Large business alert 1/11
Large business alert 1/11
The ATO is developing a RTP schedule to be lodged with the company income tax return. As indicated by the Commissioner at the National Tax Liaison Group meeting in December 2010, the intent of the schedule is to require the disclosure of those "... material issues that a robust governance process would escalate for the attention of senior management."
These developments were foreshadowed by the Commissioner through various forums during 2010 when he outlined the ATO's desire to seek information about tax uncertainties. Such focus on the disclosure of the most contentious material tax risks reflects wider international developments requiring greater transparency by large businesses.
During 2010 the ATO started a project to develop an information disclosure package providing tailored assurance on reasonably arguable positions and uncertain tax positions to enable the ATO to understand risk across the market and lower the cost of compliance. The project will facilitate large business demonstrating a high level of willing participation in the tax system and will provide the ATO with assurance of revenue from the large business sector.
The RTP schedule will support our differentiated approach towards large business taxpayers that is based on the Risk Differentiation Framework.
Concepts and approaches are currently being trialled in a pilot project. They have also been the subject of initial consultation during 2010 which will be substantially expanded during 2011.
It is proposed that the schedule apply for income years commencing on or after 1 July 2011, therefore applying to the 2011-12 income year.
Initially it is proposed that the schedule apply to the head company of a consolidated group with an annual turnover that is greater than $250 million for the previous year.
Basic disclosure requirement
Under the RTP Schedule, relevant taxpayers will be required to disclose any RTP that is material. Materiality will be broadly determined by reference to the Australian financial materiality of the taxpayer. At this point it is proposed that a tax position be determined at a transactional or project level (as opposed to transactional components).
A RTP is one:
- where, in the reasonable opinion of the taxpayer or their professional advisers, 'what is argued for is less likely or about as likely to be correct as incorrect' (that is, where there is 50% or less likelihood of being upheld by a Court), and/or
- in respect of which a reportable tax reserve is disclosed in the taxpayer's audited financial statements (a reportable tax reserve is a contingent liability or a provision in respect of Australian income tax).
The schedule will require the taxpayer to provide:
- A concise description of the material facts relating to the RTP, and
- A listing of the relevant statutory provisions, case law and/or ATO view applied.
- a taxpayer has no RTPs, a nil schedule will be required.
From the second year, the RTP Schedule will require additional disclosures about any RTP that changed since it was reported, and/or any RTP relating to a prior year that was not reported in the prior year.
The schedule will be co-designed with the LBAG and NTLG working parties that have been established to date and guidance materials will be developed to clearly outline the reporting requirements, definitions, impact of non- disclosure and other key issues. The Businesses webpage on www.ato.gov.au will be used to keep the broader large market informed and provide regular opportunities for involvement in the co-design process.
How the ATO will process information collected is being carefully considered including, for example, whether to establish a centralised collection and review point for initial analysis to:
- Understand RTPs reported at taxpayer and industry level and identify patterns and trends
- Develop criteria for prioritising RTPs including early identification and escalation of potential matters for:
- Development / refinement of administrative approaches and / or guidance materials
- Refining risk hypothesis and mitigation strategies
- Expediting matters for active compliance activity
Please circulate this message to the appropriate staff in your organisation, and suggest that they subscribe to this alert.
To subscribe to the alert, or to unsubscribe, email LargeBusinessAlert@ato.gov.au.
Last Modified: Wednesday, 18 May 2011