Good governance and promoter penalty laws

How do we identify and treat quadrant intermediaries?

We identify entities that may pose a risk of contravention of the promoter penalty laws by using a number of intelligence avenues. These include a sophisticated analysis of data from tax returns, third-party information sources, internal sources of information, including a history of dealings with the ATO and private ruling requests, as well as referrals by people inside and outside the ATO. We also receive information about such risks from other government agencies in Australia and through liaison arrangements with our tax treaty partners, such as the Joint International Tax Shelter Information Centre (JITSIC). We also discuss governance arrangements with intermediaries, particularly higher consequence intermediaries.

This intelligence enables us to assess entities, based on the best information we have at the time, using the risk differentiation framework. The framework helps us decide who we will risk-review and why. In doing this, we understand that relevant facts and circumstances need to be taken into account. If we have a concern about your conduct we will let you know about those concerns. As Figure 1 suggests, we will deal with intermediaries in the following way:

Higher risk intermediaries (Quadrant 1): Deter and deal with promptly. Ongoing and visible deterrence through review and engagement of the relatively few intermediaries who are most aggressive in their promotion or implementation of controversial tax planning arrangements. The aim is to create an environment where it is more difficult to engage in higher-risk behaviour. We address higher risk intermediaries through potential application of promoter penalties and other remedies, together with increasing the risk profile of their clients. We notify such entities of their preliminary risk rating when we start a review or investigation of their conduct and their final risk rating at the completion of their case.
Key intermediaries (Quadrant 2): Monitor and maintain behaviour. Ongoing engagement of the largest intermediaries and other key entities to ensure that their activities do not stray into the promotion or implementation of controversial tax planning arrangements. The aim is to maintain tendencies towards lower likelihood of high-risk behaviour. We engage with key intermediaries to support their effective management of the risks flowing from their activities. We notify those entities that they are key intermediaries as part of our regular engagement processes, unless our interactions indicate that they have moved to another category.
Medium risk intermediaries (Quadrant 3): Deal with and deter. Periodic review and treatment of those who appear to be potentially promoting or implementing controversial tax planning arrangements. Project-based leverage approaches are used to deal with groups promoting similar arrangements - for example, gathering information from and providing warnings to groups of relevant intermediaries about the risks of employee benefit arrangements. The aim is to make it harder to engage in higher-risk behaviour and to limit opportunities for proliferation. We periodically review and address risks posed by medium risk intermediaries through leveraged approaches to change behaviour through education or application of less intensive promoter penalties. We notify such entities of their preliminary risk rating when we start a review or investigation of their conduct and their final risk rating at the completion of their case.
Lower risk intermediaries (Quadrant 4): Monitor and detect shifts. Regular and systematic monitoring through analytical risk tools of the intermediary population to detect any increased risk of promotion or implementation of controversial tax planning arrangements. Our approach to lower risk intermediaries is to monitor their activities to identify those whose conduct may have increased likelihood of contravention of the promoter penalty laws and/or increased consequences. This category contains the vast majority of tax intermediaries so we do not ordinarily advise these entities of their risk rating, unless our monitoring indicates that they have moved to another category.

Sections within Our risk management approach

Last Modified: Wednesday, 9 January 2013