Australian Banking Association Steering Group key messages 16 October 2020

Disclaimer

ABA/ATO Steering Group agendas, minutes and related papers are not binding on the ATO or any of the other bodies referred to in these minutes. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These materials reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change. It is strongly recommended that where a formal ATO view does not exist for an issue contained in these Minutes that, for the abundance of clarity and certainty, Private Rulings be sought.

Welcome and introductions - Opening Address

The Chairperson welcomed attendees, noting discussions in this forum are limited to strategic industry-wide issues concerning the ATO’s administration of legislation governing Australia’s corporate tax system.

Opening Statement

Deputy Commissioner Public Groups Rebecca Saint, and Assistant Commissioner Banking and Finance Strategy Nick Maley

The ATO made the following comments on the effects of COVID-19 to ATO priorities and work programs:

• The ATO noted the significant work that has been required as a result of COVID-19, involving both maintaining current programs of work as well as administering its expanded responsibilities in managing COVID-19 related government stimulus packages. This resulted in the significant redeployment of staff from Public Groups & International (PG&I) to other work areas such as service delivery and JobKeeper. This shift in priorities has affected timelines on completing tax performance and audit programs.
• In recognition of the difficulties facing clients due to COVID-19, clients were given the option to either continue or pause any compliance activity that was in progress. However, less than 20 cases were paused demonstrating the great work of staff at the ATO and the relationship they have with clients.
• Redeployed staff are now returning to their business as usual responsibilities. PG&I programs of work and services provided to clients continue to be a priority for the ATO to deliver on the Tax Avoidance Taskforce (TAT) commitments.
• The ATO is currently in the process of transitioning staff back into the office in accordance with health and safety guidelines. At this time three cities (Perth, Adelaide, Hobart) have reached level 1 and staff have been asked to return to the office.

On continuing and future programs of work:

• The ATO noted that 30 June 2020 was the end of the first 4 years of the TAT, with the program continuing until 30 June 2023. The ATO is reflecting on what has been achieved and what it aims to achieve by 2023. This has included a review of the various programs of work under the TAT.
• The ATO is implementing and has implemented various improvements to tailor and bifurcate engagement under the Top 100 and Top 1000 programs. Clients will experience the benefits of these changes once high assurance has been obtained, which will reduce the intensity of participating in the program.
• For the Top 1000 population, a considerable amount of work has gone into the design of the second round of reviews. Going forward reviews will consider both income tax and GST under the Combined Assurance Review (CAR) program. The CAR builds upon the work completed in the first round of income tax reviews (where relevant) to refresh those assurance ratings whilst integrating a risk-based GST risk review. Income tax issues identified under the Top 1000 tax performance program will continue to be dealt with under the Next Actions program of work where relevant, while the GST risk review will be used to identify cases that warrant a more intensive GST justified trust review.
• For the Top 100 population, the ATO is exploring benefits to the client experience where high assurance has been obtained and an Annual Compliance Agreement has been entered into. This work is currently ongoing and will be communicated to the market in the near future. The ATO aims to achieve high assurance for at least 50% of the Top 100 population over the next year.

On the stimulus package and budget measures being delivered by the ATO:

• To date, the ATO has managed the distribution of over $100 billion to the community under the COVID-19 stimulus packages. Going forward, administration of the COVID-19 stimulus packages will be undertaken through the Economic Stimulus Branch (ESB). The ESB will form part of, and be resourced from, the Client Engagement Group. Of the 500 JobKeeper applications reviewed by PG&I, less than 20 have resulted in further compliance activity to be dealt with by the ESB.
• The key risk identified is decline in turnover, with entities either incorrectly applying for JobKeeper or manipulation of revenue streams to access JobKeeper. It has also been observed that many applicants have failed to provide adequate records to substantiate JobKeeper eligibility, which has increased the difficulty to process applications. It was noted the clients making these errors largely sit outside the Top 100 and Top 1000 populations.
• The ATO is also preparing guidance on several of the recently announced Budget measures including the loss carry back and temporary full expensing incentive, including any concerns about inappropriate tax arrangements in relation to these measures.

On the ATO Corporate Plan and expectations for 2021:

• Key features of the Corporate Plan are delivering on the Government stimulus packages, and improvements in data capabilities and cybersecurity. There is also emphasis on small business tax performance. This is reflective of the current level of investment required by the ATO in this area to streamline engagement with this population and should not be read as a decline in focus for any other market segment.
• The ATO is exploring the implementation of e-invoicing systems to comply with newly mandated requirements for government agencies. Treasury is expected to release a discussion paper shortly.

On changes in the ATO's senior leadership:

• The Deputy Commissioner for PG&I has been finalised and will be announced shortly.

In response to the above:

• The ABA noted the current pressures facing the tax profession, including downsizing as a result of the effects of COVID-19 and a resultingly reduced capability to respond to ATO programs of work. The ATO noted that whilst it has clear commitments, it was empathetic to the pressures facing the market and cognisant work may take longer to complete as a result of COVID-19. The ATO encourages staff and clients to maintain an open dialogue to adapt the timing of reviews to individual circumstances.
• The ABA noted difficulties in obtaining high assurance, which for particular issues require a disproportionate level of compliance investment to achieve high assurance. The ATO noted the objective to have at least 50% of the Top 100 population reach high assurance over the next year was not a target, but a reasonable estimate based on the current state of the program. The ATO is keen to reach high assurance for banking and finance (B&F) clients however, given the highly regulated nature of the industry, and its importance in the Top 100 population, and to the overall economy. ABA members are encouraged to engage with the B&F Strategy team at the first instance where there are concerns. It was acknowledged that achieving justified trust the first-time round is an intensive process, as it requires that all assurance ratings are anchored in fact-based evidence.

Topics for discussion

Update on ITX (GST) Integration in Public Groups

The ATO made the following comments:

• The ATO has already commenced consultation with the Top 100 population on GST.
• For the Top 1000, the ATO will continue consultation with this population. Noting the complexity of practices in this population the ATO will implement two GST products. The first being the CAR Integrated Report which will be a streamlined GST product. The second being the Top 1000 GST approach which will be a larger in-depth examination of GST and result in a separate findings report.
• The integration of GST into the program of work will not dilute expertise for either income tax or indirect tax but rather ensure that experts from both areas are simultaneously involved in cases to ensure consistency of treatment.
• A key focus will be on assuring GST governance and systems, as this is the most significant GST risk identified in the large market. The ATO and ABA are scheduled to discuss the practicalities of the GST Governance, Data Testing and Transaction Testing Guide shortly. The guide which will be published shortly, but a copy is available via email in the interim.

In response to the above:

• The ABA asked procedurally whether the intent is first to undertake a risk review through a CAR and then depending on the outcome, implement the Top 1000 GST approach. The ATO stated this understanding was correct but noted some clients may proceed directly into the Top 1000 GST approach based on their size or prior compliance history.

B&F and GST Financial Services and Insurance Strategy 2020–21

The B&F and GST Financial Services and Insurance Strategy 2020–21 was discussed at the last ABA-ATO Working Group meeting. The following comments were made:

• The ABA noted that proportionality needed to be considered. Relevantly, concerns were raised that the compliance burden for some of issues such as CFCs were disproportional to the potential tax at risk involved. The ATO acknowledged this and stated they are working on how to best capture learnings from all engagement to streamline work, avoid duplication, and make the best use of resources. Once justified trust is achieved, clients should expect less intensive assurance related engagements with us as the focus shifts to maintaining assurance by reviewing new significant transactions for example, rather than continual review.
• ABA members are encouraged to engage with the ATO to ensure the most efficient and practical means of obtaining assurance over the identified risk areas in the Strategy. It was further noted that an inability to obtain high assurance on an issue which has a low tax consequence would typically not prevent high assurance overall, but this will differ depending on the individual circumstances of each financial institution.
• The ATO intends to provide the ABA additional guidance on how to obtain high assurance in respect of commonly identified areas of low assurance. This will be discussed further at the next working group.

Justified Trust - next steps

The ATO has made the following comments:

• Across the whole program for income tax, there have been consistent issues in evidence and documentation. This issue is less prevalent for the B&F population, but there are some remaining evidentiary gaps which if resolved will assist in reaching high assurance and reduce the intensity of future reviews.
• For both income tax and GST, the ATO is working to ensure consistency in approach for outcomes and technical positions across the whole B&F industry.
• For GST, the ATO is finalising legacy audits and settlements and is now moving these resources to focus on justified trust. The published public advice and guidance and knowledge obtained through the work completed to date is being utilised to streamline justified trust for GST and focus future work on those fact patterns which fall outside of listed green zones without reasonable explanation. This application of green zones ensures the market can have confidence that a consistent approach is being applied.
• The ATO has prepared a standard request for information for GST and this will be shared shortly so that clients can be prepared and plan for the commencement of this work.

Remediation - update and future direction

The ATO has made the following comments:

• The ATO is continuing to work with the Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC) in respect of fees for no service.
• The ATO has received feedback on the draft fact sheet and web-based guidance. A meeting will be organised to discuss the ABA’s submission.

In response to the above:

• The ABA raised the concern that additional reporting requirements for any investments not falling under Part 5A will have the effect of delaying remediation payments. This concern arises due to uncertainty as to what is regarded as interest in the context of current ATO guidance states that all interest must be reported. The ATO advised the guidance on interest is being considered. The importance of reporting from an ATO perspective is to ensure certainty of correct treatment and administratively ensure relevant income information is available to prefill individual tax returns.

Major bank levy - state of play

The ATO made the following comments:

• As raised at the last ABA meeting, the ATO is concerned that the varying accounting treatment of securitisation arrangements enables in some circumstances the same securitisation structure to have differing liabilities under the Major Bank Levy (MBL). The ATO is meeting with ASIC and APRA to ensure consistent application of the law and level playing field in the market. With the increased focus on multinational tax performance in the evolving post COVID world, it was noted that any noticeable reductions in the MBL was likely to trigger scrutiny.

New and emerging issues in banking and finance

The ABA thanked the ATO for holding the meeting and noted there were no new or emerging issues that they wanted to raise.

Other business

The ATO made the following comments:

• There continues to be significant political interest on e-commerce and digital services and as such these areas will continue to be a focus area for the ATO.
• It is expected that there will be an increased scrutiny on multinational tax performance going forward. The ATO will therefore continue to publish information to enable a sophisticated and informed debate on tax performance of the large market. Relevantly, the ATO has recently published the findings report for the Top 100 and Top 1000 tax performance program and will also shortly be releasing the first insights report into Reportable Tax Positions. These reports will be used as foundation pieces for conversations that will be held going forward.
• The ATO noted that as market leaders, ABA members have a responsibility to lead by example by demonstrating compliance amongst large business in Australia and encouraging other large corporate groups to become more transparent. To date, around 180 businesses have signed up for the Voluntary Tax Transparency Code.

Attendees