Public Groups and International Advice and Guidance program
Insights and key observations from our advice and guidance program for the 2019-20 to 2021-22 financial years
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About this report
This year we are publishing our insights report for the Public Groups & International (PGI) Advice and Guidance program.
The PGI Advice and Guidance program:
- delivers high quality advice for complex transactions undertaken by public and multinational business taxpayers
- provides certainty about the tax outcomes for all transactions where a ruling, advice or other guidance is provided
- identifies issues early and engages closely with stakeholders, both internal and external, through the early engagement process
- connects our advice and guidance specialists with businesses planning significant investment in Australia through the New Investment Engagement Service.
This report includes insights drawn from the work completed through the program over the 2019–20 to 2021–22 financial years.
This report outlines:
- insights on how taxpayers and their advisers can most effectively engage with us when applying for rulings or otherwise seeking advice and guidance
- our key observations and findings about the nature of the advice sought by public and multinational business taxpayers and which advisers are involved.
We recognise the important role this program plays in providing public and multinational business taxpayers and their shareholders with tax certainty. We are committed to providing a tailored service that best meets the needs of business whilst operating within our statutory framework and resource base.
The insights from this report will be used by us as part of our commitment to continuous improvement of the Advice and Guidance program. We will also use the insights to support consideration of how we can better educate and assist taxpayers to obtain tax certainty.
Key insights
Key insights from the PGI Advice and Guidance program include the following.
- The program continues to play a key role in providing tax certainty to hundreds of large businesses and the entities that invest in them.
- The nature and amount of advice requested reflects market activity as well as changes to the law.
- Engagement through the early engagement program on complex transactions is more likely to result in positive outcomes for applicants.
- Top 100 taxpayers use the program for rulings for the entities that invest in them as well as their own tax affairs. This likely reflects the level of engagement they already have with the ATO as well as the need or desire to provide certainty to their investors.
- Other parts of the large business and multinational taxpayer population, for example Top 1,000 taxpayers, access the program for a mix of tax certainty, predominantly for their own affairs as well as that of the entities that invest in them.
- The vast bulk of applications are made via advisers. This is likely to reflect the transactional nature of many of the arrangements on which advice is requested, and the likelihood for advisers to be engaged by taxpayers as part of that process.
Advice and Guidance program
We provide advice and guidance in a range of forms to help taxpayers understand how the law applies to their circumstances. This reduces uncertainty when they self-assess their obligations or entitlements. Seeking confirmation of our interpretative position may form part of a taxpayer’s tax control framework, for example to identify and manage tax risk.
Advice is our opinion on the application of the law that we administer. Our opinion is binding if it is provided in the form of a ruling. Where the taxpayer acts in accordance with the ruling, they are protected from adverse consequences, even if our opinion is incorrect.
The PGI Advice and Guidance program is responsible for providing:
- private and class rulings for public and multinational business taxpayers
- rulings on whether we will exercise a discretion.
Private rulings generally are about a specific applicant’s income tax liability.
Class rulings provide certainty to participants in a scheme covered by the class ruling, avoiding the need for individual participants to seek separate private rulings.
The PGI Advice and Guidance program may also provide other types of guidance about the broad operation of the law in some circumstances. Guidance provided in these circumstances is outlined in PS LA 2008/3 Provision of advice and guidance by the ATO.
Taxpayers that are considering a complex transaction or applying for a private ruling can also seek early engagement before lodging a formal ruling application.
The early engagement approach enables taxpayers to informally engage with us to:
- discuss an arrangement
- identify key issues and concerns
- discuss the most appropriate form of advice required.
While taxpayers may decide through the early engagement process that a formal ruling is not required, advice received through the early engagement process does not provide the same level of protection as a private ruling.
We provide indicative advice only if exceptional criteria are met and on the acknowledgement that:
- the advice is not binding
- it should not be relied on as representing our view of the law on the matter.
New Investment Engagement Service
On 1 July 2021, we introduced the New Investment Engagement Service (NIES) for businesses planning significant new investments in Australia.
Before undertaking significant commercial transactions and investments, investors can engage with the NIES to understand:
- potential tax risks arising from their proposed investment structures
- steps they can take to mitigate those concerns (if relevant).
Due to the short timeframes and early stage of the transaction, the report is not administratively or legally binding on the ATO. However, businesses can use the service to obtain practical confidence about the tax risk of their proposed transaction.
The NIES can also assist businesses by streamlining subsequent Foreign Investment Review Board process (if applicable), or requests for binding advice by eliminating duplicate information requests.
We have had a range of preliminary conversations with investors about their transaction options and how NIES interacts with other ATO services. Most guidance provided through the NIES has been general in nature, relating to the eligibility criteria for tax concessions.
Since its launch, there have been 14 initial engagements, 3 of which were followed by a request for written guidance, setting out our views on the proposed transaction.
While feedback on the NIES following initial implementation has been positive, take up has been low. This may be due to the lack of awareness of the program or businesses being adequately supported through other services (both us and advisers).
Action Differentiation Framework
Key to our program is ensuring we have effective engagement with taxpayers and our decisions are consistent with the ATO view of the law. Our rulings program covers all taxpayers within the Action Differentiation Framework (ADF). We use the ADF to differentiate between the size, complexity and behaviour of public and multinational businesses.
The size of public and multinational businesses is based on their total business income.
- Top 100 taxpayers – consists of public and multinational businesses and super funds that have substantial economic activity related to Australia. These are the very largest businesses in Australia.
- Top 1,000 taxpayers – consists of public and multinational businesses and super funds with turnover above $250 million and not in the Top 100. Top 1,000 taxpayers include a diverse range of entities and groups in terms of their ownership, business models, industries, and size.
- Medium taxpayers – consists of public and multinational businesses and super funds with an annual turnover of more than $10 million up to $250 million.
Emerging taxpayers – consists of public and multinational businesses and super funds with an annual turnover of less than $10 million.
This report provides insights into who engages with the PGI Advice and Guidance program based on their ADF category. However, the way we engage with each taxpayer in the PGI Advice and Guidance program is tailored or differentiated based on the specific transaction or issue on which advice or guidance is sought rather than the ADF grouping.
The rulings program also covers taxpayers that are not yet identified or categorised under the ADF but are a public or multinational business or APRA-regulated super fund. Those taxpayers may not be categorised under the ADF due to their limited interaction with us at the time they first use the program.
Observations
This report provides aggregated data on the 2019–20 to 2021–22 financial years for cases completed within the PGI Advice and Guidance program.
We are providing data on the following aspects of completed cases:
- total number of cases completed
- written guidance provided by type – private ruling, class ruling and guidance
- rulings and early engagements by taxpayer population
- rulings and engagements completed by advisers
- the top 10 topics for completed rulings and early engagements.
This report includes rulings that were requested before the start of the 2019–20 financial year but completed in this period. This report does not include rulings requested in this period but were not completed before 30 June 2022.
The impact of the broader macroeconomic conditions and the impacts that COVID-19 may have had over the period covered by this report should be considered in viewing the trends observed.
The changes in demand drivers for advice and guidance impacts the type, nature and complexity of advice and guidance requested by business.
During 2021–22, we observed strong demand for advice and guidance from public and multinational businesses. Broadly, the nature and number of rulings completed in 2021–22 reflected increased levels of merger and acquisition activity occurring in the market.
In comparison, legislative changes in 2019–20 relating to sovereign immunity and withholding tax exemptions prompted a significant increase in the number of rulings requested. These requests were predominantly by foreign super funds confirming their eligibility for the relevant tax concessions.
The nature and complexity of issues raised as part of merger and acquisitions are typically more complex, requiring a greater resource investment of technical expertise. As such, in 2021–22 when ruling demand increased due to an increase in merger and acquisition activity, we needed to allocate additional resources to the Advice and Guidance program.
Total private rulings, class rulings and guidance completed
Financial year
|
Number of advice and guidance products completed
|
2019–20
|
363
|
2020–21
|
509
|
2021–22
|
414
|
Private rulings, class rulings and guidance completed by product type
Proportion of products completed
Product type
|
2019–20
|
2020–21
|
2021–22
|
Private rulings
|
71%
|
72%
|
62%
|
Class rulings
|
14%
|
13%
|
21%
|
Guidance
|
15%
|
15%
|
17%
|
Compared to the 2019–20 and 2021–22 financial years, the 2020–21 financial year saw an increase in private rulings. This is due to foreign superfund applicants doubling from the previous year as they sought to confirm their withholding tax-exempt status following a law change in 2019.
In 2021–22, the number of private rulings completed reduced to the same levels as the 2019–20 year, despite an overall increase in the total number of rulings made in 2021–22 comparative to 2019–20. The higher number of rulings made in 2021–22 was reflective of an overall increase in transactions on which public and multinational businesses sought rulings throughout the year.
The 2021–22 financial year has seen a:
- 32% increase in the number of class rulings completed over the previous year
- 65% increase from the number of class rulings completed 2 years ago.
The major cause of the increase in 2021–22 has been requests for rulings for demergers, predominantly in the mining sector. Over the past 2 financial years we have also seen an increase in class rulings related to companies’ management of their capital, through an increased number of off-market share buybacks and returns of capital.
The number of rulings requested on capital gains tax related issues and employee share scheme arrangements where a class ruling was provided has also risen. This is consistent with increased levels of market activity in the area.
Population
Private rulings, class rulings, guidance, and early engagements completed by taxpayer population
Private rulings, class rulings, guidance, and early engagements completed by taxpayer population
Over the past 3 years, we have seen an increase in the number of rulings issued to both Top 100 and Top 1,000 taxpayers.
There was a:
- 44% increase in rulings issued to Top 100 taxpayers in the 2021–22 financial year compared to 2020–21.
- 27% increase in rulings issued to Top 1,000 taxpayers in the 2020–21 financial compared to 2019–20
- further 9% increase in rulings issued to Top 1,000 taxpayers in the 2021–22 financial year compared to 2020–21.
After a 27% increase in the 2020–21 financial year compared to 2019–20, the number of rulings issued to medium taxpayers returned to 2019–20 levels in 2021–22. Rulings issued to emerging taxpayers increased substantially in the 2020–21 financial year compared to 2019–20, jumping over 210%. The number of rulings issued to those taxpayers remained high in the 2021–22 financial year.
Top 100 taxpayers continue to request the largest number of class rulings and are the biggest users of our early engagement process. This is relative to the number of ruling requests completed across all taxpayer populations. Top 1,000 taxpayers have been the largest users of our rulings program with approximately 26% of all rulings completed over the past 3 years for these taxpayers.
The number of cases completed in response to requests from medium taxpayers has remained steady over the past 3 years relative to the number of overall cases completed.
Cases completed for emerging taxpayers increased from 8% in the 2019–20 financial year to 25% of all cases completed in 2021–22.
The increase in the number of rulings requested by emerging taxpayers is due to completed advice requests for:
- the withholding tax exemption for foreign superfunds
- demerger transactions.
Conversely, we have seen a decline in rulings from taxpayers who have not yet been placed into an identified ADF population (due to their limited interactions with us), from 37% of cases completed in 2019–20, to 9% in 2021–22. This decrease is almost entirely because of a reduction in the number of requests for advice on the foreign super fund withholding tax exemption.
Advisers
Advisers play a key role in the PGI Advice and Guidance program as most public and multinational business taxpayers seek rulings through an adviser. The involvement of advisers reflects:
- the transactional nature of many of the arrangements
- that it's common for large and complex taxpayers to engage an adviser to help with such arrangements.
Based on data from the period covered by this report, engagements with us that involve advisers are likely to have more positive outcomes. This may reflect the greater experience many advisers have with the PGI Advice & Guidance program, and that they more frequently engage and interact with us.
We encourage taxpayers to obtain tax advice from an adviser as part of an effective tax governance process. However, it is not necessary for a taxpayer to have an adviser to use the rulings program.
The predominant adviser firms representing public and multinational business taxpayers in relation to ruling applications for the financial years covered by this report were:
- Deloitte
- Ernst & Young
- Greenwoods & Herbert Smith Freehills
- KPMG
- PricewaterhouseCoopers.
These 5 firms are referred to in this report as ‘Big 5’ firms and were the largest users of both the rulings program, and our early engagement process.
From 1 July 2022 we will be referring to ‘Big 4’ firms following the acquisition of Greenwoods & Herbert Smith Freehills by PricewaterhouseCoopers. All other adviser firms are identified as ‘other firms’ for the purpose of this report.
Advisers regularly engage with the Advice and Guidance program, and this can be seen through the high percentage of private rulings, class ruling, guidance and early engagements submitted by advisers. In the 2021–22 financial year, 80% of all work completed by PGI Advice and Guidance came from an adviser, with 51% of that work coming from a Big 5 firm.
Private rulings, class rulings, guidance, and early engagements completed by adviser and taxpayer
Completed private rulings, class rulings, guidance, and early engagements lodged by advisers
Early engagements completed by adviser type
Advisers are also the largest user of our early engagement process, representing taxpayers in approximately 60% of all early engagements over the past 3 years. Advisers who aren't from one of the Big 5 firms have increased their use of the early engagement process over the past 2 years, representing taxpayers in 20% of early engagement cases in 2019–20 and 25% in 2021–22.
Top 100 and Top 1,000 private rulings, class rulings and guidance completed by population and adviser or taxpayer
The Big 5 firms:
- have accounted for approximately 50% of all rulings and guidance cases completed in the past 3 financial years and 60% of our early engagements
- are engaged by taxpayers across all taxpayer populations, representing taxpayers in 53% of completed cases for the Top 100 population, and 60% of completed cases for the Top 1,000 population.
Big 5 private rulings, class rulings and guidance completed by population
Topics
The rulings program receives requests for advice for a range of complex transactions throughout the year.
Over the past 3 years we have been able to:
- identify common ruling requests across the population
- understand the most common topics and changes in transaction types.
Many of the requests for advice are for similar transactions across the large business population with taxpayers looking for advice applicable to their specific circumstances.
We regularly review data on the advice requested by taxpayers to identify issues where public advice and guidance might reduce or streamline one-to-one engagement with us.
In the 2021–2022 financial year, the fourth highest topic advice was provided was employee share schemes. As a result of those requests, we have issued 2 public rulings:
Top 5 topics of advice completed
Top 10 topics of advice completed for financial year 2021–2022
Topic
|
Products completed
|
Capital management
|
109
|
Capital gains tax
|
97
|
Withholding tax exemption
|
77
|
Employee share schemes
|
45
|
Other
|
33
|
International
|
27
|
Superannuation
|
19
|
Deductions
|
19
|
Trusts
|
16
|
Losses
|
15
|
The topics on which advice is sought have remained relatively consistent over the past 3 years.
The following were consistently in top 5 topics for advice requests:
- capital management transactions
- capital gains tax (CGT)
- employee share schemes
- international tax issues.
Approximately 80% of all rulings completed in the financial years 2019–20 to 2021–22 related to the 10 topics referred to in the table above.
Requests for advice on capital management transactions increased 40% from the 2019–20 financial year to the 2020–21 financial year, and a further 11% in 2021–22. This increase is almost entirely attributable to rulings requested by Top 100 and Top 1,000 taxpayers, with the number of requests from Top 1,000 taxpayers almost doubling. More specifically, the Top 100 and Top 1,000 taxpayers had large increases in requests related to off-market share buybacks and there were large increases in requests from Top 1,000 taxpayers related to return of capital transactions.
In the 2021–22 financial year, we saw a significant increase in requests for capital gains related rulings. Specifically, these requests related to demerger transactions, increasing 350% from 2020–21 to 2021–22 in the Top 100 and Top 1,000 populations.
Advice on withholding tax exemptions for foreign super funds and sovereign immunity remain one of the top 5 topics on which advice is sought. However, in 2021–22, the total number of rulings made on this topic had reduced by just over 50%. Given the cyclical nature of withholding tax and sovereign immunity related requests, we anticipate that these will increase again in the 2023–24 financial year.
Outcomes
Outcome of class and private ruling requests
The percentage of class and private rulings which have favourable outcomes has remained around 80% for the past 3 years, with only 1–2% resulting in an unfavourable outcome in those years. It is unsurprising this number is low due to the effectiveness of our early engagement process. In 2021–22 we have seen a slight increase in the percentage of rulings where we have refused to rule following a request.
Most cases where we refuse to rule occur when the applicant does not provide the requested information. We are unable to decide if we have not been provided with enough information. Requests where we refuse to rule are generally received from applicants who have not used an adviser to lodge the request, and the applicant is from outside of the Top 100 and Top 1,000 populations.
Requests for rulings which result in no further action being required have slightly decreased as a percentage of total ruling requests in each of the past 3 years. Circumstances described as ‘no further action’ include instances where a ruling was not required because we provided written guidance, or the request for a ruling is withdrawn.
A request for a ruling may be withdrawn for numerous reasons, but most are withdrawn because circumstances have changed so the transaction is no longer going ahead.
Where we provide an unfavourable decision or an application is withdrawn after the Advice and Guidance team identifies concerns with the applicant’s interpretation or application of the law, we may continue to review the relevant issue – for example, as part of the applicant’s Justified Trust review.
Early engagement
Effective engagement with the rulings program
The early engagement process:
- helps us gain a clear understanding of the issues prior to a formal ruling application being lodged
- is usually recommended for more complex or time critical transactions.
Engaging early on complex transactions ensures there is a clear understanding between both parties and identifies any concerns early in the process.
Our early engagement team uses their networks and business experience to support collaborative and constructive dialogue with the applicant or adviser about the advice or guidance they are seeking. We also expect that where we identify a difference in view on the tax outcomes of your proposed transaction during early engagement, this may also prompt a change in the transaction.
Over the past few years, the early engagement team have worked closely with taxpayers to ensure that their business needs are met. To facilitate this and ensure the most effective and efficient outcome for your ruling, taxpayers should do the following.
Engage with us early
While we aim to provide a correct ruling outcome in a reasonable timeframe, our work is demand driven so we may have unexpected peaks with the volume of rulings we receive.
If you know a ruling is required by a certain date or event, such as a shareholder meeting or dividend announcement, contact the early engagement team as early as possible so that we have a better understanding of your timetables.
Provide information and documents about the transaction
It's imperative you provide as much information as possible when it becomes available to ensure we can accurately identify the facts. This may include draft transaction and disclosure documents. Providing this information when it's available means less time will be spent going back-and-forth with our staff and will improve the timeliness of the ruling.
Providing this information is important. If there is a material difference in the facts identified in the final ruling and the facts of the transaction actually implemented, the ruling will not bind the ATO.
Work within timeframes
When we request more information to progress your ruling, it's important to provide that information as soon as possible. This ensures your ruling can be completed within agreed timeframes.
Early engagements outcomes
Outcomes
|
2019–20
|
2020–21
|
2021–22
|
Total
|
Progressed to ruling
|
99
|
91
|
100
|
290
|
Progressed to other product
|
12
|
4
|
9
|
25
|
No further action
|
72
|
55
|
51
|
178
|
Total
|
183
|
150
|
160
|
493
|
Early engagements completed
Financial year
|
Products completed
|
2019–20
|
183
|
2020–21
|
150
|
2021–22
|
160
|
Early engagement outcomes by percentage of products completed
Observations
The number of early engagements completed has remained relatively stable between 2019–20 to 2021–22.
While the total number of engagements has remained stable, the percentage of early engagements that then progressed through to a class or private ruling has increased in each of those years.
This increase is potentially caused by an increase in more complex transactions related to capital management and capital gains tax or demand for more certainty. This may be the cause for the substantial increase in the number of class ruling requests received and completed in the 2021–2022 financial year.
We encourage taxpayers to engage with us and seek advice for complex transactions. In the 2021–2022 financial year, the number of class or private ruling requests that resulted in a favourable ruling (we agree with the applicant’s view of the law) and followed early engagement, were 20% higher than ruling requests that hadn't been preceded by early engagement.
Taxpayers represented by the Big 5 firms are the largest users of the early engagement process, and therefore have the highest percentage of completed rulings following early engagement. This may reflect the level of familiarity the Big 5 firms have with the early-engagement process compared to other adviser firms and taxpayers. Where a Big 5 firm is involved in the ruling application, it is statistically more likely to result in a favourable ruling than applicants who do not use a Big 5 firm.
Top 100 and Top 1,000 taxpayers are also the largest users of the early engagement process. This is consistent with these taxpayer populations being more likely to be represented by a Big 5 firm.
This may also reflect our recommendation that early engagement be used for complex transactions and the significant role the Big 5 play in advising public and multinational businesses.
Class and Private ruling request outcomes after early engagement
Class and private ruling request outcomes without early engagement
Proportion of rulings completed following an early engagement by population
Insights and key observations from our advice and guidance program for the 2019–20 to 2021–22 financial years