Members' questions
Would the Tax Office please consider taking on board the issue of corporate actions which have increased in complexity over recent years at great cost to tax agents and taxpayers alike. Many of these mergers, demergers, re-constructions, takeovers etc appear to be unnecessarily complex and it makes one wonder what the companies involved are trying to hide or avoid. Very often there are multiple steps to each one, for example, the AGL Co Ltd demerger into Alinta Ltd and AGL Energy Ltd in 2007, followed by the demerger of Alinta Ltd into APA Group and various Babcock & Brown entities in 2008.This is perhaps the most complex example but there are others not too far behind. It was so complex it took a long time for the Tax Office to issue their class ruling and worksheet.
But we have to be ready to apply any new law sometime in July. How many people got this example wrong before they had the Tax Office ruling was available? By the time the process has to come to an end, many hours of our time haves been expended. This affects the revenue because it takes so long to prepare a tax return that lodgments are delayed. It is also not uncommon that the demerged entities to end up being all but worthless, further affecting the Revenue because tax is not paid on the change in value of the entity and any loss is used to reduce taxable capital gains. Little or no revenue has been raised in the process because of the use of the script-for-script capital gains tax (CGT) rollover provisions. Shareholders are also affected of course.
Questions:
- Can the Tax Office do something to reduce the complexity of corporate actions?
- Can the Tax Office prepare class rulings and calculators early enough to help tax agents at the beginning of each tax season?
Tax Office response
Question 1
The issue requires further clarification and specifics. It may be about aspects of legislation not just tax law but also company law or something more appropriately commented on by the Treasury. Suggestions and recommendations of what could be changed to improve the matters are welcome. We will refer them to the Treasury or other relevant agencies.
Question 2
Whilst it is acknowledged that the Tax Office is asked to provide class rulings on complex corporate restructures which require detailed analysis, in order to improve the timeframes for publishing these rulings we encourage large corporate entities to engage us early in the process. The Commissioner announced in May 2008 that class ruling requests on complex corporate restructures will also be given priority under the priority private binding ruling procedures and that we would bring our technical specialists into the class ruling process at the earliest stages. Additionally, the Tax Office works in partnership with companies to ensure that adequate tax information is provided to tax professionals, investors and shareholders including fact and work sheets.
Meeting discussion
The Chair noted the complexity of tax legislation on complex corporate re-structures. The financial crisis in USA demonstrates that the complexities were related to a range of issues, not just tax. The Tax Office has to ensure that the rulings and calculators issued are legally correct. In some instances, the need to obtain all necessary information from taxpayers causes delays in the process. It would be ideal if companies come forward to the Tax Office to explain their plans before the actual events happened but this is not often the case.
A member asked if 'best estimate' could be used if there was no ruling or limited information is available. The Chair advised that the Tax office will take a reasonable approach in the absence of guiding information or case law.
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Last Modified: Monday, 19 April 2010