Promoter penalty minutes, March 2009

1. Active compliance work update

The following is a summary of the update provided by the chair to the sub-committee about active compliance work undertaken since the last meeting:

The general approach taken by the Tax Office to manage promotional risks is as follows:

• We have an intelligence area that gathers information from both within the office and from external sources. We welcome information from the tax profession.
• We collate and assess the information collected and where appropriate we initiate a risk review, which is a broad review of the scheme and potential promoters. The bulk of risk reviews are not further progressed as a closer examination often reveals there is no tax exploitation scheme. In response to a member query, we will advise the sub-committee of the general break-up of the risk reviews undertaken, in terms of whether the scheme is being promoted by accounting, legal, corporate or other sectors.
• We also provide early warnings to the community by way of publishing our concerns in Taxpayer Alerts. Most of the schemes covered in our Taxpayer Alerts have promotion potential.
• In those risk reviews where we develop a reasonable suspicion of prohibited conduct we commence one or more civil investigations, which look more closely at specific entities with a view to potentially applying the promoter penalty laws.
• The Promoter Penalty Review Panel is used to assist the Tax Office in its administration of the promoter penalty laws. Although it was initially thought that panel would only advise on those cases where we are looking to make an application to the Federal Court, we are increasing its scope (at least initially) to advise on wider matters, for instance, advising on the suitability of voluntary undertakings offered by entities. An internal version only of the panel has met twice and we expect to have a wider panel (with external representation) established as more civil investigations are progressed.

Case work comments and general insights were provided as follows:

• The main clumps of potential tax exploitation scheme issues relate to trust planning arrangements, employee benefit arrangements (e.g., salary sacrifice deferral schemes), private company arrangements (for example, Division 7A avoidance), and international, super and GST arrangements. A number of these have progressed to civil investigations. We have also received a number of voluntary undertakings of which three have been formally considered. None of these three were accepted as two involved conduct that occurred prior to the application date of the legislation and the other was not found to be a tax exploitation scheme.
• We have also undertaken some risk reviews in relation to potential implementation of a scheme in a materially different way to that described in a product ruling. One civil investigation is now underway.
• We have met with several large corporates to discuss their approach to risk management and governance issues in relation to the promoter penalty laws. We understand that this has led to some of them making adjustments to their risk management approach.

Action item	The Tax Office is to advise the sub-committee of the general break-up of the risk reviews undertaken, in terms of whether the scheme is being promoted by accounting, legal, corporate or other sectors.
Responsibility	Via secretariat
Due date	Next contact

Sections within Agenda items

• 1. Active compliance work update
• 2. Good governance guide
• 3. Enforceable voluntary undertaking template
• 4. Promotion within consolidated groups
• 5. Other issues