Show download pdf controls
  • Top 100 risk categorisation approach

    The top 100 population consists of public and multinational businesses and superfunds that have substantial economic activity related to Australia. They form the largest contributors to corporate income tax, good and services tax (GST), excise, and petroleum resource rent tax (PRRT) collections.

    As the top 100 can have a significant impact on the health of our tax system, we engage with them one-to-one to manage their compliance and assure their tax performance.

    See also:

    How we identify and categorise the top 100

    We risk assess each large public and multinational business at the economic group level. We consider an economic group to include all Australian-based entities under a direct or indirect Australian or foreign majority controlling interest.

    Top 100 clients are initially identified based on the size of their Australian operations. Other factors we consider include income tax, GST or excise paid and the influence the client may have on their market segment.

    We provide top 100 clients a risk categorisation for income, goods and services, excise, and petroleum resource rent taxes.

    The categorisation is based on a point in time assessment of a client's:

    • consequence of potential non-compliance – based on business size and influence
    • likelihood of non-compliance – transparency, behaviours and tax compliance risks.

    We use our professional judgment to make this assessment. The factors we consider for likelihood and consequence vary for each tax product and the amount of information and interaction we have with each client. We consider both quantitative and qualitative measures.

    Top 100 clients receive an annual letter from the Commissioner advising them of their risk categorisation. These clearly outline the categorisation and basis of this for each applicable tax, what this means for them and how we intend to engage with them over the next 12 months.

    Risk categories

    We use three risk categories:

    • key taxpayer
    • key taxpayer with significant concerns
    • higher risk.

    Key taxpayer

    A key taxpayer generally has a lower risk level relative to other clients in the top 100 population and no significant history of adjustments from the ATO. This does not mean they have no risks and that we would not have any disputes or differences of opinion on the tax outcomes intended by law.

    Compared to higher-risk clients, a key taxpayer would be proactive in advising us of issues, allowing us to work with them on a resolution. They would not seek to conceal issues, instead providing full and true disclosure of significant and potentially controversial tax positions and engage cooperatively in seeking a resolution, keeping us informed of their decisions and actions.

    As a key taxpayer, we take a particularly close interest in your risk management and governance frameworks to mitigate tax compliance risks.

    If a potentially contestable matter is identified, we will work with you to resolve it and evaluate your compliance with the law.

    We are less likely to use our formal powers to obtain additional information, although we may do so if we are unable to obtain the information and evidence needed to form a view in a timely manner.

    Example: Key taxpayer

    XYZ Ltd have always taken an open, transparent and cooperative approach to their tax obligations. They are also conservative in their tax planning.

    Their tax team purposefully engages with us during our income tax pre-lodgment compliance reviews (PCR) and GST and excise engagements.

    This includes giving us a business update, walkthrough of their lodged returns and GST integrity of business systems (IBS) issues annually.

    End of example

    Key taxpayer with significant concerns

    Key taxpayers with significant concerns may have multiple identified risks and/or have economic outcomes that don't appear to be reflected in their tax outcomes.

    Clients in this category will have more complex risks with larger amounts of tax at risk than clients in the key taxpayer category. However, we would generally still expect the relationship with the client to be positive.

    We work closely with clients in this category to improve their future risk categorisation. For example, we would meet with the client to discuss a treatment plan to lower their risk rating.

    Example: Key taxpayer with significant concerns

    ABC Ltd has been involved in complex arrangements resulting in income tax risks on which we have issued taxpayer alerts and public guidance. They also have a tendency to litigate matters and are not willing to settle tax disputes.

    End of example

    Higher risk taxpayer

    A higher risk taxpayer may have multiple complex and structural risks across different parts of the tax law. They typically exhibit behaviours including poor or inconsistent engagement with the ATO, not meeting deadlines for information requests, and are sometimes late in meeting their tax obligations.

    Governance of tax risk is often poor and tax is a dominant factor in making business decisions for higher risk taxpayers. They do not consistently seek ATO advice on major transactions with significant tax implications.

    A higher risk taxpayer may have a structure that appears unnecessarily complex or may enter into arrangements that objectively make little sense other than for the tax benefit.

    We continuously review higher risk taxpayers. Our activities may include comprehensive audit and other intensive risk assessment approaches. We aim to identify and understand risks and communicate our concerns as early as possible. This allows the client to make informed choices about their compliance approach.

    For higher risk taxpayers that are not open and transparent with us, we are more likely to use our formal powers of information gathering.

    Example: higher risk taxpayer

    AusCo takes an aggressive position on an established tax scheme that operates in conflict to an ATO published position.

    AusCo does not engage with us and is not transparent in its dealings. They have insufficient corporate governance processes to prevent aggressive tax positions being taken.

    Given AusCo's general behaviour and the nature of the arrangement we would undertake a full audit of their tax affairs to fully understand the tax risks.

    End of example
    Last modified: 01 May 2018QC 54108