Code of settlement practice

The Code of settlement practice or the 'Code' provides guidance for ATO staff on:

the settlement of taxation disputes in relation to all taxpayers
where settlement could be considered.

It also outlines the processes that should be followed.

The Code balances the need for accountability and transparency of decision making with the requirements under the law to maintain the privacy of taxpayers' information. It is designed to provide assurance about the appropriateness of settlement decisions.

Background

Settling disputed matters is consistent with good management of the tax system, overall fairness and best use of ATO and other community resources. This has become known as 'the good management rule', which has been endorsed by the courts.

Settlement guidelines were initially developed in consultation with taxpayer, professional and industry groups. They were first introduced in February 1991, then revised and retitled the Code of settlement practice in September 1999.

Two practice statements have also been issued in conjunction with the Code:

Law Administration Practice Statement PS LA 2007/5 Settlements prescribes mandatory use of the Code by all ATO staff in the settlement of taxation disputes
Law Administration Practice Statement PS LA 2007/6 Guidelines for settlement of widely-based tax disputes sets out practical guidelines for the settlement of widely-based tax disputes.

Part 1: Purpose and scope of this Code

Purpose and scope

This Code provides guidelines on the settlement of taxation disputes in relation to all taxpayers. It provides guidance as to the situations in which settlement could be considered and outlines the processes which should be followed.
A settlement involves an agreement or arrangement between parties to finalise their matters in dispute in situations where it is in the best interests of the Commonwealth to do so¹. In the case of taxation disputes, special considerations arise because, on one hand, the Commissioner's basic duty is to administer taxation law through assessing and collecting taxes and determining entitlements. However, on the other hand, the Commissioner also has an obligation to administer the taxation system in an efficient and effective way. Settlements usually involve the need to balance competing considerations and call for the application of discretion and good sense.
This Code is accordingly designed to ensure that:

settlements of taxation disputes occur only in appropriate cases and in accordance with established practices that provide the necessary checks and balances
there is transparency and accountability in the settlement process.

The Code has been written mainly with income tax in mind, but the principles are applicable to all laws administered by the Commissioner.
Some taxation disputes involve issues that are common to groups of taxpayers who are in similar circumstances (see for example, paragraph 21 ). In these widely-based disputes, there are additional factors that must be taken into account. Supplementary guidelines on the settlement of these disputes are contained in PS LA 2007/6 . Those guidelines should be read in conjunction with this Code.

Ensuring accountability and transparency

The processes contained in this Code are intended to promote transparency and accountability, and include appropriate checks and balances to ensure that settlements are sensible and objectively justifiable in terms of good management and administration. To this end:

the power to settle disputes in accordance with this Code is restricted to senior officers (paragraph 64)
the settlement process must be fully documented on the ATO Siebel case management system (paragraph 68), to ensure that the settlement is capable of withstanding objective scrutiny, and be justifiable on the facts and circumstances of the particular case (paragraphs 61 to 66)
settlements are reviewable under ATO quality assurance processes, which apply to all cases (refer to PS LA 2009/6 Quality improvement and assurance: application of and conformance with the Integrated Quality Framework). These reviews include independent (and external) experts and relate primarily to conformance with the procedure set out in the Code. Settlements may also be reviewed by external bodies such as the Australian National Audit Office and the Taxation Ombudsman.

Within this framework, necessary safeguards exist to protect the confidentiality of a taxpayer's taxation affairs, as follows:

In accordance with the strict secrecy requirements of the taxation law, the ATO will not disclose the terms of any settlement agreement to third parties, unless authorised by law or by the taxpayer (refer to Corporate Management Practice Statement PS CM 2004/07 Secrecy and privacy obligations of ATO employees).
In a settlement agreement, the taxpayer's identity will become public only if the taxpayer discloses it or agrees to its disclosure, or if the disclosure is a consequence of a hearing before a court, tribunal or as required by law - for example, a parliamentary committee.

Overview of the Code

The Code is intended to provide guidance on the following principal matters:

what constitutes a settlement, including special considerations that apply to borderline questions of fact and law, and disputes as to quantum (paragraphs 10 to 16)
the legal basis for making settlements in taxation disputes, and the scope of the good management rule (paragraphs 17 to 21)
whether a settlement is appropriate in view of factors such as

whether there is an actual or pending precedential ATO view
the likelihood of inconsistent treatment
the likelihood or desirability of litigation
the possible effect on compliance
the ability of the taxpayer to pay
the availability of alternative methods of dispute resolution
any other special circumstances
additional considerations that apply to global settlements (paragraphs 25 to 36)

the relationship between settlement procedures and actual or potential prosecution action, and the procedures that must be followed in such cases, including notification requirements (paragraphs 38 to 47)
the appropriate treatment of penalties and interest charges in cases involving settlements (paragraphs 48 to 52)
the procedures that should be followed in negotiations for a settlement, including approval of decision makers, establishment of the precedential ATO view, obtaining advice from counsel, the conduct of proceedings, documentation requirements and the avoidance of conflicts of interest (paragraphs 53 to 66)
the procedures that should be followed in making and documenting a settlement agreement and determining its scope, including ensuring that it complies with the Code and is fully documented and recorded on the ATO Siebel case management system (paragraphs 67 to 69).

Date of effect

This Code applies from its date of release. A summary of the history of the development of the settlement guidelines since their first introduction in 1991 is contained in Attachment C.

Part 2: Factors affecting settlement

Meaning of settlement

This Code is directed at circumstances where a decision is taken to settle a disputed liability or entitlement in cases where, having regard to a range of factors, it is in the best interests of the Commonwealth to do so.
For these purposes, a 'settlement' is defined at paragraph 2.
A 'dispute' includes a formal dispute between the parties about a taxation liability or entitlement, such as an objection. It also includes disputes that arise prior to formal assessments being raised, such as following a taxpayer's consideration of the ATO's position paper. A dispute that is covered by the Code would ordinarily only be one where the taxpayer has (or will have) a right to object against the Commissioner's decision in relation to the liability or entitlement.
A reference to a disputed 'liability or entitlement' in this context includes tax², penalties, payments³, notional tax on losses, franking credits and debits, foreign tax credits, credits and refunds of indirect taxes, general interest charge, shortfall interest charge and interest.
The Code is not directed at circumstances where the Commissioner enters into arrangements in connection with an established taxation liability in a debt recovery context. Situations may also arise in the course of particular debt recovery litigation that may warrant the Commissioner giving consideration to settling the matter. Examples include:

director penalty matters (relating to penalties incurred under Division 269 of Schedule 1 to the Taxation Administration Act 1953 (TAA) and previously under Division 9 of Part VI of the Income Tax Assessment Act 1936 (ITAA 1936)
actions commenced by a liquidator against the Commissioner in relation to an unfair preference or other voidable transaction
cases where the Commissioner seeks indemnity from a company director pursuant to section 588FGA of the Corporations Act 2001 - these cases would not involve a settlement in terms of this Code. However, they should be fully documented and the decision approved by a delegate or appropriately authorised officer.

Disputes as to quantum

The usual position is that a settlement of a dispute involving factual or quantum issues, including valuation matters, is a 'settlement' in terms of this Code. However, in some cases, a tax dispute relates only to the quantum of an amount that depends on the facts. For example, a claim may, at law, be subject to apportionment (for instance the amounts of revenue and capital in a repair claim) and there is doubt, on the facts, as to the correct portion to be allowed. Also, disputes can arise in relation to the determination of an arm's length price for transfer pricing purposes. In these cases, a realistic factual position may be agreed between the taxpayer and ATO on the best available evidence. These cases would not normally involve a settlement in the terms of this Code. However, they should be fully documented and the decision approved by a delegate or authorised officer. These cases would also come within the ATO's integrated quality framework (IQF) and may also be subject to review by the Australian National Audit Office and the Taxation Ombudsman.

Borderline questions of law and fact

Even if the application of the law is uncertain, or there is insufficient information to draw a firm conclusion, it has always been open to the ATO to consider whether or not an adjustment on a particular issue should be made. In cases of this nature, consideration of the law is often on an 'all or nothing' basis. For example, where the deductibility of losses depends on whether a taxpayer is carrying on a business, the issue will be decided by considering whether or not the facts lead to a conclusion that a business is being carried on. Accordingly, in some cases, it will be concluded on balance that the taxpayer's position represents the better view. In reaching such conclusions the ATO is merely carrying out its responsibility to raise assessments in accordance with the law. These cases are not intended to be covered by the Code unless other disputed issues in the case are settled. However, they need to be properly documented and available for inclusion in the IQF and possible external review.

Legal basis for settlement

The basic duty of the Commissioner is to administer tax law. This duty includes assessing and collecting taxes and delivering entitlements arising under that law. The general rule, therefore, is that the Commissioner does not forego tax properly payable, and will, as soon as practicable, seek to collect the full amount of that tax. However, in the exercise of the Commissioner's duty, there will be circumstances in which the strictness of that general rule must be tempered by the need for reasonable and sensible administration and good management of the tax system. For example, the Full Federal Court held in Grofam Pty Ltd v Federal Commissioner of Taxation 97 ATC 4656 at 4665; (1997) 36 ATR 493 at 503:

The Commissioner's power to settle or compromise proceedings to which he is a party derives from section 8 of the Act [ITAA 1936] which provides that the Commissioner shall have the general administration of the Act.

The court cited with approval an earlier observation by Spender J in Precision Pools Pty Ltd v Commissioner of Taxation (1992) 37 FCR 554 at 567; 92 ATC 4549 at 4558; (1992) 24 ATR 43 at 54:

That administration has to be bona fide and for the purposes of the Act, but it is a grant of a wide power and would encompass, for instance, the power to compromise proceedings in which he was a party or to make agreements or arrangements concerning the efficient management of a dispute in which he was involved.

It is clear that, once there is a formal dispute between the parties (an objection, application to the Administrative Appeals Tribunal (AAT), or appeal to an appellant court), it is open to the parties, and at times highly desirable, to resolve the dispute by means of settlement. For instance in Grofam Pty Ltd v Federal Commissioner of Taxation 97 ATC 4656 at 4665; (1997) 36 ATR 493 at 503 the Full Federal Court urged the parties to consider a commercial settlement:

Perhaps further discussion between the parties and their legal advisers will result in a sensible adjustment of the matters... The alternative is probably further protracted litigation with its consequent delay and expense. We realise that the Commissioner is mindful of the important public duty which he has in administering the Act. Nevertheless, if this were a commercial dispute, there would be much to be said for the view that a further attempt at settlement should be made, perhaps with the aid of an appropriate mediator. We see no reason associated with the Commissioner's powers and duties which should dissuade him from that course if he thought it otherwise an appropriate one for him to follow.

The good management rule

In formulating what has been called the 'good management rule', the courts have recognised that it is open to the Commissioner to make sensible decisions having regard to the best use of the limited resources available. The Commissioner is not obliged to relentlessly pursue every last tax dollar where that would clearly be uneconomic or where the outcome is at best problematic. This is now reinforced by section 44 of the Financial Management and Accountability Act 1997, which imposes an obligation on the Commissioner to manage the affairs of the ATO in a way that promotes the efficient, effective and ethical use of Commonwealth resources. Considerations such as uncertainty in the law and/or facts, and prospects of success may be relevant in this regard (see paragraph 26).
The good management rule has broad application, extending beyond individual cases. For example, there may be occasions where the Commissioner might consider it to be in the overall interests of the revenue not to pursue retrospective audit and/or assessing action in return for acceptance by a section of the public or group of taxpayers of the Commissioner's position for current and future years. An example of that type of action by a revenue authority can be found in Inland Revenue Commissioners v National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617 (the Fleet Street Casuals Case). That case involved a special arrangement to improve tax compliance amongst a group of 6,000 employees, and included a concession not to undertake retrospective investigations.
The good management rule also has application to settlement of widely-based tax disputes such as those involving mass marketed tax planning arrangements that are challenged by the Commissioner. Any settlement proposals involving a group of taxpayers must be referred to the widely-based settlement panel (see paragraph 55 ).

When settlement discussions may occur

Issues between the Commissioner and taxpayers can generally be discussed and resolved in accordance with the law at any stage. Settlement discussions should not circumvent any appropriate escalation of the issue to a senior officer.
By way of example, settlement discussions can occur where taxpayers make settlement overtures prior to formal assessments being raised. This often happens during an audit, usually following a taxpayer's consideration of a position paper from the ATO or other ATO communication of its thinking.
Where settlement is sensible and appropriate in relation to a matter, it would make little sense to go through a formal process of assessment, objection and amendment in order to reflect the agreed outcome.

Circumstances where it would be generally inappropriate to settle

Circumstances where it would be generally inappropriate to settle include where:

the outcome of the settlement would be contrary to an articulated policy reflected in the law
the matter is subject to escalation to settle the precedential ATO view
the matter is clear-cut or there is a clearly established and articulated precedential ATO view on the issue, and there are no special circumstances such as those described in paragraph 26
the settlement would involve inconsistency of treatment for taxpayers in comparable circumstances
it is in the public interest to have judicial clarification of the issue and the case is suitable for this purpose - in such cases, it may be appropriate to fund the litigation under the test case funding program
litigation of the matter through the courts could have a significant flow-on compliance effect and the case is suitable for this purpose
a similar matter is being litigated and awaiting outcome
the taxpayer's case is poor and unlikely to be pursued through the Administrative Appeal Tribunal (AAT) or court. Care is necessary to ensure the settlement practice does not encourage frivolous objections and appeals
inability to pay a tax debt as it falls due has been deliberately created and it would be inappropriate to consider settlement without first escalating the matter (see paragraph 35).

Circumstances where it may be appropriate to settle

As a general guide, settlement may be an appropriate way to resolve a matter if:

the cost of litigating (including internal ATO costs) is out of proportion to the possible benefits, having regard to the prospects of success (including collection of the tax), and likely award of costs, assessed as objectively as possible
there are complex factual or quantum issues in contention, or evidentiary difficulties, or there is genuine uncertainty as to the proper application of the law to the facts, sufficient to make the case problematic in outcome or unsuitable for resolution through the AAT or courts (for example, where the issue is peculiar to the particular taxpayer, and the opposing positions are each considered reasonably arguable). This is particularly so where the settlement includes an agreed approach for future income years
a participant or group of participants in a tax avoidance or other arrangement has come to accept the Commissioner's position and settlement is around the steps necessary to unwind existing structures and arrangements
the settlement will achieve compliance by the taxpayer, group of taxpayers, or section of the public, for current and future years, in a cost-effective way
unique or special features exist which make it unsuitable for resolution through litigation, for example, a dispute about the valuation of a unique asset.

As a general rule, the ATO will not enter into a settlement where the outcome would be contrary to its established view of the law (for example, in a public ruling). However, this should not be taken to mean that the ATO is not prepared to reconsider the correctness of its view. Should cases come to light where the application of a ruling or an otherwise accepted precedential ATO view would produce a result which could be regarded as unintended, unreasonable or incorrect, steps should be taken to have the matter reviewed, or to approach Treasury to recommend to government that there be legislative change.

Where unrelated issues are involved: global settlements

If the settlement involves more than one issue, regard must normally still be had to the legal and practical merits of each issue.
Accordingly, it is only in exceptional cases that negotiations should be entered into for a 'global' settlement. Global settlements typically involve a single settlement figure being arrived at in respect of a group of unrelated issues, without specific reference to a calculated outcome for each issue based on its merits.
There are several reasons why this type of settlement should only be considered as a last resort.

a. The scheme of the legislation is that tax should normally be collected in the year in which it is levied. The collection of tax referable to one issue should not generally be deferred until unrelated issues are reviewed; particularly where the amount involved is substantial. Indeed, delay can exacerbate collection difficulties, including cash flow problems for a taxpayer, and expose the taxpayer to higher interest charges.

b. The basic duty of the Commissioner in these circumstances is to undertake a genuine process of assessment and calculation of tax. This means, for example, that a process of raising every possible issue or argument to extend the range of bargaining points is totally unacceptable.

c. There should be no incentive for either party to trade off one unrelated issue against another, so that an arbitrary bargaining process takes the place of reasoned evaluation according to law.

However, the position is different where issues under review are related -such as, for example, a case where there is a common flow of funds or the same underlying transaction. It may be appropriate to consider settlement of these issues as a package. For example, after discussion about a number of issues, the ATO may decide to accept the taxpayer's view in respect of some issues and the taxpayer may agree not to pursue their right of objection in respect of other issues. These cases are to be treated as settlements.

Relevance of ability to pay

Ability to pay is not of itself usually relevant in determining a taxpayer's liability to primary tax, tax shortfall penalties, or interest charges. Ability to pay may, however, give rise to other administrative arrangements to assist the taxpayer. For example, payment arrangements may be tailored to the taxpayer's economic circumstances. Alternatively, where payment of the tax liability would entail serious hardship, the taxpayer may make an application to the Commissioner for release from payment of some taxation liabilities (Law Administration Practice Statement PS LA 2011/17 Debt relief).
The inability of the taxpayer to pay will affect the likely cost effectiveness of any proposed ATO action (see paragraph 26). It may therefore be a factor in considering whether settlement is appropriate, but will seldom of itself be sufficient to justify settlement (see Law Administration Practice Statement PS LA 2011/3 Compromise of taxation debts). However, it may be appropriate to consider settlement overtures made by the taxpayer, or another person (for example, a trustee in bankruptcy or liquidator) where insolvency in combination with other factors outlined in paragraph 26 (for example, where the matter is highly contentious), makes settlement a sensible option.
In determining a taxpayer's ability to pay, the financial position of the taxpayer and related entities should be considered.
Where it is considered that inability to pay tax as it falls due has been deliberately created, it would be inappropriate to consider settlement without first escalating the matter to the ATO's Debt business line. A settlement would not usually be appropriate in such cases, and consideration should be given to whether the arrangements are subject to other sanctions. It may also be appropriate to refer such cases to the ATO's Serious Non-Compliance (SNC) business line.
Where the taxpayer has been made a bankrupt, it is the trustee rather than the taxpayer who has legal power to settle a matter (McCallum v Commissioner of Taxation (1997) 75 FCR 458; 97 ATC 4509); (1997) 36 ATR 256). Similar issues arise where companies are in liquidation or under voluntary administration.

Alternative dispute resolution, including mediation

There are a range of alternative dispute resolution approaches, including mediation, which could be used, depending on the circumstances, to assist in reaching settlement. Law Administration Practice Statement PS LA 2007/23 Alternative Dispute Resolution in ATO disputes and litigation provides general guidance on the circumstances in which alternative dispute resolution, including mediation, may be used to resolve, in whole or in part, disputes involving the ATO. PS LA 2007/23 also gives a general explanation of other kinds of alternative dispute resolution methods available and when these methods should be considered.

Settlements and prosecutions

Guidelines and procedures for referring cases to the SNC business line can be found in Corporate Management Practice Statement PS CM 2007/02 Fraud control and the prosecution process. If a case falls within the guidelines, tax officers should seek a formal written response from SNC on the impact of a settlement on a potential prosecution before entering into any settlement negotiations. In providing the written response, SNC will normally seek advice from the Commonwealth Director of Public Prosecutions (CDPP) on the issue.
Officers should also formally advise SNC if there are indications that criminal offences may have been committed by the taxpayer and/or another party. SNC will then provide advice, including what action, if any, that SNC may take.
SNC will consider the question of prosecution or other responses including, if appropriate, the referral of the matter to the CDPP in respect of criminal prosecutions in accordance with PS CM 2007/02.
Where a matter has been referred to SNC or the Australian Federal Police, officers must formally advise SNC before taking any action which might prejudice any investigation.

No prosecution exemption

Tax officers do not have authority to make it a condition of a settlement that a taxpayer or another person will not be prosecuted, or that proceedings associated with a prosecution will not be taken either by the ATO or another agency. Accordingly, a clause or condition that purports to exempt a taxpayer or another party from prosecution, or associated proceedings, cannot form part of any ATO settlement agreement and is not enforceable.
Equally, it is ATO policy that officers must never use the threat of prosecution, either actual or implied, as a lever to settle cases.

Informing the taxpayer

Tax officers must make it clear to the taxpayer that settlements and prosecutions are separate and distinct matters, and that the decision whether to prosecute or not is the responsibility of the CDPP in respect of criminal prosecutions, the Administrative Prosecutions section of the ATO in respect of certain routine prosecutions, and the SNC business line in respect of civil prosecutions under the Excise Act 1901.
In those cases where the matter is referred to the CDPP, and the CDPP decides not to prosecute, tax officers may inform the taxpayer of that decision during settlement discussions if authorised to do so by the CDPP. A similar approach may be followed in respect of other matters referred to the Administrative Prosecutions section of the ATO or the SNC business line where it is decided not to prosecute.
Where SNC has considered a matter and concluded that, in accordance with PS CM 2007/02 the matter should not be referred to the CDPP, tax officers can advise the taxpayer of this fact either verbally or in writing.
Where a taxpayer is advised that there is no intention to commence criminal proceedings, it should be emphasised that this advice does not preclude a reconsideration of the matter by the CDPP (for example, where new information warrants a review). In these cases the taxpayer will be advised if the matter is referred to the CDPP for review.

Treatment of penalties and interest charges

Wherever possible, agreement should be reached in respect of the substantive issues before officers consider settlement of penalties or interest charges.
ATO policy governing the remission of penalty, general interest charge and shortfall interest charge is set out in the policy documents listed below.

Document	Subject
PS LA 2012/5	Administration of penalties for false or misleading statements that result in shortfall amounts
PS LA 2012/4	Administration of penalties for false or misleading statements that do not result in shortfall amounts
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
PS LA 2003/11	Remission of penalty for failure to withhold as required by Division 12 in Schedule 1 to the Taxation Administration Act 1953
PS LA 2002/8	Administration of penalties under the new tax system
PS LA 2000/9	Remission of penalties under the new tax system
TR 2001/3	Income tax: penalty tax and trusts
TR 94/7	Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted
MT 2012/3	Administrative penalties: voluntary disclosures
MT 2011/1	Miscellaneous taxes: application of penalties and interest charges to the Commonwealth, States, Northern Territory and Australian Capital Territory
MT 2008/2	Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable
MT 2008/1	Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard

Remission of penalties and interest charges must be determined in accordance with these policy documents which require authorised officers to deal with each case on its own particular merits.
However, as a matter of practical reality, cases will arise where penalty and interest charges could properly be considered as part of the settlement of the case. Remission of the general interest charge for late payment (as distinct from the interest charge during the shortfall period) as part of an overall settlement should be referred to the ATO's Debt business line for advice.
It is ATO policy that officers must never use threats, either implied or actual, of imposing penalties or interest as a lever to settle cases (see, for example, Caratti v Deputy Commissioner of Taxation 93 ATC 5192; (1993) 27 ATR 448).

Part 3: Settlement procedure and agreement

General settlement procedure

Following due escalation process

In both pre and post assessment, special assessment, objection or appeal situations, officers must ensure cases are managed (in accordance with established processes) so that the ATO position can be determined. These issues should not be settled without the agreement of the appropriate officer. The established processes are outlined in the following law administration practice statements:

PS LA 2012/1 Management of high risk technical issues and engagement of tax technical officers in Law and Practice
PS LA 2004/13 The Transfer Pricing Review Panel (TPRP)
PS LA 2003/3 Precedential ATO view
PS LA 2009/9 Conduct of Tax Office litigation.

Where internal advice is obtained on some aspect of a settlement, for example, from a technical officer from within the business line or from the Office of the Chief Tax Counsel (OCTC), it will usually be good practice, depending on the issue and other practicalities, for the taxpayers or their representatives to be given the opportunity of explaining their case to that officer.

Widely-based settlements

As noted at paragraph 5 , the Code is supplemented by Law Administration Practice Statement PS LA 2007/6 . These guidelines provide more detail of when and in what circumstances the ATO will consider a settlement with groups of taxpayers who are in similar circumstances. Decision makers must seek the advice of the widely-based settlement panel before entering into settlement negotiations in these cases.

Code of conduct

Tax officers must ensure that they are, and are seen to be, fair and equitable in their official dealings, including negotiation of settlements. Tax officers should, therefore, ensure that they are aware of the following and refer to them in any situation that may give a reasonable appearance of a possible conflict of interest:

Corporate Management Practice Statement PS CM 2004/02 Conflicts of interest
Corporate Management Procedures and Instructions CMPI 2004/02/03 Gifts, hospitality and other benefits
the Australian Public Service Values and Code of Conduct [sections 10-15 Public Service Act 1999]
the Taxpayers' Charter
the Employee Handbook - An Introduction to the ATO.

Negotiation discussions

There should always be at least two tax officers present during formal settlement negotiations. The nature of the case will dictate who, on behalf of the ATO, should participate in settlement negotiations. Input from officers with prior knowledge of the case will normally be invaluable. In significant cases, such as those handled in the Large Business and International business line (LBI), current settlement practices involve collaboration between senior tax officers with relevant expertise or knowledge from the business line, OCTC tax technical officers if engaged on the issue and/or Legal Services Branch (LSB) operating as a settlement advisory group to the settlement decision maker. A decision maker will then make a settlement decision based on full knowledge of the taxpayer's settlement offer, the advice received from the settlement advisory panel and the legal or other expert opinions relevant to the matter being considered.

Without prejudice

In settlement discussions and correspondence, it should be clearly stated that negotiations are on a 'without prejudice' basis. The effect is that statements made during the process are not to be construed as an admission of liability and cannot be given in evidence. This is to ensure that, in the event that negotiations break down, neither party is prejudiced as a result of a position taken in the course of trying to resolve the matter. However, this form of privilege is not concerned with objective facts which may be ascertained during the course of negotiations, and which may be proved by direct evidence.

Advice of counsel

In appropriate cases, officers should consider obtaining legal representation for the ATO in the settlement process. In any substantial matter, where external counsel has been engaged and understands the substantive issues, the normal expectation is that the advice of counsel would be obtained on the merits of the Commissioner's position and the reasonableness of the proposed settlement.

Record of settlement meetings

Officers should invite taxpayers and their advisers to consider whether they would like electronic recording of face to face settlement meetings. Settlement meetings will be tape-recorded if taxpayers and their advisors agree and the taxpayer must be supplied with a copy of the recording without charge.

ATO documentation

Documentation of settlement process

Tax officers involved in settlements should ensure that each step of the process is fully documented and can form the basis of a submission to the decision maker for approval of a settlement. Such documentation will include:

details of the factual position and agreements reached, sufficient to determine the rationale for the settlement. Reasons for the decision should be clearly set out with specific reference for each issue to the relevant provision in the Code
the components of the settlement including the primary tax, penalty tax and interest charges
any assessment made of the overall financial position of the taxpayer
any settlement offers, details of settlement negotiations and reasons for rejection of any settlement offers. Reasons for rejecting a settlement offer should be explained to the taxpayer
any submission/offers received relating to penalty tax and interest, and the basis for the exercise of the remission discretion relating to these matters
any advice received from the OCTC tax technical officers or other providers of expert opinions, including external counsel
any advice and decisions of the SNC business line in respect to prosecution action
factual details and competing legal arguments in respect of contentious issues and reasons for the decision
factual position and underlying evidence where quantum issues are agreed between the parties
any payment arrangements that have been agreed to after discussions with the Debt business line of the ATO.

This documentation will usually be in addition to, and may be more detailed than, the formal settlement agreement entered into with the taxpayer, as discussed in paragraph 69.

Approval of settlement

Settlements must be fully documented and submissions recommending settlement must be approved by an officer duly delegated or authorised to conclude settlements.
The power to settle in accordance with this Code is delegated only to senior officers. While these delegated officers may authorise other officers to carry out their responsibilities under this Code, the intention is to limit the exercise of the power to settle taxation disputes to a restricted range of taxation officers. The ATO maintains a Register of Delegations and Authorisations that lists all delegated and authorised officers, and is available for staff to consult.
All decision makers approving settlements must ensure that duly made delegations and authorisations are in place. In this regard, officers should note that they may be personally liable in law for their negligent acts, and may have a duty to ascertain the limits of their power (refer to Northern Territory of Australia & Ors v Mengel (1995) 185 CLR 307 at 352; 129 ALR 1 at 23 per Mason CJ, Dawson, Toohey, Gaudron and McHugh JJ).
It is a basic principle that there should be no unilateral decision making in relation to settlements. This means, for example, that even in a simple, low value matter the officer allocated to the case will not have authority to approve settlement. In a complex matter handled by an audit team, the team manager will need to have the settlement approved by a decision maker (duly delegated/authorised officer) external to the team. In the event of a difference of view between a case officer(s) and the decision maker, the matter will be referred to an independent delegate or authorised officer for resolution.

Compliance with the Code

As part of the documentation of the settlement process, the delegate or authorised officer approving the settlement should satisfy himself or herself that this Code has been followed and complied with and should sign a statement to that effect. A template of the statement to be completed is provided at Attachment A - Statement of Compliance.

Siebel case management system

Details of every settlement, including the justification or underlying reasoning for the settlement, must be recorded on the ATO Siebel case management system. The use of business line specific spreadsheets or other systems are not a substitute for entry of data onto Siebel. The ATO maintains supporting instructions for Siebel that are available for staff to consult.

Terms of settlement agreement

All settlements should be evidenced by a written agreement between the parties. The usual form of a settlement agreement is a deed of settlement. Attachment B is a model deed of settlement.
For a deed to be valid, it is not a requirement that consideration pass between the parties. Where a party gives up the right to commence legal proceedings as a part of a settlement, the requirement for consideration to pass will generally be satisfied, as forbearance to sue constitutes valuable consideration.
In some circumstances, the form of document that will be appropriate to evidence a particular settlement may vary. For example, in simpler matters, an exchange of correspondence or a simple agreement may be appropriate to evidence a settlement. A simple agreement may include an agreement made between the parties under sections 34D or 42C of the Administrative Appeals Tribunal Act 1975 (AAT Act) as to the terms of a decision to be made by the AAT upon an application for review.
However, where there is doubt in the context of settlement of a tax dispute as to whether there is consideration passing between the Commissioner and the taxpayer, a deed of settlement is to be preferred.
The settlement agreement will normally include:

how each particular issue has been resolved
relevant undertakings by the parties
treatment in future years
withdrawal of objections
requests for review
appeals
payment arrangements.

Settlement terms should make it clear that the Commissioner has a right to recover in full where the taxpayer fails to adhere to any agreed payment arrangement.
The agreement should state that the settlement is conditional upon a true disclosure of all relevant and material facts relating to the issue being settled as known to the best of a taxpayer's knowledge and belief at the time of settlement. This is reflected in clause 4.1 of the model deed as set out in Attachment B. The nature of this taxpayer disclosure requirement represents a fair and reasonable balance of the rights and obligations of all parties with respect to the good faith in which settlement negotiations have been conducted. There are important consequences that may flow if this condition is not observed. For example, the Commissioner may choose to terminate the settlement deed or void or vary terms within the settlement deed. A taxpayer's right of objection or appeal may accordingly be enlivened as a result of the action taken by the Commissioner.

Taxpayer rights and obligations

Taxpayers should disclose all relevant facts in the course of settlement discussions.
Taxpayers have rights of recourse as outlined below. Nevertheless, if taxpayers agree to settle matters, the settlement should represent the final agreed position between the parties. To underscore the finality of the agreement the taxpayer may be required:

not to lodge an objection, request an amendment or a review
not to appeal against the Commissioner's decision on an objection
to consent to a dismissal under section 42A or a decision under sections 42C or 34D of the AAT Act
to file a Notice of Discontinuance in the Federal Court
not to seek any review of the issues agreed as part of settlement, or related decisions, under the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) or administrative law generally - this should not include review by the Ombudsman
not to seek disclosure under the Freedom of Information Act 1982 (FOI Act) of ATO documents in relation to issues agreed as part of the settlement
to pursue (or not pursue as the case may be) future activities or claims in accordance with the settlement agreement.

ATO obligations

The ATO will adhere to the terms of the settlement, unless it emerges that relevant facts were not disclosed to the ATO.
As discussed above, the settlement agreement must specify the issues it covers. This is a matter for agreement between the parties. However, the ATO would not usually agree to settle matters which have not been substantively examined, even if those matters have been the subject of preliminary or scoping enquiries. Furthermore, the ATO would not usually agree, as part of a settlement, to requests that no risk reviews or audits be carried out in the near future.

Future year assessments

Settlements sometimes provide a reasonable basis for treating similar issues in future years unless:

there has been an agreement in relation to a particular issue but the application of the law remains unclear
the taxpayer's circumstances change materially from those pertaining to the transactions that are the subject of settlement
a taxation ruling has been released on the particular issue. However, it would be open to a taxpayer to seek to distinguish their circumstances from those covered by the ruling
the ATO has reviewed the matter and at a suitably senior level determined that the ATO position should be different or that the settlement is not soundly based. This may be because of a subsequent court or tribunal decision
the terms of the settlement provide for a different basis for dealing with the relevant issue
there have been subsequent amendments to the law
the settlement agreement specifically indicates that it is not to apply for future years of income or future transactions.

If a taxpayer requires further certainty in relation to a particular issue for a future year, a private ruling may be sought.

Checklist of terms for settlement agreements

The following terms are not intended to be compulsory inclusions in every settlement agreement or in the model deed at Attachment B. Nor is the list meant to be exhaustive. There will be cases where other items will need to be included subject to negotiation between the parties to the agreement, and there will be simple cases where some of the suggested terms would be unnecessary.

a. Heading - 'Terms of settlement'

b. Name(s) of the taxpayer(s)

c. Australian business number / tax file number

d. Date of the agreement

e. Date(s) of effect of the agreement or of various portions

f. The matters covered by the agreement. This may be covered by a summary statement of the way in which each of the relevant issues has been resolved, including amounts and facts agreed or relied upon to reach that resolution. In exceptional cases, the basis of the settlement may be covered in a more generic way (refer to paragraphs 28 to 31 relating to global settlements)

g. Signature blocks:

Where necessary the signatory's authority to sign for the Commissioner must be specified as either being the delegate or an authorised officer of the delegate (refer to clauses 5.1.1 and 5.1.2 of the model deed as set out in Attachment B).
Where a representative has been appointed - if the taxpayer is an incapacitated entity - the procedure set out on the ATO external website must be followed to verify the appointment of the representative.
Where the taxpayer is a company, the company must comply with the formal requirements for the execution of a document contained in section 127 of the Corporations Act 2001.

Where a company is executing a settlement deed without a company seal, the settlement deed will be properly executed when it is signed by the following officeholders from the company - either:

two directors of the company
a director and a company secretary of the company
in the case of a proprietary company with one director, that director

Where a company is executing a settlement deed and uses their company seal, the affixing of the company seal must still be witnessed by the required officeholders from the company.

The settlement deed will be properly executed when:

the company seal is affixed to the settlement deed
the affixing of the company seal is witnessed by the officeholders of that company
the execution clause of the settlement deed refers to the company seal.

h. A statement of the issues in dispute, including relevant facts should be provided, as appropriate

i. The amounts of the issues in dispute - these may be included in the statement of issues, and should in most cases refer to primary tax, penalties, notional tax on losses, credits, general interest charge, shortfall interest charge or interest

j. The settlement is conditional upon disclosure of all relevant facts known to the taxpayer at the time of the settlement

k. Obligations of the Commissioner - an undertaking to issue or amend an assessment in accordance with the terms agreed

l. Details of the penalties, general interest charge, shortfall interest charge and interest imposed or remitted, together with the factors taken into account in arriving at the amounts of penalties, general interest charge, shortfall interest charge or interest imposed or remitted

m. Details of any outstanding issues on which agreement has not been reached and how they are to be handled

n. Details of the applicability of the agreement into the future

o. Obligations and acknowledgments of the taxpayer. If applicable, details of the taxpayer's undertaking:

not to lodge an objection, request an amendment or a review
not to appeal against the Commissioner's decision on an objection
to consent to a dismissal under section 42A or a decision under sections 42C or 34D of the AAT Act
to file a Notice of Discontinuance in the Federal Court
not to seek any review of the issues agreed as part of settlement, or of related decisions, under the ADJR Act or administrative law generally
not to seek disclosure under the FOI Act of ATO documents in relation to issues agreed as part of the settlement
concerning any other related matter

p. Other obligations of the Commissioner or taxpayer:

if applicable, details of how the settlement will affect collateral matters such as a private ruling request, a proceeding in accordance with the ADJR Act, any prerogative writs, an application under the FOI Act, recovery proceedings or withdrawal of an application for release from liability to the Commissioner
the agreement must not state that it precludes prosecution action

q. If applicable, details of the payment arrangements, including general interest charge that has accrued or will accrue. These will include:

whether security is to be given by the taxpayer, for example, where the taxpayer has agreed to the Commissioner registering a caveat over charged land
particulars of conditions precedent to payment, if any
factors taken into account in exercising the discretion to extend time for payment, or to remit general interest charge in part or in whole
particulars of any other party to pay, or to guarantee, the payment of any amounts (such a party should be a signatory to the agreement, or to a separate instrument of guarantee)
an acknowledgment of the Commissioner's right to full recovery if the taxpayer fails to adhere to the terms as settled or as varied by agreement.

r. If applicable, details of any other assessment of the taxpayer affected by the agreement

s. Collateral agreements / additional parties:

if applicable, details of the effect of the agreement on any other taxpayer's assessment - if so, provisions should be made for those other parties to sign the agreement, unless the signatory to the agreement has authority to act for those other parties and if there are secrecy constraints, consideration should be given to entering into collateral, or separate agreements, with those other parties
where a settlement agreement impacts on the quantum of losses transferable within a corporate group, the settlement documentation should specifically refer to the 'income company' having agreed to self-amend its tax return for the transfer year - in such cases, the income company would need to agree to accept the adjustment to the original amount of loss transferred to it under section 80G of the ITAA 1936 (or Subdivision 170-A of the Income Tax Assessment Act 1997 (ITAA 1997) where applicable) and provision should be made for the other parties to sign the agreement, unless the signatory to the agreement has authority to act for them
if there are secrecy restraints consideration should be given to entering into collateral, or separate agreements, between the Commissioner and each party

t. Obligations of parties if litigation is on foot - details of how any costs are to be paid, by whom, and when

u. Default provisions - these provisions should cover such matters as the consequences if the agreement, or a part of it, is breached or, in appropriate cases, if new material information emerges

v. The ATO should confirm that the secrecy provisions apply to the contents of the settlement agreement by the inclusion of a confidentiality clause - the clause:

will reinforce the confidential nature of the facts or terms of the agreement
would normally also include a provision that allows the parties to disclose the settlement where required, or expressly permitted, by any law or order

w. A statement to the effect that the document embodies the terms of settlement agreed between the taxpayer and the ATO - this statement should also note that the agreement is not a general precedent but applies only to the parties mentioned and for the years and matters covered by the settlement

x. General - relevant law where agreement signed by parties in different states (agreement is required on the jurisdiction that applies).

Attachment A - Statement of compliance

Statement of compliance with the Code of settlement practice

Siebel case ID ________

Background to Statement of compliance

The Statement of compliance is an important step in ensuring the integrity of information relating to the ATO's settlement activity. The Siebel case management system is used to compile information about ATO settlements for the Commissioner's Annual Report to Parliament and in a range of other external and internal reports. Relevant settlement data must be entered onto Siebel by the case officer within 14 days of the settlement deed/agreement being signed by all parties and the data must be accurate and complete.

Part A - Settlement process complies with Code

The decision maker (delegate/authorised officer) who approves the settlement should be satisfied that the Code has been complied with in all respects including:

in the conduct of settlement negotiations
that each step of the settlement process has been fully documented
that the settlement submission fully details the rationale for entering into settlement.

The Statement of compliance with the Code should be completed by the decision maker at the same time the deed/agreement is signed. The decision maker should consider the matters raised in the checklist below.

I, _____________________________________________________________,

(Decision maker's name) (Level) (Position number) (Business line)

a delegated/authorised officer with the power to conclude settlements, am satisfied that the Code of settlement practice has been followed and complied with.

Signature ________________________________________

Date ____/____/____

Part B - Settlement recorded on Siebel

Part B is to be completed by the manager/team leader involved in the settlement process after the settlement is registered on the Siebel case management system. This satisfies the requirement of paragraph 68 of the Code that states the details of every settlement, including the justification or underlying reasoning for the settlement, must be recorded on Siebel. In completing Part B, the manager/team leader needs to consider the matters raised in the checklist below.

Date settlement deed/agreement has been signed by all parties: ____/____/____

Date settlement recorded in Siebel case management system: ____/____/____

Siebel case ID No: ________

I confirm that, based on the information available at the time of recording this settlement on Siebel:

All relevant taxpayers to the settlement deed have been included on Siebel.
All relevant fields in relation to this settlement have been completed in Siebel.
I have verified that all amounts recorded as the pre-settlement position for tax, notional tax on losses, credits, penalty and interest are accurate and complete.
I have verified that all amounts recorded as the settled amounts for tax, notional tax on losses, credits, penalty and interest are accurate and complete.

Name of Manager/Team Leader __________________________________

Level ______

BSL __________

Signature ________________________________________

Date ____/____/____

Attach this completed Statement of compliance to Siebel where all other settlement documentation is stored as proof of compliance with the Code.

The checklist below is to help the decision maker and officers to comply with the Code and should be considered in completing Parts A and B of this Statement of compliance.

Checklist

The policy processes and practices that must be followed in reaching a settlement are set out in:

the Code
PS LA 2007/5 Settlements
PS LA 2007/6 Guidelines for settlement of widely-based tax disputes
PS LA 2007/23 Alternative dispute resolution in Tax Office disputes and litigation.

Decision makers approving and/or signing settlement deeds/agreements must ensure they are authorised to conclude settlements. In most cases the delegate will be an SES level officer. Exceptions are National Manager and Director of Promoter Compliance in Aggressive Tax Planning (ATP) and EL2 officers in LSB for settlements not exceeding $1m in Part IVC matters.
Decision makers must be aware that the settlement must relate to disputed tax liability and not a compromise of debt.
Approval and authorisation to proceed to settlement must be fully documented with reasons to justify the settlement. Decision makers are to review the settlement submission and indicate if the matter is approved for settlement and sign the submission. The settlement submission must also be attached to Siebel.
All settlement negotiations should be fully documented and attached to the settlement submission.
The settlement must be registered on Siebel within 14 days of the settlement being signed by all parties.
Siebel must be updated by the business line settlement coordinator or the case officer handling the case from which the settlement arose if further relevant information becomes available in relation to this finalised settlement. It remains the responsibility of the case officer to ensure Siebel records remain up to date.
The completed Statement of compliance must be attached to Siebel.
In litigation or other cases where LSB have been asked to provide advice on drafting the deed/agreement, the final version is to be checked by LSB and/or Australian Government Solicitor/Counsel before signing.
An agreement under section 42C of the AAT Act may be in respect of a settlement under the Code:

If there is no pre-existing settlement agreement signed by an authorised officer, the section 42C agreement will constitute the settlement agreement and will therefore have to be signed by an officer authorised to conclude settlements.
If there is a pre-existing settlement agreement which has been signed by an authorised officer, the section 42C agreement can be signed by the business line officer, the LSB officer or the OCTC tax technical officer (if engaged).

Refer to LSB Instruction Bulletins and PS LA 2009/9 Conduct of Tax Office litigation.

Attachment B - Model deed of settlement

Where a settlement is to be evidenced by a deed of settlement, this model deed should be used as a basis. However, officers should consider whether any appropriate adjustments should be made to the model deed according to the circumstance of each case. The model deed relates to an income tax dispute and would need to be amended to suit other taxes. Reference should also be had to the checklist of terms at paragraph 82 for further explanations of terms used.

MODEL DEED OF SETTLEMENT
BETWEEN

AND
THE COMMISSIONER OF TAXATION
OF THE COMMONWEALTH OF AUSTRALIA

TERMS OF SETTLEMENT

THIS DEED is made the ________________ day of _________________, 20XX.

BETWEEN: <taxpayer's full name and address> ('the taxpayer')

AND

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA ('the Commissioner') of 26 Narellan St, Canberra ACT 2601

Context

A. The Commissioner and the taxpayer are in dispute as to <summary of the dispute, for example, alleged income tax liability of the taxpayer for the year(s) of income ended 30 June 20XX>.

B. In particular, the Commissioner and the taxpayer are in dispute as to:

<particulars>; for example, the tax deductibility of certain amounts said to have been incurred in respect of <description>
<particulars>; for example, the assessability as to income tax of certain amounts said to have been derived in respect of <description>.

C. The parties remain in dispute as to the alleged taxation liability or entitlement of <taxpayer>.

D. The parties nonetheless wish to settle their dispute on the following terms.

Operative Provisions

In consideration of the mutual promises contained in this document, the parties to this deed agree as follows:

1. Definitions and Interpretation

1.1 In this document:

'Act' means the Income Tax Assessment Act 1936 (as amended) and the Income Tax Assessment Act 1997 (as amended) and includes regulations made pursuant to the Act, and any related legislation.

'Commissioner' means the Commissioner of Taxation of the Commonwealth of Australia and as required, his successors or assigns and any delegate or authorised representative acting on his behalf.

'relevant year(s)' means the financial year(s) ended 30 June 20XX.

'party' or 'parties' means <taxpayer> and/or The Commissioner of Taxation of the Commonwealth of Australia.

'person' means any natural person and includes a firm, corporation, body corporate, unincorporated association or any governmental authority.

1.2 In this document, unless the contrary intention appears:

1.2.1 a reference to this document means this deed, and references to clauses and schedules are references to clauses and schedules of this deed

1.2.2 any word, term or expression for which a particular or special meaning has been attributed or ascribed by the Act, shall be given that particular or special meaning in this deed

1.2.3 singular includes the plural and vice versa

1.2.4 a reference to any one gender includes each other gender (as the case may require)

1.2.5 a reference to a person includes a reference to that person's executors, administrators, legal personal representatives, successors and permitted assigns

1.2.6 an agreement on the part of, or in favour of, two or more persons binds them or any one of them jointly and severally.

1.3 All headings in this document have been inserted for the purpose of ease of reference only. They do not affect the meaning or interpretation of this deed.

2. Obligations of the Commissioner

2.1 The Commissioner will do the following in the order in which they appear below:

2.1.1 issue amended assessment for the year ended 30 June 20XX to <taxpayer> by:

reducing/increasing the income in respect of <the issue> from $ ___ to $ ___
- increasing/reducing the deduction allowable in respect of <the issue> from $ ___ to $ ___
- increasing/reducing an amount of credits or tax offsets in respect to <the issue> from $ ___ to $ ___

2.1.2 issue etc for specific next year [etc]

2.1.3 charge culpability/tax shortfall penalties in respect of the income year(s) ended 30 June 20XX, as particularised in schedule 1

2.1.4 charge general interest charge (GIC), shortfall interest charge (SIC), interest, late payment penalty, etc in relation to the amended assessment(s) referred to in clause 2.1.1 [etc] above, as particularised in schedule 1.

2.2 Provided that the amended tax liabilities as set out in schedule 1 are paid by the due dates in accordance with clause 3.3, the parties agree that the Commissioner will not impose any further GIC or SIC or interest, etc for late payment, other than that referred to in clause 2.1.4.

2.3 The Commissioner agrees to issue amended assessment referred to in clause 2.1 by no later than <date>.

3. Obligations of the taxpayer

3.1 The taxpayer:

3.1.1 will not object to or request an amendment or review of assessment(s) referred to in clause 2.1.1 [etc] above if raised on the terms set out in this deed

3.1.2 will not appeal against the Commissioner's decision to any relevant objection

3.1.3 will pay to the Commissioner the amount of $ ___ being the additional tax, penalties, GIC or SIC resulting from the amended assessment(s) for the year(s) ended 30 June 20XX calculated pursuant to this deed, no later than <date>

3.1.4 will not seek any review of the issues agreed in this Agreement, or of related decisions, under the Administrative Decisions Judicial Review Act 1977 or administrative law generally (this does not include review by the Ombudsman)

3.1.5 will not seek disclosure under the Freedom of Information Act 1982 of ATO, documents in relation to issues or decisions relevant to the settlement recorded by this Agreement

3.1.6 makes no admissions as to liability not withstanding any provisions in this Agreement.

4. Taxpayer's warranty and acknowledgement

4.1 The taxpayer warrants that to the best of its knowledge and belief it has made a true disclosure of all relevant and material facts to the Commissioner which relate to the issue, prior to entering into this deed.

4.2 The taxpayer acknowledges that, if there has not been a full and true disclosure of all relevant facts to the Commissioner as required by clause 4.1, the Commissioner may in his absolute discretion take whatever further action he considers appropriate, including, without limitation:

4.2.1 electing that this deed be terminated

4.2.2 electing that this deed is void (as if it had never been executed) as against all parties to this deed (except insofar as the warranties or indemnities referred to in this deed are concerned)

4.2.3 rescinding, reversing or amending any of the things referred to in clause 2.

4.3 The taxpayer acknowledges that, if it defaults in performing its obligations under clause 3.1 (by failing to pay the assessment issued in accordance with clause 2.1.1) the Commissioner may take whatever action is necessary to recover the full amount outstanding, including taking action to:

4.3.1 obtain judgment against the taxpayer

4.3.2 cause a trustee in bankruptcy to be appointed to administer the estate of the taxpayer [if taxpayer is an individual]

4.3.3 cause the taxpayer to be wound-up [if taxpayer is a corporation].

5. Authority to sign

5.1 ATO authority

This agreement is to be signed by either a delegate or authorised officer of the ATO, as follows:

5.1.1 [If signed by a delegate]
The person signing this deed, a delegate of the Commissioner of Taxation, who has the power to make, enter into and execute this Agreement in his capacity as a delegate of the Commissioner

5.1.2 [If signed by an authorised officer]
The person signing this deed on behalf of the Commissioner, authorised by a delegate of the Commissioner, to make, enter into and execute this deed on the Commissioner's behalf

5.1.3 It is acknowledged by the parties to this deed that the authorised officer shall have no personal liability as a result of being the authorised signatory of the Commissioner to sign this deed, and it is further acknowledged that they are the agent of the Commissioner acting within the scope of their authority.

6. General

6.1 The parties mutually covenant and agree that they will each do all the acts and things and execute all the deeds and documents as shall, from time to time, be reasonably required for the purpose of, and to give effect to, this deed.

6.2 This deed is confidential to the parties and shall not be disclosed by any of the parties, except:

6.2.1 as is required or permitted by any law

6.2.2 by the taxpayer to their auditors, bankers, tax advisers or legal advisers

6.2.3 by the Commissioner to his legal advisers.

6.3 This deed constitutes the entire agreement and undertaking between the parties in relation to the subject matter, and supersedes any previous deeds, agreements, arrangements, and undertakings between them.

6.4 Provided that the amended tax liabilities as set out in schedule 1 are paid by the dates specified in accordance with clause 3.3, the parties agree that this deed constitutes a complete release and extinguishment of <taxpayer's> liability with regard to the amended assessment(s) and related matters.

6.5 This deed shall be construed and governed in accordance with the laws in force in [State or Territory] and shall take effect between the parties from the date this deed is signed or executed.

6.6 The schedule to this deed sets out the amendments to tax liabilities of the <taxpayer> pursuant to the terms set out in this deed and as such forms part of the agreement set out by this deed.

6.7 All parties acknowledge that this deed is not to be considered a general precedent but applies only to the parties mentioned, and only on the merits of the case and for the years covered by the settlement.

7. Default clause

7.1 Any party to this deed who becomes aware of a breach of any of the terms of the settlement contained herein, may serve a written notice on the offending party specifying the breach and requiring that it be rectified.

7.2 Any defaulting party to this deed who has received written notification under clause 7.1 has fourteen (14) days to rectify the breach.

7.3 If the defaulting party fails to rectify the Breach within the time required by clause 7.2, the non-defaulting party may, without further notice to the defaulting party, take whatever action is necessary (including injunctive or other relief) to require the defaulting party to rectify the breach.

8. Notices

8.1 Any notice, request or other communication to be given or served pursuant to this deed shall be in writing and dealt with as follows:

8.1.1 if given by the taxpayers (or any of them) to the Commissioner - addressed and forwarded to the Commissioner for the attention of <name> at the address set out below at the commencement of this deed or as otherwise notified by the Commissioner

8.1.2 if given by the Commissioner to the taxpayers (or any of them) - signed by the Commissioner and forwarded to the taxpayers (or any of them) at the address indicated at the commencement of this deed.

8.2 Any such notice, request or other communication shall be delivered by hand or sent by prepaid security post, facsimile or e-mail, to the address of the party to which it is sent.

8.3 Any notice, request or other communication will be deemed to be received:

8.3.1 if delivered personally, on the date of delivery

8.3.2 if sent by prepaid security post, upon the expiration of 2 business days after the date on which it was sent

8.3.3 if transmitted electronically, upon receipt by the sender of an acknowledgment that the communication has been properly transmitted to the recipient.

EXECUTED BY THE PARTIES AS A DEED

SIGNED, SEALED AND DELIVERED

[If executed by a company]

Executed by:
<company>
ACN <number>
in accordance with section 127 of the Corporations Act 2001
............................................................. Secretary/Director		............................................................ Director

........................................................... <print name>		............................................................ <print name>
in the presence of: ............................................................ <print name of witness>		in the presence of: ............................................................ <signature of witness>
on the ……… day of ………………….20XX …….. at …….……………………..……………………………….. ……………………………….…….…………………………..		on the ……… day of …………………. 20XX at …….………………….…….……………………… …………………………….……….……………………

[If executed by a taxpayer]

Executed by:
<taxpayer>
<full address>

in the presence of: ........................................................... <print name of witness>		in the presence of: ........................................................... <signature of witness>
on the ……… day of …………..……….20XX …. at …….………..…………......………………………….. ……………………………….……..…..…………………….		on the ……… day of …………………20XX at …….……………….….…….…………………… …………………………….…….…….……………….

[If signed by a delegate]
SIGNED by <name of delegate> a delegate of the Commissioner of Taxation in the presence of:		................................................... <signature of witness>
................................................... <print name of witness>
on the ……… day of ……………………... 20XX at …….………….…………………………………………..…… ……………………………….…….………………………………………….…………………………………………….…………

[If signed by authorised officer]
SIGNED for and on behalf of the Commissioner of Taxation by <name of authorised officer> as Authorised by <name of delegate> in the presence of:		................................................... Signature of witness
................................................... Print name of witness
on the ……… day of ……………………... 20XX at ……...………………………………………………………… ……………………………….…….……………………………………………………………………........……………………

This is the schedule 1 referred to in the deed dated <date> between <taxpayer> and THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Schedule 1

Amendments to the tax liability for the year ended 30 June 20XX
Adjustments*
Increase/Decrease	Taxable Income/net income
	Primary Tax Payable	$............................
	Tax Shortfall Penalty	$............................
	Tax Shortfall Interest/GIC/SIC calculated to <date>	$............................
	Additional Late Lodgment Penalty (if applicable) calculated to <date>	$............................
	Credits/Other
Total increase/decrease in Tax Liability			$............................

[Duplicate the above for each year of income].

*Items referred to in schedule 1 are provided as mere examples. Items included in the schedule will need to be tailored to suit each individual case.

Attachment C - History of settlement guidelines

The Settlement guidelines were initially developed in consultation with representatives of relevant taxpayer, professional and industry groups, and were first introduced in February 1991. In September 1999 the guidelines were revised and retitled the Code of settlement practice to reflect:

a review of the operation of those guidelines since their implementation
the Taxpayers' Charter
decisions on relevant recommendations of the Joint Committee of Public Accounts (JCPA) Report No 326, November 1993 An Assessment of Tax
decisions on relevant recommendations made by the Ombudsman in Commonwealth Ombudsman Annual Report, 1998-1999.

The Code of settlement practice was then re-released in January 2001 to reflect:

a review of the operation of the Code since its release in September 1999
decisions on relevant recommendations made in the report of the Senate Economics References Committee, March 2000, entitled Inquiry into the Operations of the Australian Taxation Office.

An addendum to the Code of settlement practice which issued on 19 July 2000 (Mass marketed aggressive tax planning schemes - guidelines on settlement) was withdrawn in 2002.

The Code and other practices and procedures for settlements were reviewed again during 2006. Consultation across the ATO was undertaken and feedback was sought from the professional bodies and external scrutineers on a draft revised Code and paper outlining the ATO's settlement processes.

Attachment D - References

Paragraph in Code	References	Title
	Law Administration Practice Statements
1	PS LA 2007/5	Settlements
1, 5, 55	PS LA 2007/6	Guidelines for settlement of widely-based tax disputes
1, 37	PS LA 2007/23	Alternative Dispute Resolution in ATO disputes and litigation
6	PS LA 2009/6	Quality improvement and assurance: application of and conformance with the Integrated Quality Framework
32	PS LA 2011/17	Debt relief
33	PS LA 2011/3	Compromise of taxation debts
49	PS LA 2000/9	Remission of penalties under the new tax system
49	PS LA 2002/8	Administration of penalties under the new tax system
49	PS LA 2003/11	Remission of penalty for failure to withhold as required by Division 12 in Schedule 1 to the Taxation Administration Act 1953
49	PS LA 2006/8	Remission of shortfall interest charge and general interest charge for shortfall periods
49	PS LA 2011/12	Administration of general interest charge (GIC) imposed for late payment or under estimation of liability
49	PS LA 2012/4	Administration of penalties for false or misleading statements that do not result in shortfall amounts
49	PS LA 2012/5	Administration of penalties for false or misleading statements that result in shortfall amounts
53	PS LA 2003/3	Precedential ATO view
53	PS LA 2004/13	The Transfer Pricing Review Panel (TPRP)
53	PS LA 2009/9	Conduct of Tax Office Litigation
53	PS LA 2012/1	Management of high risk technical issues and engagement of tax technical officers in Law and Practice
	Taxation Rulings
49	TR 2001/3	Income tax: penalty tax and trusts
49	TR 94/7	Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted
49	MT 2012/3	Administrative penalties: voluntary disclosures
49	MT 2011/1	Miscellaneous taxes: application of penalties and interest charges to the Commonwealth, States, Northern Territory and Australian Capital Territory
49	MT 2008/1	Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard
49	MT 2008/2	Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable
	Corporate Management Practice Statements (only available internally)
7	PS CM 2004/07	Secrecy and privacy obligations of employees
19	PS CM 2003/09	Resource management in the ATO
38,40,46	PS CM 2007/02	Fraud control and prosecution process
56	PS CM 2004/02	Conflicts of interest
56	CMPI 2004/02/03	Gifts, hospitality and other benefits
	Acts
	AAT Act	Administrative Appeals Tribunal Act 1975
	ADJR Act	Administrative Decisions (Judicial Review) Act 1977
	FMA Act	Financial Management and Accountability Act 1997
	FOI Act	Freedom of Information Act 1982
	TAA	Taxation Administration Act 1953
	ITAA 1936	Income Tax Assessment Act 1936

Attachment E - Amendment history of this document

Date of amendment	Part	Comment
April 2013	Paragraph 6	Clarified that settlement process must be fully documented on the relevant Siebel case Removed reference to the corporate register of settlements
	Paragraphs 13 & 82(i)	Updated to include notional tax on losses
	Attachment B	Updated the signatory section of the model deed
September 2012	Throughout	Updated referencing for cited case law
	Throughout	Updated to incorporate changes arising from TTTDM project, including publication of PS LA 2012/1
	Background	Reworded paragraph 3 and moved to Attachment C
	Paragraph 19	Removal of reference to withdrawn PS CM 2003/09
	Paragraph 49, Attachment D	Removal of reference to withdrawn PS LA 2006/2
30 June 2011	Throughout	References to 'Settlement Register' updated to 'Siebel case management system' or 'Siebel'
	Throughout	References to 'Technical Quality Reviews' or 'TQR' updated to 'Integrated Quality Framework' or 'IQF'
	Throughout	Updated references to superseded Law Administration and Corporate Management Practice Statements
	Throughout	Updated referencing for cited case law
	Introduction	Deleted 'Re-released 21 February 2007 The ATO's Code of settlement practice (Code) and the processes which support it have been reviewed and updated'.
	Paragraph 14	Inserted 'Division 269 of schedule 1 to the Taxation Administration Act 1953 (TAA) and previously under'
	Paragraph 18	Inserted 'an appellant'
	Paragraph 38, 40 and 46	Deleted 'the ATO Prosecution Policy' Inserted 'Corporate Management Practice Statement PS CM 2007/02 Fraud control and the prosecution process'
	Paragraph 44	Deleted 'In-House Prosecutions' Inserted 'Administrative Prosecutions'
	Paragraph 56	Deleted 'TCEB Taxpayers' Charter Explanatory Booklet 01, Treating you fairly and reasonably' Inserted 'Taxpayers' Charter'
	Paragraph 68	Deleted Paragraph and heading Inserted New paragraph and heading
	Paragraph 75	Deleted 'The agreement should state that the settlement is conditional upon disclosure of all relevant facts known to the taxpayer at the time of the settlement.' Inserted 'The agreement should state that the settlement is conditional upon a true disclosure of all relevant and material facts relating to the issue being settled as known to the best of a taxpayer's knowledge and belief at the time of settlement. This is reflected in clause 4.1 of the Model Deed of Settlement as set out in Attachment B. The nature of this taxpayer disclosure requirement represents a fair and reasonable balance of the rights and obligations of all parties with respect to the good faith in which settlement negotiations have been conducted'. There are important consequences that may flow if this condition is not observed. For example, the Commissioner may choose to terminate the settlement deed or void or vary terms within the settlement deed. A taxpayer's right of objection or appeal may accordingly be enlivened as a result of the action taken by the Commissioner.
	Attachment B - Model Deed clause 4.1	Deleted 'The taxpayer warrants that to the best of its knowledge and belief it has made a full and true disclosure of all relevant facts to the Commissioner prior to entering into this deed.' Inserted 'The taxpayer warrants that to the best of its knowledge and belief it has made a true disclosure of all relevant and material facts to the Commissioner which relate to the issue, prior to entering into this deed.'
30 September 2010	Attachment B - Model deed	Commissioner's address updated.
24 August 2010	Attachment A - Statement of Compliance	Correction Fix numbering lists on Attachment A Statement of Compliance.
6 August 2010	Attachment A - Statement of Compliance	Revision Changes to the Statement of Compliance including: An expanded introduction providing more detail on the settlement process and explaining that settlements are reported in the Commissioner's annual report to Parliament A revised confirmation by the manager/team leader that information concerning taxpayers involved in the deed, amounts and other relevant information have been entered correctly onto the settlement register An updated checklist to assist decision makers and others to comply with the Code of settlement practice.

¹ Settlements do not usually include cases where our preliminary views are changed prior to assessment - for example, in light of new evidence or where the Commissioner is persuaded to accept a different view of the law. However, processes to ensure proper and sound decision making in these cases are contained in a range of corporately endorsed policies and procedures for the conduct of an audit.

² Tax includes any tax, levy, charge, duty or excise imposed under a law administered by the Commissioner of Taxation.

³ Payment includes any rebate, grant or benefit under a law administered by the Commissioner of Taxation.

Last Modified: Wednesday, 15 May 2013

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