• 2 Background and Approach

    2.1 Overview

    PwC was appointed by the Tax Office to undertake an independent review of insolvency decisions to provide an independent view as to whether the Tax Office’s insolvency actions are in accordance with legal requirements and ATO policy, in particular the content and direction of the following Tax Office Practice Statement Law Administration (PS LA) policies:

    • PS LA 2011/6 – Risk management in the enforcement of lodgement obligations and debt collection activities
    • PS LA 2011/14 – General debt collection powers and principles;
    • PS LA 2011/16 – Insolvency – collection, recovery and enforcement issues for entities under external administration;
    • PS LA 2011/18 – Enforcement measures used for the collection and recovery of tax related liabilities and other amounts.

    2.2 Sample

    A sample of 80 insolvency decisions made during 2013 were selected and extracted by the Tax Office from its debt management files. Several additional files were also selected by the Tax Office to be used in the event that a conflict of interest was identified.

    PwC was provided with the names of the selected case files prior to the commencement of the review in order to identify any potential conflicts of interest. Where a potential conflict was identified, an alternative case was selected.

    2.3 Review Process and Methodology

    All reviews were undertaken at the Tax Office’s premises at 747 Collins Street, Docklands, Melbourne, Victoria, during May 2014.

    Reviews were based on electronic (Microsoft Excel and pdf) files prepared by the Tax Office for each case. The files comprised notes of communication and correspondence between the taxpayer and Tax Office extracted by the Tax Office from its electronic case management systems.

    Our approach to each review was as follows:

    • Review file notes and documentation in the files provided by the Tax Office to gain an understanding of the case;
    • Understand the taxpayer’s circumstances and assess the information available to the Tax Office to inform key decisions throughout the management of the case;
    • Assess the Tax Office’s actions against the three review questions, bearing in mind legal requirements and relevant Tax Office policies; and
    • Complete an assessment of each file in relation to the decision made by the Tax Office.

    Please refer to Section 4 of this report in relation to limitations surrounding the review.

    2.4 Assessment Context

    Aside from requiring all legal provisions and timeframes to be met, the Tax Office’s PS LAs considered as part of this review do not prescribe mandatory debt recovery actions and timeframes that must be adhered to by Tax Office staff in the management of insolvency cases. Rather, the PS LAs provide broad principles and a range of recovery actions that may be utilised by Tax Office staff in the management of cases, with each case to be considered and treated on its merits in accordance with the Tax Office’s compliance model.

    The range of potential recovery actions includes, but is not limited to:

    • Telephone or written contact with the debtor
    • Accepting payment of a tax debt by instalments (entering into a payment arrangement)
    • Accepting security
    • The issue of a garnishee notice
    • Legal action, up to and including, the liquidation of companies or the bankruptcy of an individual.

    PS LA 2011/18 provides, in part, that the final legislative sanction for debtors who do not pay or enter into payment arrangements is the sequestration of an individual’s estate in bankruptcy or the liquidation of a corporate debtor, but that these actions will normally be used only after other recovery actions have been taken and proven unsuccessful.

    PS LA 2011/6 provides, in part, that there is no one correct answer for dealing with outstanding returns or debts; the decision-making process entails the evaluation of objective and subject factors before reaching a conclusion as to overall risk.

    PS LA 2011/6 also provides, in part, that:

    • All taxpayers will be treated professionally, equitably and fairly
    • Taxpayers can expect each case to be considered on its merits
    • Taxpayers can expect the ATO to apply the most severe measures and sanctions in response to the highest level of risk in accordance with its compliance model.

    On the basis that the Tax Office PS LAs do not prescribe mandatory debt recovery actions and timeframes, there are no measurable criteria against which PwC can objectively assess the Tax Office in answering the three review questions. In undertaking our assessment against the three review questions, PwC has considered a breach of the Tax Office’s policies to be action by the Tax Office which is either outside of legal requirements or against the intent of the ATO policies, in particular the requirement for taxpayers to be treated professionally, equitably and fairly.

      Last modified: 10 Feb 2017QC 42288