Large business bulletin: September 2011
Large business bulletin: September 2011
Downloading the bulletin
From the Deputy Commissioner, Indirect Tax
Welcome to the September edition of the Large Business Bulletin.
My name is James O'Halloran and I have recently taken over from Shane Reardon as Deputy Commissioner, Indirect Tax. Our Indirect Tax area administers goods and services tax (GST), excise, luxury car tax, wine equalisation tax and fuel tax credits.
In Indirect Tax we work closely with the Large Business and International area to support voluntary compliance in the large market and provide a whole-of-ATO approach.
We are currently working with our Large Business and International colleagues in the ATO to implement the Risk Differentiation Framework (RDF) for indirect taxes. As part of this, if we view your business as 'higher consequence' we will inform you of your GST and excise risk categorisations, which given the nature of indirect taxes are separate to your income tax risk categorisations.
Our intention is to be transparent in our approach and enable us to work more effectively with you. For more information about the RDF, read our lead article.
In this edition we have included an article about our recently released Compliance program 2011-12. The program provides details of risks we have identified in the large market and what we are doing to address them.
We have also included articles about our work to finalise the reportable tax position schedule, the international risks we are focused on, and what you need to know about the promoter penalty laws and how they apply.
Australian Taxation Office
The Risk Differentiation Framework
We are continuing to implement the Risk Differentiation Framework (RDF) across the large market to improve the transparency of our risk management approaches and provide more certainty for large business.
Under the RDF, our aim is to engage in genuine two-way communications to help taxpayers manage their tax risks and reduce their compliance costs. Many taxpayers across the large business market have demonstrated their support for this approach.
Last year, we informed most large business taxpayers of their income tax risk categorisations. We have also recently informed our higher consequence taxpayers (generally the largest taxpayers) about their goods and services tax (GST) and excise categorisations.
We have received feedback that senior executives and boards are focussing more on tax matters and are more aware of our view of their relative tax risk. One recent press report described the rollout of the RDF as '…like wildfire in terms of getting the attention of CEOs and boards…' (AFR, 7 April 2011).
Those few taxpayers we identified as 'higher risk' are talking to us about things they can do differently and 'key' taxpayers want to know how they can maintain their categorisations. Some 'lower risk' and 'medium risk' taxpayers have provided information to us through voluntary disclosures.
From September to November, we will progressively write to all large businesses to inform them of their relative risk categorisation across income tax, GST and excise. We will be in contact with higher consequence taxpayers to arrange a meeting to discuss how we might best resolve any concerns.
We will continue to consult with and listen to the large business market through forums such as the Large Business Advisory group and the Corporate Tax Association. This will support our work on engaging more co-operatively and effectively with large business.
Our Compliance program 2011-12 was released on 30 June 2011.
In his foreword, the Commissioner outlines how the program is part of our holistic approach to encouraging, supporting, protecting and championing the interest of honest taxpayers and advisers, and of continually improving our processes and capabilities for doing that.
The program highlights the compliance issues that are attracting our attention, that we are doing to address them and explains the risks to those unwilling to participate.
As outlined in the large business chapter, our specific areas of focus in 2011-12 are:
- corporate restructures, mergers and acquisitions
- foreign residents
- inappropriate outcomes involving consolidation
- profit shifting
- private equity - exiting Australia
- GST and international and cross border transactions
- stapled group financing
- Taxation of Financial Arrangements (TOFA)
- financial supplies and GST
- foreign partnerships
- black hole expenditure
- exploration expenditure
- property transactions and GST
- superannuation funds
- alternative fuels.
We have also extended our focus on several risks we identified in last year's compliance program:
- non-resident withholding tax
- tax and capital losses
- research and development claims.
We will continue our focus on early engagement with large business and providing practical certainty through a range of specialised products and services. We will also continue to work with large business to resolve issues and reduce irritants across all taxes.
We will use information including past compliance behaviour and governance arrangements to help form our view of taxpayers under our Risk Differentiation Framework (RDF) and determine our compliance approach.
The compliance program and our implementation of the RDF demonstrate our commitment to transparency in our approach and processes with the large market.
As mentioned in our May edition of the Large Business Bulletin, we are developing a new reportable tax positions (RTP) schedule for the 2012 company tax return for a small number of large business taxpayers.
Reasons for developing the schedule
The intent of the schedule is to provide you with greater assurance about your most contestable and material tax positions. The new RTP schedule provides you with an opportunity to disclose these transactions and is part of our effort to provide faster and clearer tax law advice to you.
We will review RTP disclosures to help us:
- provide you with faster assurance about your material contestable tax positions, for example, by encouraging you to request private rulings where appropriate
- identify issues to address using public rulings
- identify tax risks for your businesses faster and understand them better.
The new schedule:
- is a reminder of how important it is to have robust corporate governance processes in place
- helps to ensure your dealings are more transparent.
Design of the schedule
We have designed the draft schedule in consultation with representatives from the Large Business Advisory Group (LBAG) and the National Tax Liaison Group (NTLG) working groups. The schedule and definitions have changed since the May 2011 edition of the Large business Bulletin and are subject to further change as the consultation process continues.
The types of issues being developed in consultation include the level of materiality for the purpose of the RTP schedule and any potential interactions with legal professional privilege. We will continue to update the information on our approaches on our webpage.
Who has to complete the schedule
Initially, the schedule will only apply to taxpayers we notify to advise they must complete it. These are taxpayers within some of our largest business groups that we have identified as 'key' or 'higher risk' taxpayers under our Risk Differentiation Framework.
Over the last few years we have publicised our increased focus on transfer pricing related risks to revenue by mentioning it in:
- our compliance program
- the presentations and speeches our executive officers deliver
- articles in the Large Business Bulletin.
We have also allocated significant resources to investigate our concerns with profit-shifting, and international and cross-border transactions.
Specifically, we are focussed on transfer pricing and related international risks associated with:
- business restructures, including transfer of intangible property
- profitability, including the impact of the Global Financial Crisis on the economic performance of large businesses
- financing, including intra group loans and guarantee fees
- services to the mining industry
- foreign bank - profit allocations.
Using information collected in questionnaires sent out in early 2010 and subsequent risk reviews, we have identified transactions for further investigation. We have either assured taxpayers where we have no further issues of concern, informed taxpayers where we have areas of concern that may require their attention, or started audits based on the results of the risk reviews.
Our project work in these areas has already resulted in:
- increased voluntary disclosures for income tax, GST and withholding tax
- reduced carried-forward losses
- improved accuracy of Schedule 25A transfer pricing paperwork
- increased uptake of Advance Pricing Arrangements.
We will continue working in these areas to identify risks to revenue and provide guidance and support to help large business meet transfer pricing obligations in Australia.
If your business provides a tax or financial advisory service, you need to be aware of the promoter penalty laws and how they may apply to you.
Promoter penalty laws target the promotion of tax exploitation schemes. They also prohibit the implementation of product ruling arrangements that are materially different to how they were described in the product ruling.
To ensure your business complies with these laws, we suggest you have the appropriate internal governance controls in place.
To help tax intermediaries understand the laws, we have released the Good governance and promoter penalty laws guide.
The guide covers topics such as:
- good governance principles and good practice in relation to tax services
- how we differentiate and treat businesses at risk of breaking these laws
- the consequences of breaking these laws
- current schemes and behaviours that concern us
- how to reduce the risk of inadvertently marketing or encouraging tax avoidance schemes, or incorrectly implementing product ruling arrangements.
The guide helps tax intermediaries better manage promoter penalty risks by outlining our approach and providing guidance on internal control checklists and best practice processes. It is also part of our strategy to help tax intermediaries and taxpayers recognise and reject potential tax avoidance schemes, and report them to us.
New practice statement released
On 28 July 2011, we released a practice statement outlining the circumstances where the ATO will only apply its view of the law prospectively. In essence, this will be where the ATO has either facilitated or contributed to the adoption of a contrary view by taxpayers.
The practice statement was developed following a review by the Inspector-General of Taxation into delayed or changed ATO views on significant issues. This was sometimes referred to as the so called 'u-turns' review.
During the review we worked closely with the Inspector-General and key tax practitioners. This enabled us to learn, and more clearly understand, what the real issues and concerns of taxpayers and practitioners were.
Following the release of a discussion paper to professional bodies, a draft practice statement was published. Feedback on both documents was considered before finalising the practice statement.
We encourage tax practitioners and taxpayers to familiarise themselves with the new practice statement and bring to our attention any areas of uncertainly or potential contention with the law.
For more information, read the practice statement - PS LA 2011/27 - Matters the Commissioner considers when determining whether the ATO view of the law should only be applied prospectively.
From 1 December 2011, gaseous fuels used in transport will be subject to excise or customs duty in most instances. Gaseous fuels include:
- liquefied petroleum gas (LPG)
- liquefied natural gas (LNG)
- compressed natural gas (CNG).
The duty rates will be phased in over four years. From 1 December 2011:
- LPG starts at 2.5 cents per litre with a final rate of 12.5 cents per litre from 1 July 2015.
- LNG and CNG starts at 5.22 cents per kilogram with a final rate of 26.13 cents per kilogram from 1 July 2015.
If you manufacture, import or acquire gaseous fuels, you may need to:
- get a licence to do so
- get permission from us to move your fuel to other licensed premises
- change your systems to support new notice requirements where duty is not paid on LPG.
The new withholding tax tables, including those that incorporate the recently introduced flood levy, for 2011-12 are now available on our website.
Some payees may be exempt from paying the flood levy. If so, they will need to complete the flood levy exemption declaration and provide this to their employer.
Tax tables for payees who are exempt from paying the flood levy are also available on our website.
You can obtain paper copies of the tax tables or the flood levy exemption declaration form:
- from most newsagents
- from our shopfronts
- by phoning our self-help publication hotline on 1300 720 092
We recently updated files in the Consolidation reference manual (CRM) to include changes brought about by the Tax Laws Amendment (2010 Measures No. 1) Act 2010.
The updated manual provides you and your tax advisers with a users guide to consolidating corporate groups for income tax.
As part of the update, we:
- revised 81 files
- withdrew 15 files
- published 6 new files.
Of the files we withdrew, most were due to the removal of sample notification forms from the CRM. These forms are available on our website - refer to Consolidation: notification forms and instructions.
We have also removed most of the consolidation market valuation material. However, we have retained the main file - C4-1 Market valuation - which redirects you to our market valuation publication - Market valuation for tax purposes - which we recently updated to include the consolidation market valuation shortcuts.
A new bilateral social security agreement with the Czech Republic began on 1 July 2011. This agreement will remove the issue of double super coverage.
Double super coverage occurs when both of the following apply:
- an Australian resident works temporarily in another country
- that country, as well as Australia, requires super (or equivalent) contributions to be made for the employee.
Visit our website
- find the latest public rulings relevant to large businesses.
- read the latest speeches by the Commissioner and other ATO leaders.
If you have any questions about tax matters for large business, phone us on 1300 137 286, Monday to Friday, 8.00am to 6.00pm.
The Large Business Bulletin is issued quarterly. If you have any suggestions or feedback, email Largebusinessbulletin@ato.gov.au
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Last Modified: Friday, 16 September 2011