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  • Risks

    We apply a risk-based approach to managing compliance.

    Risk assessments are developed at the population level for:

    • small businesses
    • public and multinational businesses
    • privately owned and wealthy groups
    • not-for-profit entities.

    Our approach considers compliance and associated risks in terms of:

    • registration
    • lodgment
    • correct reporting
    • payment.

    We are progressively shifting our focus from correction to prevention strategies and adopting behavioural insights methodology to manage our GST risk events.

    Risks are identified through a combination of risk modelling, intelligence and data matching activities. They are addressed by a number of strategies that includes education, compliance activities and policy. If these risks are not addressed, it may inadvertently encourage others to further exploit the system and engage in low-level exploitation.

    In developing risk-event response strategies we focus on population-level strategic influences and programs such as justified trust for large public and multinational businesses; and privately owned and wealthy groups.

    GST risk event categories include:

    • GST evasion
    • property
    • BAS correct reporting
    • international and cross-border
    • financial services and insurance.

    GST evasion

    GST evasion is a widespread risk and happens when taxpayers try to gain financial benefit through deliberate and significant non-compliance with their tax obligations. It is one of the key risks contributing to the GST gap, although its size cannot be reliably quantified due to the ‘hidden’ and ‘disguised’ nature of some behaviours.

    In recent years we have observed attacks on the system through the precious metals and other industries of concern, such as labour hire and plastering.

    We are also seeing increasingly complex and sophisticated arrangements and structures being adopted to deliberately avoid obligations and exploit the system. The behaviours of concern include:

    • controlling minds behind organised networks of multiple entities evading GST
    • tax agents and intermediaries providing false information for clients and linked to phoenix strategies
    • design and use of contrived structures and arrangements that seek to hide or hinder collection activities
    • aggressive interpretations of the law by specific industry sectors.

    GST evasion cases are identified through referral, intelligence processes and risk identification models. The aggressiveness of behaviours – including those that lead to organised crime – is increasing. Technological advances have also provided new mechanisms for systemic abuse of the GST system.

    We address these risks through our audit and review program to disrupt and prevent these arrangements. We strategically target extreme behaviours and refer these cases for prosecution. This helps to show that our strategies lead to effective outcomes and maintain community confidence in our ability to protect the system.

    Integrated compliance approach

    The integrated compliance approach (ICA) is a whole-of-system initiative, using strategies to prevent future widespread non-compliance through deterrence and enhanced detection systems, while applying an effective treatment response for those taxpayers that choose not to willingly comply.

    The ICA is a behaviourally-focused approach to treat key endemic non-complying taxpayer networks. Learnings will be embedded and applied to similar cases, and where appropriate, certain aspects of the approach will be more broadly applied across the ATO.

    Property

    The property risk involves behaviours such as controlling minds and phoenixing. Some of the major elements are:

    • development lease arrangements
    • disengaged property developers
    • head contractors (building and construction)
    • margin scheme.

    We apply risk models, intelligence and data matching activities to detect errors or suspicious behaviours. Our engagement is coordinated across the ATO to strengthen property intelligence and improve engagement, data acquisition and data sharing.

    We maintain our focus on emerging issues such as ‘build-to-rent’ and invest in technically challenging aspects of the GST landscape by helping develop and implement new measures and compliance strategies such as the GST at settlement measure (effective from 1 July 2018).

    BAS correct reporting

    The BAS correct reporting risk encompasses the management of two sub-risks:

    1. GST refund integrity
    2. Integrity of business systems (IBS)

    We apply a range of detection strategies and continually monitor and manage BAS reporting and refund claims for unusual or suspicious reporting through appropriate compliance activities.

    We focus on improving:

    • our use of data
    • the sophistication and connection of detection strategies
    • our methods of identifying higher-risk refunds.

    While we are better at detecting fraudulent claims – forcing potential taxpayers to change their modes of operation – rapid changes in technology have created new mechanisms for refund exploitation. These attacks are becoming more sophisticated in a growing digital environment.

    Integrity of business systems is a widespread risk and occurs across all markets and industries and includes:

    • errors
    • system and reporting issues – which may be accidental or deliberate misrepresentation of BAS reporting
    • technical issues – may also impact the integrity of BAS reporting, such as:
      • GST classification of supplies
      • apportionment methodologies
      • agency arrangements
      • the treatment of unredeemed vouchers and gift cards.
       

    Our detection strategies have been developed to enable a pro-active response when IBS indicators are triggered.

    Our prevention strategies include mechanisms that help clients have confidence in their ability to get reporting right. We also work with tax professionals to provide guidance and support for correct reporting.

    International cross-border

    There have been a number of legislative changes over the last two to three years, which have not only changed the risk landscape but impacted the administration of GST and VAT globally, including GST on digital products and low value imported goods. From a global perspective, our aim is to:

    • be more connected
    • cooperate and share information to address issues, such as
      • GST implications of selling goods through a permanent establishment in Australia
      • inbound tour operators
      • online travel companies – GST on offshore online accommodation booking websites (draft new measure from 1 July 2019).
       

    Our approach is to engage and help overseas businesses comply with the law by:

    • providing supporting advice and guidance products
    • using data matching to identify and address non-compliance
    • cooperating across borders.

    Financial services and insurance

    The financial services and insurance (FSI) risk is the failure of:

    • a financial supply provider to correctly account for supplies and acquisitions resulting in incorrect reporting – this may include a failure to correctly deny claiming GST credits on acquisitions which relate to the making of input taxed (financial) supplies
    • insurers to meet their GST reporting obligations – leading to reduced net GST receipts and loss of confidence in our administration of the GST system.

    We have presented our four year strategy and priority issues to the industry which includes a range of long standing technical issues such as:

    • extent of creditable purpose
    • reduced credit acquisitions
    • use of offshore rights and reverse charge.

    These are some examples which have our current focus:

    • practical application of the existing ATO view – specifically to credit card apportionment, home loans and transaction accounts
    • moving from a risk-scoping phase into an engaging-the-insurance-sector phase to gain greater assurance for this sector more generally
    • improving clients’ awareness and accountability for substantiating evidence for GST technical positions they have adopted.

    The FSI strategy is focused on mitigating risks associated with priority issues through our assurance approach which covers three areas:

    1. Service – continued proactive and collaborative industry engagement and consultation to resolve and better understand the commercial aspects of the relevant issues.
    2. Guidance – developing greater consistency and certainty in our public rulings, determinations and development of practical compliance guidelines (when appropriate).
    3. Engagement – one-on-one reviews and audits to address existing risks, applying justified trust methodology to selected clients to assure the absence of risks, and get data and evidence to inform updated guidance (when appropriate).

    Emerging issues

    We focus on identifying and responding quickly to matters of concern and emerging issues. We prioritise risk-event responses with a triage approach by considering actual and potential impacts and apply tailored treatment strategies.

    In addition to continuing our focus on emerging issues, in 2018–19 we will monitor:

    • the sharing economy’s rapid growth with disruptive technology and new business models providing a range of activities including
      • ride-sourcing
      • food delivery
      • tasking services
      • accommodation
      • asset sharing including accommodation.
       

    Note: According to the August 2018 Federal Government Taxpayer Engagement with the Tax System report, the current forecast for the sharing economy market will increase in value some 20 fold over the next 10 years.

    • blockchain distributed ledger technology – that is already used for
      • cryptocurrencies
      • smart contracts
      • digital assets platforms
      • secure land registries
      • settlement platforms for securities and commodity trades.
       
    • increased adoption of other technologies such as
      • automation
      • artificial intelligence
      • robotics.
       

    Note: We will continue to monitor their use to understand the GST impacts from the wider adoption of these technologies and the opportunities they may represent to the ATO.

    We will adapt our mitigation strategies to address any risks that emerge and explore opportunities for potential efficiencies in the GST system.

    New measures

    Precious metals

    The precious metals industry was first identified as a GST compliance risk through our refund assurance process, with further intelligence gathered through data analysis and profiling.

    Since 1 April 2017, a reverse charge applies on business-to-business transactions of valuable metals. This applies to sales between GST-registered suppliers and GST-registered purchasers of all taxable supplies of gold, silver or platinum. A reverse charge provides a level playing field for businesses in the valuable metals industry, and makes it easier for them to meet their GST obligations.

    In 2016–17 we investigated participants in the precious metals industry who chose to not account for the GST payable, or inappropriately claimed input tax credits. Since the precious metals carousel schemes were first detected, we have taken action on over 148 primary GST cases, and numerous spin-off cases. This has resulted in assessments totalling $1.082 billion (inclusive of GST/income tax and penalties), of which $580 million is disputed (objections and litigation), and collections totalling approximately 5%.

    Addressing the risk has reduced the opportunity for further attacks on the GST system, and deterred other participants from undertaking similar exploitation.

    Digital products/services and low value imported goods measures

    Continued expansion of international e-commerce has seen exponential growth in the sales of low value goods, services, and digital products to Australian consumers. The benefits of expanded choice also created a tax imbalance because domestic retailers charged GST but international suppliers did not.

    Government responded by legislating changes to address unfair competition and bring these activities into the GST base. The approach to apply GST to imported services and digital products had been implemented in many other jurisdictions across the world. However, our vendor collection system to apply GST to low value imported goods (LVIG) is a world first.

    The interrelated measures are:

    • GST on sales of imported services and digital products sold to Australian consumers – effective from 1 July 2017
    • GST on retail sales of low value goods (A$1,000 or less) to Australia, when purchased by consumers, with GST collected through the sale, instead of at the border – effective from 1 July 2018.

    We know the best way to encourage compliance is to make it easy and support business to get it right. Working collaboratively with business and advisers, we have built a new system that enables non-residents to fulfil their GST obligations quickly and easily. The simplified GST registration and reporting system for non-residents is secure, easily accessed, and resistant to refund fraud. Simplified system revenue outcomes for services and digital products alone has exceeded overall budget projections, with actual revenue from these registrants collecting $198 million against a projected $150 million for the 2017–18 year.

    Our implementation of these reforms now means that most digital products, services and low value goods purchased by consumers in Australia have the same tax treatment, no matter where they are purchased from. The reforms are supported by compliance strategies that appropriately address non-compliant behaviour.

    GST on settlement

    As of 1 July 2018, certain purchasers of new residential premises or a subdivision of potential residential land are required to withhold an amount that represents the GST component of the contract price and pay this directly to the ATO on or before settlement.

    This measure was designed to address property developers who sell properties for a price that includes GST but who avoid remitting the GST by dissolving their businesses post sale but prior to the BAS lodgment for that sale (a form of phoenixing).

    Transitional provisions exclude contracts signed prior to 1 July 2018, where the contract settles prior to 1 July 2020, from the withholding requirements. This provides certainty for contracts that were signed before the measure came into effect.

    To support the introduction of this measure, we have:

    • developed a law companion ruling (currently being finalised)
    • conducted over 30 seminars Australia wide for conveyancers, solicitors and other stakeholders
    • held external webinars and recorded a podcast (both externally accessible on atoTV)
    • liaised with state and territory law societies (with the exception of the Northern Territory); all have updated their standard land contracts to incorporate this measure
    • updated ATO website content to reflect the changes
    • published articles in industry publications.

    The focus is now on mitigating any potential compliance risks, and developing and implementing a suite of client engagement activities to support vendors and purchasers.

    Online hotel bookings

    The 2018 Budget contained a draft measure that (from 1 July 2019) online booking websites will incur 10% GST on the mark-up of all sales. This applies to hotel commercial accommodation in Australia made by foreign entities that supply rights to commercial accommodation. It also includes offshore online travel companies, and aims to level the playing field between domestic and offshore players.

      Last modified: 18 Mar 2019QC 58283