachesYou can expect that we will:

■ treat you fairly and, as far as possible, in a non-intrusive way ■ give you reasonable notice of our intention to use our formal powers in all but exceptional circumstances

■ explain why we are requesting information ■ clearly identify the objects of any examination ■ keep information requests relevant and focused ■ consider requests for an extension of time to comply with a notice

■ keep records of your personal information safe and secure ■ respect your right and discuss with you the basis of any claims for legal professional privilege, the accountants’ concession or that documents are corporate board documents on tax compliance risk. This will not adversely impact our view of your cooperation.

We expect that you will: ■ provide a full response in a timely manner to all enquiries ■ notify us if you have difficulty complying by the due date ■ be prepared for any formal interview.



GSTIf we make an adjustment to your activity statement as a result of compliance activity we have undertaken (whether to increase or decrease your liability) we will do this by making an assessment and issuing a notice of assessment. For tax periods commencing on or after 1 July 2012 this will usually be an amended assessment. Generally, under our processes we need to provide details and reasons for any adjustment to you before any such assessment is issued. We will give you the opportunity to raise any concerns before the assessment issues. Care is taken to ensure that any adjustments are based on reasonable grounds.

ExciseIf we identify an adjustment to your excise liability, we will work with you to amend the appropriate excise return.

Should you disagree with an identified adjustment in excise liability, generally you will be given every reasonable opportunity to present your case before a demand for an amount equal to the amount of excise duty issues.

PENALTIES AND INTEREST

Administrative penaltiesIf you make a false or misleading statement and did not take reasonable care in making the statement, the law imposes penalties based on levels of culpability. The facts and circumstances of a case ultimately dictate which category of penalty applies, if any.

Our position on levels of culpability is explained in MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard.

In many instances a large business will have a reasonably arguable position (RAP) about contentious income tax and minerals resource rent tax issues. We will give you the opportunity to discuss the merits of your case before any decision is made concerning penalties. If you do not have a RAP you may be liable to a penalty, even if you have taken reasonable care.

Our position on RAPs is explained in MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable.

GENERAL ANTI-AVOIDANCE RULES PANELThe General Anti-Avoidance Rules (GAAR) Panel helps to administer Part IVA and other general anti-avoidance provisions. It ensures that decisions about applying these provisions are objectively based and well-considered. The panel’s role is advisory but our decision maker must take the panel’s advice into account.

Matters are generally referred to the panel after we have issued a position paper and have considered your response.

The panel may consider matters without a taxpayer response where:

■ the taxpayer has chosen not to respond to the position paper ■ there are time restraints ■ a reasonable time has passed without a response.

To help the panel provide us with advice, you will usually be invited to address the panel meeting. Before attending a panel meeting, you will also be asked to provide a written submission to the panel.

For more information on GAAR, refer to PS LA 2005/24 Application of General Anti‑Avoidance Rules.

ASSESSMENT AND AMENDMENT PERIODS

AssessmentsThe standard period in which we can amend an assessment is four years for large business taxpayers. We will work with you to establish timeframes to minimise disruption.

Income taxDifferent rules relating to the amendment period can apply to some cases where transfer pricing, research and development and capital gains tax is involved. Effective lines of communication and the level of cooperation we receive from you will influence the audit’s progress.

Generally, you will be given every reasonable opportunity to present your case before an amended assessment issues. We are conscious of possible financial and reputation risks associated with a debt adjustment and we take due care to ensure that they are based on reasonable grounds.



The legislation is aimed at schemes that would attract significant penalties if used by taxpayers. Important aspects of the administration of the measure have been co-designed with the National Tax Liaison Group sub-committee.

Two law administration practice statements have been published for the administration of the promoter penalty laws:

■ PS LA 2008/7 Application of the promoter penalty laws (Division 290 of Schedule 1 to the Taxation Administration Act 1953) to promotion of tax exploitation schemes

■ PS LA 2008/8 Application of the promoter penalty laws (Division 290 of Schedule 1 to the Taxation Administration Act 1953) to schemes involving product rulings.

Interest chargesThe tax laws impose interest charges from the date a tax liability originally should have been paid.

The tax laws impose interest charges to: ■ ensure that taxpayers who have underpaid their tax during this period do not receive an advantage over those who have paid their tax

■ compensate the government for the impact of not having the funds.

Because interest charges are compounding, they can quickly add up. The law also provides us with the discretionary power to remit interest charges in certain circumstances.

Where a tax shortfall results from an audit or review and interest applies, we will give you a written statement about the reasons for the decision not to remit all or part of it. This statement will refer to evidence on which our findings were based.

For more information, refer to:■ About penalties and interest charges

ato.gov.au/interestcharges■ PS LA 2011/12 Administration of general interest

charge (GIC) imposed for late payment or under estimation of liability

■ PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods.

The amount of a penalty applying in these and other circumstances may be reduced through making a voluntary disclosure. There are significant reductions if you:

■ make a disclosure before you are notified of an ATO audit or risk review starting

■ make an early disclosure (such as seeking a private binding ruling)

■ make a disclosure of the position taken during the risk review stage of any compliance activity.

If we have concluded that penalties should apply we will tell you our reasons and give you an opportunity to present your views or further information which may affect the decision. If following this we still consider that penalties apply, we will give you a written statement of the reasons for the decision to impose the penalty and not to remit all or part of the penalty, including findings on material questions of fact. This will refer to the evidence on which our findings were based.

Our position on the administration of penalties for making false or misleading statements are explained in:■ PS LA 2012/4 Administration of penalties for making

false or misleading statements that do not result in shortfall amounts

■ PS LA 2012/5 Administration of penalties for making false or misleading statements that result in shortfall amounts.

Promoter penaltiesThe vast majority of large business taxpayers and tax professionals act ethically and professionally and contribute significantly to maintaining the integrity of the tax system. The promoter penalty legislation is aimed at dealing with those who market unsustainable arrangements to the detriment of both taxpayers and ethical advisers.

Penalties can apply directly to individuals as well as large businesses.

The provisions are intended to apply in two circumstances: ■ when a promoter engages in conduct that results in them or another entity being a promoter of a tax exploitation scheme

■ when an individual or entity implements a scheme promoted on the basis of conformity with a product ruling in a way that is materially different to that described in the product ruling.



Collecting taxOur approach to collecting tax debt focuses on early intervention. By engaging with you early – as soon as a debt arises – we can help you manage your obligations and prevent your debt from escalating.

If you choose not to engage with us and discuss payment of outstanding liabilities, including debts in dispute, we will use stronger measures if appropriate. This ensures we create a level playing field for all taxpayers and reinforces community confidence in the tax system. Stronger measures include:

■ collection action ■ garnishee notices ■ director penalty notices ■ statutory demands ■ claims or summonses ■ creditors’ petitions ■ wind-up applications.


09RESOLVING DISPUTES

ADR processes can: ■ occur during compliance activities (for example, before the litigation stage) or during the litigation process

■ involve conferencing, mediation, conciliation, neutral evaluation and case appraisal

■ be used as part of a mutual agreement procedure process (in international disputes before the litigation stage).

If a dispute is in litigation, we will continually review whether an ADR process may assist in resolving some or all of the issues in dispute.

The timing of ADR can be crucial to maximise the opportunity to resolve the issue however there is no universally optimal time. Assessing when ADR may assist in resolving a dispute needs good judgment and sound understanding of all the circumstances in the case including the likelihood of achieving a result at that stage of the dispute. In large and complex cases, ADR will not normally be appropriate prior to the issue of a position paper.

ADR may not be appropriate if, for example: ■ it would be in the public interest to have judicial clarification of the issues in dispute and the dispute is a suitable vehicle to test the issues

■ resolution can only be achieved by departure from an established ATO view on a technical issue

■ the dispute is of a kind where the state of the relationship between the parties is such that any proposed ADR is unlikely to be successful.

PS LA 2013/3 Alternative Dispute Resolution (ADR) in ATO disputes provides instruction for ATO officers on what policies and guidelines must be followed when attempting to resolve disputes by means of ADR.

More information can be found by searching ato.gov.au/ for: ■ ATO plain English guide to alternative dispute resolution■ PS LA 2009/9 Conduct of Tax Office litigation.

COOPERATIVE APPROACH TO RESOLVING DISPUTESTax law administration and large business are both complex environments and as we apply tax law to complex facts, some dispute is inevitable. We want to resolve disputes directly with you as early and cooperatively as possible.

We believe in consultation, collaboration and co-design when we administer the tax system. Ongoing dialogue is essential to understanding the context behind transactions and events.

We prefer to resolve disputes early, as close to the original decisions as possible, or before they crystallise into more formal disputes – for example, our approach to large audits, starting with providing position papers to the taxpayer.

COLLECTING TAX WHEN THERE IS A DISPUTEThe law requires that tax liabilities are paid by the due date. If there is a dispute with us about your obligations, we will continue to seek payment. However, we may enter into a payment arrangement with you, whereby we will not take further action to collect the debt until a particular date or until the dispute reaches a particular stage. Entering into an arrangement with us will prevent further penalties for late payment being imposed, and reduces general interest charge accruing until the dispute is resolved.

For more information, refer to PS LA 2011/4 Recovering disputed debts.

If tax is owed by non-residents, we may issue a notice requiring a person who has money belonging to the non-resident to pay any tax due by that non-resident.

ALTERNATIVE DISPUTE RESOLUTIONAlthough we always attempt to resolve disputes directly with you and your representatives in the first instance, if a direct negotiation has not resolved the issue we will consider whether an alternative dispute resolution (ADR) process may assist. ADR can provide a cost effective, informal, consensual and speedier means of resolving disputes and litigation. It can be useful to clarify and limit the scope of a dispute, limit issues and streamline procedures. Different ADR processes may be suitable in different situations. The cost of an ADR process will usually be shared equally between us and the taxpayer.

09 RESOLVING DISPUTES


EARLY ENGAGEMENTAn early engagement process is available for large taxpayers who want to correct or make a change to their income tax return. The process, for amendments and objections, became available from 1 November 2013.

It is available when you want to: ■ correct a mistake you have made on a previously lodged income tax return

■ change a technical position you have adopted in an income tax return

■ object to an income tax return you have already lodged.

To request an early engagement meeting, email [email protected] and include a summary of what you want corrected or changed, and the reasons why.

For more information go to ato.gov.au/amendmentsandobjections

SETTLEMENTSThe Code of Settlement Practice provides guidance about settling tax disputes. We may settle disputes if it is considered to be consistent with good management of the tax system.

The code outlines those circumstances under which it is generally appropriate, or inappropriate, to settle.

While we have a responsibility to collect the tax properly payable, there is also an obligation to balance this responsibility with the need for sensible administration. We may apply the ‘good management rule’ and settle the tax liability, considering relevant factors.

Although the power to settle tax liabilities according to the code has been delegated to a strictly limited range of senior officers, any offer made to settle a dispute should be directed through the case officer. In significant cases, internal advice is sought from senior technical experts. In addition, external legal providers may give advice to the settlement decision maker.

Settlement of a tax dispute will not prevent or prohibit any later prosecution for the same issue.

For more information on the Code of Settlement Practice, including circumstances where settlements would generally be inappropriate, go to ato.gov.au/settlements

OBJECTIONSYou have the right to object to a range of decisions, including those relating to assessments, penalties and private rulings. When we receive a written objection application, we appoint a review officer, independent of the original decision maker. The process typically involves:

■ gathering all relevant information relating to the original decision (for example, audit files)

■ examining the grounds for objection and considering the scope of the dispute

■ having discussions with you to better understand your view of the issues

■ researching the issues, consulting with technical experts and any other party as necessary, noting any new information provided with your objection application or that we request

■ forming a view on the dispute and, where appropriate, discussing alternative ways of resolving the dispute before issuing our decision

■ advising you in writing of our decision and outlining your further rights of review or appeal.

Our commitments to service set out what you can expect from us as we process your objection. The review officer will contact you to acknowledge its receipts and ask for more information if we need it.

You can assist the process by providing all the relevant documentation with your objection, and responding in a timely manner if we ask for more information. If we need more time to provide our decision, we may negotiate a longer period with you.

We are committed to resolving disputes at the first opportunity and follow the principles of the National Alternative Dispute Resolution Advisory Council (NADRAC). We will assess these opportunities as early as the original audit. We will also attempt to identify at the objection stage disputes that can be resolved by alternative means or by settlement.

09 RESOLVING DISPUTES


PROSECUTIONSTax and super laws contain a range of criminal offences that apply where taxpayers are believed to have not complied with their obligations. As for any taxpayer, large market taxpayers may be prosecuted for offences such as:

■ making a false or misleading statement (which can include withholding information material to a tax matter)

■ keeping incorrect or false records ■ refusing or failing to provide a completed return or information, or to produce records or documents

■ refusing or failing to attend before a tax officer or answer questions as and when required by a notice from the ATO

■ hindering or obstructing a tax officer who is exercising the access powers.

These offences are prosecuted before a court under the authority of the Commonwealth Director of Public Prosecutions (CDPP). A small number are handled by the CDPP.

The ATO also investigates, at times with the assistance of other law enforcement agencies, serious criminal breaches under the Criminal Code (for example, fraud, money laundering). These matters are prosecuted by the CDPP.

The decision to prosecute for any Commonwealth criminal offences is made according to the Commonwealth prosecution guidelines, which are matters independent of the ATO.

In prosecutions, sanctions may apply to both individuals and companies.

For more information on prosecution guidelines, go to cdpp.gov.au for the Prosecution Policy of the Commonwealth.

LITIGATIONIf you are dissatisfied with an objection decision, you generally have the right to have the decision reviewed by the Administrative Appeals Tribunal (AAT) or appeal the decision to the Federal Court. Details of the review and appeal procedures are provided with the formal notice of Decision on Objection.

Your application must be lodged directly with either the AAT or Federal Court.

We will conduct and manage litigation in accordance with our obligations under the law, consistent with the Model Litigant Obligation, an appendix to the Legal Services Directions 2005 issued by the Attorney-General. The Legal Services Directions provide the rules under which Australian Government agencies are required to conduct litigation and outsource legal services. The obligation also binds barristers and solicitors who represent us in litigation.

The Australian Government Attorney-General’s Department for the directions and related guidelines can be viewed in the Attorney-General’s Department website, go to ag.gov.au

More information can be found in PS LA 2009/9 Conduct of Tax Office litigation.


10 APPENDIXES

APPENDIX 1 – THE BISEP MODEL

Factor Examples

Business The extent and nature of the group’s business activities and transactionsLocation and size of industryBusiness plans and strategiesEntity and group structureCapital structure, financial performance and ratiosEffectiveness of controls within business systems and processes

Industry Conditions affecting the industry – region, size and participantsIndustry associationsIndustry profit margins and cost structuresNature of the competitionIndustry skill levelsImpact of technological and business changeFinancial performanceIndustry norms and regulatory environment

Sociological Knowledge and norms of the professional or business group, for example, standard of record keeping and lodgment timelinessCulture of the organisation and managementBusiness, professional networks and reputationApproach to community and corporate citizenshipHow the group deals with finances and paying taxLinkages to control points, decision makers and advisers

Economical Domestic, international environment and trade conditionsKey overseas developmentsGovernment policies – interest rates, inflation, tax system and economic reforms

Psychological Management objectives and philosophyViews and reactions of management to wider communityApproach to managing risk and drivers of the risk strategiesAttitude to and relationship with us

For large business we also consider the following factors:

Systems of compliance

Decision-making systems, processes and organisational structureQuality assurances standards and recordsThe support and authority the corporate taxpayer’s compliance team receives from managementThe degree of ease in accessing informationNature and purpose of transactions, that is, value, type, conduct, methods, timing, costs and benefitsCompliance historyTax analysis of issues and expected range of tax results

10 APPENDIXES


APPENDIX�2�–�CONSULTATIVE�ARRANGEMENTSOur consultative arrangements are designed to be dynamic, add value to the tax and superannuation systems and focus on resolving issues. We have eight stewardship committees, with four liaison groups focusing on market segments and four product-based advisory groups:

■ Individual Taxpayer Liaison Group ■ Large Business Liaison Group ■ National Tax Liaison Group ■ Small Business Liaison Group ■ ATO Tax Practitioner Advisory Group ■ Indirect Tax Advisory Group ■ Not For Profit Advisory Group ■ Superannuation Industry Advisory Group

Large businesses make up a substantial portion of the membership for the following stakeholder relationship and management groups:

■ Alcohol Stakeholder Group ■ Fuel Stakeholder Group ■ Tobacco Stakeholder Group ■ Petroleum Stakeholder Group

We also have standing liaison arrangements with the following industry associations:

■ Australian Bankers Association (ABA) ■ Investment and Financial Services Association (IFSA) ■ Australian Financial Markets Association (AFMA) ■ Minerals Council of Australia (MCA)

In some instances, such as our liaison with the ABA, we have formalised the process, including through scheduled meetings. In other instances, such as the liaison with the IFSA, there is an ongoing dialogue, with meetings scheduled as needed.

We also have technical and special purpose consultative arrangements to consult on issues raised by professional and industry bodies and the community at large.

10 APPENDIXES


APPENDIX 3 – RULINGS PROCESSWhat we will do and what we expect from you

Lodgment Legal analysis

What we will do

During the rulings process we will maintain an open and frank dialogue with you.

Early engagement discussions Early engagement discussions are a process intended to assist you when you are considering seeking the Commissioner’s opinion on the way a relevant provision applies by requesting a private ruling, class ruling or administratively binding advice.

In these discussions we can clarify technical issues, discuss specific transactions, information requirements, case planning and managing expectations.

We encourage you to have early engagement discussions with us by emailing [email protected]

An officer will contact you to discuss your request and outline the early engagement process. You will be asked to provide us with details of the client and scheme to which the proposed ruling application relates. You will also be asked to identify, at a high level, the tax issues on which advice will be sought. This enables us to engage the relevant tax officers and technical specialists. The request should also outline any issues and concerns. When your information is received, we will allocate the request to one of our IA case teams who will contact you to arrange an initial discussion or meeting with you.

Receive ruling applications To apply for a ruling you should attach an application form – refer to How to apply for a private ruling on ato.gov.au.

In the application you will need to provide a full and true disclosure of the material facts such as the results of your own research and analysis.

You also need to include copies of all relevant and supporting documents including draft documents and financial statements.

To lodge a ruling application, send it to the appropriate fax number or postal address, fax number or postal address on page 41 or email [email protected]

Understand the facts of the transaction Our case team will work with draft material for prospective transactions. However, the draft documentation must be materially similar to the end transaction. The case team may also request further information.

Research technical issues In applying the tax law to the particular facts stated in your ruling application, we will have regard to the words of the Act and the history and objects of the relevant provisions as well as our own assumptions. This is referred to as the ‘purposive’ approach to interpreting legislation. Where the law is clear we will apply it, even if it produces inconvenient outcomes for the revenue or for taxpayers.

If the words in the Act are ambiguous or open to interpretation in a number of ways, our approach is to adopt the interpretation that best promotes the policy intent.

Escalations There may be circumstances where we will escalate an issue to a technical specialist, preferably before the early engagement meeting where the need can be identified. The case team along with any identified technical specialists will review and analyse information, and may consult with other specialists to formulate our position.

If an issue is escalated you will have the opportunity to discuss the matter with the officer concerned and have access to the decision maker.

What we expect from you

Contact us as early as possible about the transaction you are planning as this helps us to provide you with timely advice.

Be realistic in your expectations regarding timing, and understand that complex cases may take more than 28 days.

Provide us with access to a central point of contact in your organisation for the ruling application.

Provide us with reasonable access to the facilities and resources we need.

Engage in open and frank dialogue on the issues and facts to do with the application.

10 APPENDIXES


Determine our position Communicate and close

What we will do

Private rulings The case officer will not generally provide pre-ruling opinions, draft private rulings or any other written expressions or written endorsements of informal assistance.

However, the case officer will maintain ongoing communication with you and provide feedback if we may rule unfavourably. If you disagree, the case officer may ask for further submissions from you to support your argument.

Class rulings We will issue a draft ruling to seek consent to name parties to the transaction. That way, if you are unhappy with a draft class ruling you may wish to withdraw the ruling application.

Communicate the outcome in writing Once we are satisfied that we understand the facts and your reasoning, we will issue the ruling. The finalised ruling is binding on us, but not the taxpayer.


Take all reasonable steps to send us the information we need in a timely fashion.

Provide a full analysis of the transaction including a tax technical analysis.

Provide us with timely advice on any developments that will affect, or potentially affect, the ruling application.

Provide a full description of the transaction, including an explanation of the wider context of the transaction.

For lodging by fax or post, use the appropriate fax number or postal address below:

Fax Post

Excise 1300 650 128 Australian Taxation Office PO Box 3001 PENRITH NSW 2740

Superannuation 1300 669 846 Australian Taxation Office PO Box 3100 PENRITH NSW 2740

Large business (generally group turnover of $100 million or more) and international

1300 661 106 Australian Taxation Office PO Box 3000 PENRITH NSW 2740

Goods and services tax 1300 139 031 Australian Taxation Office PO Box 3524 ALBURY NSW 2640

Accounting, debt, lodgment or registration matters 1300 139 035 Australian Taxation Office PO Box 9990 ALBURY NSW 2640

Investment schemes advice 1800 033 211 Australian Taxation Office PO Box 3546 ALBURY NSW 2640

10 APPENDIXES


Post-lodgment compliance reviewsThese types of risk reviews are predominantly used for lower consequence taxpayers. They may also be used for higher consequence taxpayers if we need to manage a post-lodgment legacy year (a year of income that pre-dates our PCR activities).

Options available for post-lodgment review include a: ■ comprehensive risk review (looking at the whole business) ■ specific review (examining a specific issue we have identified).

Comprehensive risk reviewThis is a review product we use to develop an in-depth understanding about your business operations.

A comprehensive risk review typically involves: ■ collecting and analysing information to help us understand your business

■ identifying tax risks ■ reviewing identified risks by asking you to explain the circumstances and provide information about any mitigation strategies implemented

■ assessing and evaluating identified risks ■ making recommendations for future compliance activity.

The aim of a comprehensive risk review is to: ■ assess identified tax risks ■ get a better understanding of your business by integrating business and tax analyses

■ build an understanding of your business by incorporating a review of your tax governance processes

■ build and maintain an ongoing dialogue.

Specific reviewIn this type of review we examine one or more specific risks that we have identified – as with the comprehensive risk review process. A specific review typically involves:

■ collecting and analysing information to help us understand your business about the potential risks we have identified

■ asking you to explain the circumstances and provide information about any mitigation strategies that have been implemented

■ assessing and evaluating the identified risks.

A specific review aims to: ■ minimise impact on you by concentrating only on a risk that has already been identified

■ assess identified tax risks ■ gain a better understanding of your business through the integration of business and tax analysis

■ build and maintain an ongoing dialogue.

APPENDIX 4 – REVIEW TYPESWe conduct several types of risk reviews to support voluntary compliance and encourage willing participation. We list the main review types below.

Our approach and engagement is differentiated according to our assessment of your tax risk using the risk-differentiation framework (RDF).

The type of risk review we use will be influenced by your risk category within the RDF. Once a review process has started you can, under certain circumstances, make a voluntary disclosure and be eligible for a reduction in penalty rates.

For more information, see ‘Voluntary disclosures’ on page 19.

Pre-lodgment compliance reviewThe pre-lodgment compliance review (PCR) is generally used for higher consequence taxpayers without an income tax annual compliance arrangement (ACA) with us. A PCR may also be conducted on a lower consequence taxpayer when timely compliance assurance is considered necessary. PCRs support our approach to raising and resolving potential compliance concerns as they arise.

A PCR typically involves: ■ the identification and assessment of tax risk during the year of income, including understanding the facts upon which a decision was made

■ an effective and timely disclosure regime based on information and documents provided by you. This does not prohibit the gathering or use of any other relevant information or documentation

■ building an understanding of your business, including a review of your tax governance processes, for example your decision-making framework, policies, processes and systems

■ a level of intensity and differentiation commensurate with our view of your tax risk position within the RDF, allowing for flexibility in the application of the risk review.

A PCR aims to ensure transparency through the: ■ identification, assessment and evaluation of potential areas of concern, areas of interest (for example, new business) and tax risk

■ early engagement and fostering a culture of transparency and willing participation

■ building and maintaining of ongoing open dialogue.

A PCR does not provide the same level of certainty as the ACA where a taxpayer can obtain both practical certainty and sign off. Although it is noted that certainty can be provided through other mechanisms such as the rulings system.

10 APPENDIXES


APPENDIX 5 – PRE-LODGMENT COMPLIANCE REVIEW PROCESSWhat we will do and what we expect from you

Plan and develop framework Pre-lodgment activities Post-lodgment activities Close review

What we will do

Our approach to working with you will be based on your willingness to be open and transparent with us.

The level of intensity will be relative to your risk category.

Our approach and intensity may alter during the PCR to reflect the level of cooperation that we experience throughout the review.

Review selectionA PCR is a pre and post lodgment risk review which is generally used for higher consequence taxpayers and in some instances for lower consequence taxpayers.

The review will generally begin at the start of the new tax year and continue up to six months after lodgment of your income tax return.

PCR framework We will develop and provide you with a PCR framework which documents our approach and intensity level for the PCR.

The framework will include: ■ confirmation of your RDF risk category

■ a detailed description of the process

■ our approach to information gathering (either informal or formal)

■ our approach to integrating other compliance activities

■ the timing and basis of communicating with you during the PCR

■ the outcomes available from the PCR

■ confirmation that certainty can be obtained by using our rulings processes and advance pricing arrangement program.

Review periodic disclosures The PCR is based on effective and timely disclosures, including objectively sourced information and documents from you. This will include reliance on your own decision-making framework, policies, processes and systems.

The PCR incorporates other initiatives, including the reportable tax position schedule.

We will hold internal workshops and analyse your periodic disclosures to identify areas of interest, concern and tax risk. The internal workshops may include technical, topic and industry experts to assist in identifying the need for additional information.

Communicating with you The case officer will meet with you progressively and communicate our analysis of your periodic disclosures. We will provide a summary of our observations, areas of interest, concern and tax risks. These meetings will also provide an opportunity to discuss other relevant information.

We may request further information from you as part of our communication.

We may seek to influence your view on the application of enacted income tax law before the lodgment of your income tax return.

Providing certainty If you need certainty, we will assist you to obtain certainty through our rulings processes.

Review income tax returns We will review the lodged income tax returns, schedules, and supporting documents, including relevant working papers and income tax reconciliations.

Hold an internal briefing or workshop We will conduct internal workshops to analyse the lodged income tax returns, schedules and supporting documents to identify further areas of interest, concern and any tax risk.

The internal workshops may include technical, topic and industry experts which will also assist in identifying the need for additional information.

Communicating with you The case officer will meet with you and communicate our analysis of the lodged income tax returns, schedules and supporting documents.

Develop and refine risk hypothesis Following the analysis of the lodged income tax returns, schedules and supporting documents we will finalise our review. This will include areas of interest, concern and any tax risk with a view to developing or refining a risk hypothesis and rating for each tax risk.

Where there are risks that are likely to need further action, we may hold additional internal workshops with technical, topic and industry experts.

The case officer may contact you if we need any further information.

Finalise the PCR We will meet with you and, if appropriate, technical, topic and industry experts will attend to discuss the implications of our findings with you. The discussion will include possible mitigation strategies you might choose to implement, such as making a voluntary disclosure.

Finalising the PCR does not provide any form of sign off or certainty to you other than that provided through rulings processes.

Within six months of lodgment, we will send you a finalisation letter confirming any tax risks identified during the review. It will include issues that we consider appropriate to bring to your attention, as well as treatment options.

Issue feedback questionnaire Once the review has been finalised we will send you a questionnaire seeking your feedback on the conduct of the review and any suggestions for improvements to our processes.

10 APPENDIXES


Plan and develop framework Pre-lodgment activities Post-lodgment activities Close review

Communicating with you The case officer will:

■ notify you of the start of the review and discuss with you our planned PCR framework

■ give you the contact details of a senior officer in case you want to raise any concerns during the review.

Tax governance processes We will review and regularly monitor your tax governance processes to determine if they are aligned with the strategic and operational tax risk management guidelines (see chapter 3 Good tax governance).

Communicating our pre-lodgment findings Just before lodgment of your income tax return, we will meet with you and confirm in writing our findings from the pre-lodgment period. If possible, we will provide you with an indicative risk rating for each tax risk.

Lodging income tax returns The case officer will discuss your lodgment obligations to ensure that you are planning to lodge your income tax returns by the due date.

Develop recommendations Technical, topic and industry experts will assist the case officer to rate each risk and develop recommendations for possible future action, including whether we should proceed to an audit.

Senior officers involved in the case will consider the recommendations. If they agree with a recommendation to proceed to an audit the case will be referred to a panel for a final decision.

What we expect from youReview the PCR framework and understand your commitments.

Raise any concerns with us at the start of the PCR about the engagement approach, intensity level or timing of planned work.

Align your tax governance processes with the guidelines, (see chapter 3) and advise us of any changes to your tax governance processes.

Provide information in a timely way and ensure the appropriate staff are available to assist us to understand aspects of a periodic disclosure.

Advise us of any areas of concern, interest or tax risk that you have identified and how you intend to mitigate any tax risk.

Adopt an early engagement approach when using our rulings processes.

Advise us if your expected tax payable for the relevant income tax year is to vary from the amount planned.

Lodge your income tax returns by the due date.

Ensure the appropriate staff are available to answer any questions arising from our analysis of the lodged income tax returns, including the need for further information.

Consider the risks identified and implement mitigation strategies as agreed with us.

Ensure appropriate staff are available to attend the finalisation meeting.

Provide us with feedback on the conduct of the review, including any suggestions for improvement.

10 APPENDIXES


APPENDIX�6�–�POST‑LODGMENT�COMPLIANCE�REVIEW�PROCESSWhat we will do and what we expect from you

Plan case and understand business

Identify and review risks Assess risks Close/escalate to audit

What we will do

During the risk review process we will maintain an open and frank dialogue with you.

Develop the risk hypothesis We develop a risk hypothesis for all cases selected for a risk review. The hypothesis is formulated through our risk management processes, with input from the case officer and, if appropriate, relevant experts.

The risk hypothesis is shared with you at various stages of the review.

Plan the case Case officers will:

■ check whether you are involved in any other interactions with us and coordinate these if possible

■ collate the information we have on your business

■ develop a plan for the review ■ call to advise you of the risk review, and discuss the plan, including the scope of the review and expected timeframes

■ request necessary information and discuss possible interview dates

■ make sure the appropriate resources are available to carry out the plan

■ confirm in writing any initial information requests

■ give you the contact details of a senior officer in case you want to raise any concerns during the review.

Gather information and build understanding of your business Case officers, their senior officers, and, if necessary, technical, topic or industry experts will review the available information to:

■ identify any additional information we need

■ develop an understanding of your business activities, including your tax governance processes – this may involve discussions with key people within your business

■ plan for an internal briefing or workshop.

Hold an internal briefing or workshop The case officer will organise an internal workshop which may include technical, topic and industry experts to evolve or refine the risk hypothesis by:

■ analysing available information

■ analysing the industry and business environment in which you operate

■ understanding your economic and tax performance

■ analysing the impact of significant events.

Send an interview confirmation letter The case officer will write to you confirming any interview date and advising of any information we need before or at the interview.

Prepare for interviews The case officer will prepare an interview questionnaire with assistance from senior officers, outlining key issues and identifying the information we need.

Hold interviews Interviews help us understand your business. When we hold an interview we will:

■ arrange for the appropriate ATO officers to be there to address issues you may raise

■ explain our initial view on any risks

■ ask whether you have identified any potential risks you wish to disclose

■ provide you with an opportunity to explain how you may have mitigated any potential risks.

If we can get the full facts quickly, along with the relevant supporting evidence, a decision on an appropriate outcome can be made sooner, saving all stakeholders significant resources.

Evolving the risk hypothesis If the risk hypothesis evolves as we better understand the risk, we will notify you.

We may contact you if we need any further information.

Develop recommendations We will assess the risks we have shared with you and those that you have disclosed and recommend whether there is any need for further compliance action.

If there are risks that are likely to need further action, the case officer may hold additional internal workshops with technical, topic and industry experts to analyse any new information.

The case officer makes recommendations on the rating of each risk and on possible future action including whether we should proceed to an audit.

The senior officer considers the recommendations. If the recommendation is to proceed to audit the case may be considered by a panel of senior officers.

Issue a risk review outcome letter If the senior officers decide that the identified risks need further compliance action the case officer will send you a letter advising you of the risk categories and any proposed action. If there is no need for further action we will send you a finalisation letter.

We will offer you an interview to discuss the implications of our findings and the next steps. The outcome of this interview may influence our next steps.

Hold an exit interview If you choose to have an exit interview, the case officer will organise this with you and arrange for relevant ATO officers to attend.

The case officer, senior officer, and, if appropriate, technical specialists will attend the interview to discuss the implications of our findings with you.

This discussion will cover the next steps and how we will keep you informed of our plans. We will also discuss possible mitigation strategies you might choose to implement such as making a voluntary disclosure or improving your tax risk management processes.

Send finalisation letter After the interview the case officer will write to you outlining the final outcome from the review.

Issue feedback questionnaire Once the case has been finalised we will send you a questionnaire seeking your feedback on the conduct of the review and any suggestions for improvements to our processes.

Internal review In some cases we will undertake an internal debriefing once the review is finalised to identify improvements.

Ongoing dialogue If we have advised you that your case is going to proceed to audit we will remain in contact with you to inform you of developments.

10 APPENDIXES


Plan case and understand business

Identify and review risks Assess risks Close/escalate to audit


Review the risks we have identified and make a voluntary disclosure if appropriate.

Help us meet the planned timeframes for the review by:

■ making relevant staff available to discuss the review

■ preparing for interviews ■ providing information in the agreed timeframe

■ contacting your case officer with any questions.

Provide information in a timely way and ensure the appropriate staff are available for the interview.

Advise us of any potential risks you have identified and how you manage them.

Provide us with timely information and access to relevant documents and staff.

If risks are assessed or an interview occurs, provide your input about our findings.

Ensure the appropriate staff are available to attend the exit interview.

Consider the risks identified and implement management strategies if possible.

Provide us with feedback on the conduct of the review, including any suggestions for improvement.

10 APPENDIXES


APPENDIX 7 – AUDIT PROCESSWhat we will do and what we expect from you

Plan the audit Gather information Determine our position Communicate and close

What we will do

Through the audit process we will maintain an open and frank dialogue with you.

Prepare the case Our audit case officer will frame the case plan on the basis of the risk hypothesis and:

■ update the information we have on your business

■ review the outcomes from recent risk reviews to ensure the identified risks remain relevant

■ check whether you are involved in any other interactions with us and coordinate if possible.

Prepare the audit plan The case officer will prepare an audit plan with the help of senior officers and other compliance and technical officers. This may involve a planning workshop.

Planning for an audit includes ensuring the appropriate resources are available for its implementation.

We will endeavour to coordinate our efforts to minimise impacts upon your busiest periods.

We will regularly review and update the audit plan throughout the audit and we will inform you of progress. We will explore with you ways we might be able to speed up completion.

Notify taxpayer of audit As we prepare our audit case and the plan, the case officer will call to tell you of our intention to audit and organise times for interviews. We will give you the names of the officers involved in the audit and the process and contact arrangements for managing the audit.

We will give you the contact details of a senior officer in case you want to raise any concerns during the audit, or access key decision makers.

We will then write to you to confirm these details and outline any initial information we need.

Gather information We will seek information from you using a range of methods including questionnaires and interviews with your key staff. This is a key phase where working closely together can help in managing the audit timeframe.

We will work with you to establish our information needs, develop good communication processes, and discuss our reasons for needing information.

We will generally request information on an informal basis. However, in some circumstances it may be necessary for us to use our formal access powers. In this case we would normally advise you beforehand and outline the process. An example of this situation may be where information you provide needs to be formally confirmed to ensure we have a full and complete view of a complex transaction or arrangement.

We will actively monitor information requests and provide you with appropriate support to ensure the request is satisfied in a timely fashion. We will take action if information requests have not been fully complied with.

We will try to coordinate our requirements to accommodate your business cycle and any important demands on your key people.

Review information and refine audit scope The case officer will examine the information we have collected and identify the key issues, evolve or refine the risk hypothesis and develop our position.

Research technical issues The case officer or compliance team will review and analyse the information, consult with relevant technical experts and refine our position.

We will follow relevant practice statements and, if applicable, refer matters to ATO panels such as the General Anti-Avoidance Rules Panel.

Communicate our position in writing The case officer will write to you outlining our position and invite you to respond. At this stage, as we are finalising our position, you have the opportunity to provide any further information.

Consider your response We will consider your response to our position and any additional information you provide.

We may also meet with you to further discuss our position and any additional information. We may involve our technical specialists, industry or topic experts in these meetings.

Advise you of our final audit position We will normally respond in writing to any matters you have raised and advise you of our final audit position. If there are multiple issues this may occur on an issue basis.

Internal position paper review If, after considering your contentions, there remain areas of disagreement about the position paper you may request an independent review be conducted by an independent senior officer. We will inform you of the independent review criteria when we write to you with our final audit position.

Communicate outcomes of each audit issue in writing The case officer will send you a letter outlining the outcomes of the issues under audit. This will include our final position on each substantive issue including our decision and reasoning for any penalties and administrative charges.

If you make an offer to settle, the case officer and their senior officer will consider and discuss it with you, applying the Code of Settlement Practice.

If you disagree with our position, the case officer will advise you of your dispute rights and possible next steps.

Offer final interview At the conclusion of the audit we will offer the opportunity for a final interview, which may include discussion of:

■ the audit process ■ expectations for our future relationship

■ how your tax risk management processes may be improved

■ your review rights and payment options.

Finalise the audit Following the final interview, we will send you a finalisation letter to close the audit. We may also list any agreed measures designed to improve future compliance.

Issue feedback questionnaire Once the case has been finalised we will send you a questionnaire seeking your feedback on the conduct of the audit and any suggestions for improvement.

10 APPENDIXES


Plan the audit Gather information Determine our position Communicate and close

Hold a preliminary audit interview At the interview we will:

■ provide you with a copy of the audit plan for discussion

■ discuss the audit scope, the periods under audit and the expected completion date

■ discuss the information gathering processes

■ discuss any guidelines relevant to the issues and years to be audited, including voluntary disclosure procedures

■ outline facilities and assistance we may need.

If it is necessary to adjust the scope of the audit, the case officer will prepare a submission for consideration by senior officers. If the scope has changed we will advise you.

If needed, we will hold internal workshops with technical specialists or industry and topic experts to develop our technical position and identify any additional information requirements.

Go to ato.gov.au/positionpaperindependentreview for further information.

Advise proposed penalty and interest charges If we have concluded that penalties should apply we will tell you our reasons and give you an opportunity to present your views with any mitigating factors.


Work with us to set a time for the preliminary interview and ensure your key staff are available for the interview.

Provide any requested information before or at the interview.

Discuss the proposed plan with us to reach agreement on timeframes and milestones.

Provide the information we need in a timely way.

When an interview is necessary, work with us in setting interview times and make sure your key staff are available.

Provide us with reasonable access to the facilities and resources we need.

When requested confirm the accuracy of our summary of the key issues discussed and agreed undertakings resulting from our meetings.

Inform us immediately if you are having difficulty complying with an information request.

If you choose to respond to our position, to do it in a timely way and ensure that any information you provide is relevant.

If you choose to have a face-to-face discussion with us about our position, to ensure your key staff are available.

If you intend to make submissions about the remission of penalties or interest charges, to do it in a timely way.

If you choose to have an interview, to make sure your key staff are available.

Provide feedback on the conduct of the audit, including any suggestions for improvement.

MORE INFORMATIONFor copies of this document phone 1300 720 092 or visit ato.gov.au

FEEDBACKEmail your comments to [email protected]