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  • Resolving disputes

    In aiming for fair, efficient and respectful resolution of disputes, we have a number of initiatives to resolve them faster and lower costs for both taxpayers and the ATO. We continue to develop and use different dispute resolution strategies targeted to the taxpayer’s circumstances and the nature of the dispute. This ensures a more tailored experience.

    How we are making it easier

    Engaging early for better outcomes

    Early engagement, through services such as in-house facilitation, has strongly contributed to timely and cost-effective resolution of disputes, particularly with the small business market. The success of in-house facilitation for dispute resolution has been seen mostly with individuals and small business taxpayers. Taxpayers or their advisers made the majority of these referrals, indicating that these services are providing real value to the taxpayer. Compliments and positive client feedback on in-house facilitation confirms that this service is making a difference in dispute management and resolution.

    Every dispute resolved through in-house facilitation saves taxpayers, on average, more than $50,000. This service also has a positive impact on the relationship between the ATO and taxpayer and promotes trust and confidence in the tax system.

    In December 2016, we commenced a pilot called Dispute Assist to support unrepresented individual taxpayers through the process. Our focus is on supporting vulnerable unrepresented taxpayers, such as elderly taxpayers and those dealing with family illness, domestic violence or mental health issues. To 30 June 2017, 64 taxpayers received an independent ATO guide to help them navigate the dispute process and address related issues, such as ongoing tax debts or issues with other government agencies. The feedback from taxpayers to date has been positive and demonstrates this initiative has had a positive effect on their social and economic wellbeing. Dispute Assist will be expanded in 2017–18 to include small business taxpayers.

    Fast tracking objections

    The early, direct and open engagement with taxpayers throughout the objection process led to average cycle times decreasing in 2016–17 by more than 30% compared with 2015–16. In March 2017, we implemented a fast intensive triage service, which significantly contributed to these lower cycle times.

    This service is applied to all objections, providing early, meaningful contact with taxpayers and their agents and ensures tailored timeliness in the handling of disputes. The objective is to assess all cases to determine if the matter can be resolved quickly and to make that happen, or ensure it is allocated to the right person for resolution. In the first three months, seven out of ten objections were resolved and finalised directly through this new service, and generally within two weeks.

    Importantly, the fast intensive triage service has given us a better understanding of the drivers of objections and allows us to take actions to prevent the disputes in the future.

    Delivering contemporary and tailored services

    Minimising disputes and litigation

    The independent review of large market audits was introduced in July 2013 as part of an overall strategy to improve resolution of disputes with large corporate taxpayers. In January 2017, we published updated independent review guidelines after stakeholder consultation. The purpose of these updates was to clarify the suitability of matters for independent review as well as articulating matters not considered suitable. The significant majority of independent reviews to date have come from clients in the public groups and internationals segment. In 2016–17, 12 reviews were completed, with 12 recommendations made. Of these, 4 supported the ATO position, 1 supported the taxpayer position and 7 partially supported each party’s position.

    While we aim for efficient, respectful and fair administration of the tax and superannuation systems, sometimes disputes are unavoidable. Our objective is to reduce the time we take to resolve disputes and the costs incurred by both the ATO and taxpayers.

    We engage with taxpayers at all stages in the process, to see if we can resolve the dispute or narrow the issues that proceed to litigation. We focus on ensuring we are litigating the right cases, including through our Test Case Litigation Program. Completed test cases clarify the law and provide precedential certainty.

    Our approach has led to ongoing reductions in the number of review applications being lodged in the Administrative Appeals Tribunal (AAT):

    • 357 applications in 2016–17
    • 396 applications in 2015–16
    • 533 applications in 2014–15.

    In 2016–17, almost 460 cases proceeded to litigation. This is a decrease on previous years with 750 cases in 2014–15 and 480 cases in 2015–16. The largest decrease has been in appeals to the AAT. This shows the continued success of earlier resolution of dispute approaches leading to better direct engagement with taxpayers earlier in the dispute process without the need for litigation. Litigation in both the AAT and courts is now inherently complex, often including interlocutory proceedings and related recovery matters. This shows our commitment to both strategic litigation and maintaining the integrity of the tax system.

    Improved litigation results were achieved in 2016–17, with 89% of Part IVC cases found either fully or partly favourable to the ATO, highlighting that we are choosing the right cases to litigate.

    TABLE 2.2 Past disputes, 2014–15 to 2016–17

    Past disputes

    2014–15

    2015–16

    2016–17

    Returns lodged

    35,366,573

    34,561,234

    35,540,854

    Adjustments arising from audits

    453,447

    338,000

    253,000

    Objections(a)

    26,143

    26,690

    24,490

    Cases lodged to courts/tribunals

    697

    481

    456

    Cases proceeded to decision

    154

    151

    141

    Note:
    (a) Objection figures are cases completed.

    Settlement of cases

    We are also seeing success in the application of our resolution strategies, reflected in the ATO settling cases earlier across all our client groups. In 2016–17, there were around 650 settlements, with 89% occurring in the pre-litigation stage. This compares with around 1,350 settlements, or 96%, occurring at the pre-litigation stage in 2015–16, 84% in 2014–15 and 77% in 2013–14. Most of these matters related to Project DO IT and our offshore voluntary disclosure initiative.

    Over the past five years, the majority of settlement activity has occurred with micro businesses. In 2016–17, of the total settlements, 50% were from this group. In comparison, there were 47% in 2015–16, 48% in 2014–15 and 47% in 2013–14.

    This year, we provide an analysis of ATO settlements by both market segment and client groups. We will be transitioning to reporting settlement information by client group only in future annual reports.

    TABLE 2.3 Stage at which settlement occurred, 2016–17

    Stage

    Settlement cases

    % of total settlements

    ATO position($m)

    Settled position($m)

    Variance($m)

    Variance(%)

    Pre-audit

    236

    36%

    1,024.3

    958.5

    65.7

    6%

    Audit

    207

    32%

    1,087.4

    705.8

    381.6

    35%

    Objection

    136

    21%

    1,973.3

    752.9

    1,220.4

    62%

    AAT

    53

    8%

    239.4

    106.6

    132.8

    55%

    Federal Court

    16

    3%

    255.2

    175.2

    80

    31%

    High Court

    0

    0%

    0

    0

    0

    0%

    Total

    648

    100%

    4,579.6

    2,699.1

    1,880.5

    41%

    Note:
    Totals may differ from the sum of components due to rounding.
    TABLE 2.4 Settlements registered in 2016–17, by market segment

    Market segment

    Settlement cases

    % of total settlements

    ATO position ($m)

    Settled position ($m)

    Variance ($m)

    Variance (%)

    Individuals

    127

    20%

    402.8

    178.4

    224.4

    56%

    High wealth individuals

    77

    12%

    237.2

    95.5

    141.7

    60%

    Micro businesses

    326

    50%

    236.6

    162.7

    74

    31%

    Small-to-medium businesses

    77

    12%

    926.7

    850.8

    75.9

    8%

    Large businesses

    36

    6%

    2,773.6

    1,411.2

    1,362.4

    49%

    Not-for-profit organisations

    4

    1%

    0.7

    0.1

    0.6

    85%

    Government

    1

    0%

    2

    0.4

    1.6

    78%

    Total

    648

    100%

    4,579.6

    2,699.1

    1,880.5

    41%

    Note:
    T
    otals may differ from the sum of components due to rounding.
    TABLE 2.5 Settlements registered in 2016–17, by client group (a)

    Client group

    Settlement cases

    % of total settlements

    ATO position ($m)

    Settled position ($m)

    Variance ($m)

    Variance (%)

    Individuals(b)

    103

    15.9%

    361.9

    202.4

    159.5

    44%

    Small business

    293

    45.2%

    333.5

    130.5

    203.0

    61%

    Privately owned and wealthy groups

    79

    12.2%

    140.2

    76.7

    63.4

    45%

    Public and multinational businesses

    61

    9.4%

    3,725.2

    2,281.5

    1,443.7

    38%

    Not-for-profit organisations(c)

    5

    0.8%

    2.7

    0.6

    2.2

    80%

    Super funds

    107

    16.5%

    16.1

    7.4

    8.7

    75%

    Total

    648

    100%

    4,579.6

    2,699.1

    1,880.5

    41%

    Notes:
    (a) Totals may differ from the sum of components due to rounding.
    (b) The client group Individuals does not include those who are in business, for example sole traders
    (c) The client group Not-for-profit organisations includes government entities.

    As settlement amounts are uncertain, especially where settlement is reached at the audit or pre-audit stage, the pre-settlement position amounts may not reflect actual liabilities. The settled amounts reflect agreed revenue that will be paid, as opposed to potential amounts that could be subject to protracted and costly delays through litigation and remain unpaid, with no certainty of outcome.

    The ATO continues to be aware of community concerns that we are settling the right cases in the right way. To that end, we have engaged three retired Federal Court judges to conduct independent assurance of some of our largest and most significant settlements. This includes a focus on large markets and multinational enterprises, including on matters arising from the Corporate Tax Avoidance Taskforce.

    The key focus for the judges has been to provide their view on whether the settlements have been fair and reasonable. In 2016–17, the assurers have completed reviews of five settlements as part of the independent assurance of settlements process. They concluded that the ATO’s treatment of these were a fair and reasonable outcome for the Australian community.

    This process has struck the right balance between the importance of maintaining confidentiality of taxpayer information and the community’s interest in the integrity of the tax system, including the appropriateness and principles of settlements. The assurers’ observations will also be used to identify systemic improvements in the conduct of ATO settlements.

    To ensure sound and appropriate settlement decisions, we use a range of internal assurance mechanisms, including:

    • decision-making by senior ATO officers with specific delegations and authorisations
    • all public group and multinational cases must be countersigned by another senior ATO officer who is not directly responsible for the case
    • settlement panels comprising senior ATO officers who provide guidance and parameters for decision makers
    • a team of specialist settlement officers who provide support and general administrative guidance to decision makers during the course of negotiations
    • support tools for case officers and settlement decision makers.
    • In most of the larger tax disputes, settlements are also subject to advice from external counsel prior to resolution. In some of these cases, settlements follow alternative dispute resolution processes, such as mediation or early neutral evaluation, run by external practitioners.
      Last modified: 30 Oct 2017QC 53699