Australian Financial Markets Association Liaison Group key messages 26 May 2020

Disclaimer

Australian Taxation Office (ATO) - Australian Financial Markets Association (AFMA) Liaison Group agendas, minutes and related papers are not binding on the ATO or any of the other bodies referred to in these papers. 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 papers 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 opening remarks

The ATO noted that JobKeeper was not a significant issue with the industry. Currently, the main focus has been on checking in with taxpayers and their ability to meet their obligations in the current environment.

A lot of work has seen a change in approach, with ruling requests being withdrawn and other work being put on hold as the ATO seeks to understand what is happening for taxpayers.

AFMA noted that it expected there would be less work on the usual issues discussed.

AFMA noted that current Streamlined Assurance Reviews have been paused, and that members appreciated the ATO contact to understand how they were going, what was changing, and how COVID-19 would affect their ability to carry on business as usual.

AFMA itself is starting to think about going back into the office, and how to reach out to its members, while balancing in person meetings.

AFMA has conducted a survey of its members about moving back into the office.

ATO noted that it was seeing taxpayers getting ‘back to tax’.

COVID-19 frequently asked questions (FAQs)

AFMA noted that the COVID-19 frequently asked questions web guidance was very useful and addressed queries that people are thinking about at the moment.

The ATO stated that it was receptive to different fact patterns and scenarios. The best way to deal with them is to provide specific details, or follow up with a separate meeting with them, talk through different scenarios with them.

AFMA queried the timeline for the application of the guidance. Its view was that the guidance should be live for as long as operational restraints are in place.

The ATO noted that Banking & Finance Strategy can facilitate any further queries from members with advice and guidance who are dealing with enquiries. Advice and guidance should be able to provide timely responses given their primary focus is currently COVID-19 measures.

The ATO referred to the COVD-19 FAQs in relation to permanent establishments (PE), and noted that the wording is that the ATO will not apply compliance resources, rather than an agreement that there is non-crystallisation of a PE.

AFMA noted that transfer pricing models would be sophisticated enough to account for the rewarding of an employee that remains in Australia due to COVID-19.

AFMA’s view is that, the word ‘restricted’ in the FAQs would apply where Department of Foreign Affairs and Trade guidance is ‘do not travel’, even if there is otherwise a flight available.

Fringe benefits tax (FBT)

AFMA noted that its members have been providing items to support their staff working from home. However, these items might not be considered ‘otherwise deductible’ and would usually be capitalised over a period of time.

Additionally, as the industry is considered an essential service, they have been implementing policies to allow staff to avoid public transport, such as allowing staff to travel in their personal car and paying expenses in respect of such private travel.

The ATO recommended that AFMA connect with advice and guidance about those fact patterns and scenarios for further guidance.

Compliance – Administration

AFMA noted that the extension of the FBT lodgment date was welcome.

AFMA queried whether the similar extensions would apply to taxpayers with 31 December 2019 year ends, who have a lodgment due date of 15 July. An extra month was suggested, in line with the FBT return extension.

The ATO noted that there had been no general statements to market about extensions. However, it noted that there are some banks with other year ends where the ATO has been willing to extend. The ATO will provide instructions to contact the Large Services team to request an extension. Taxpayers will need to provide some explanation to outline the reasons for an extension.

AFMA also raised the expectations for disclosure under Category C of the Reportable tax position (RTP) schedule, after comments by Rebecca Saint at the Financial Services conference that the ATO was surprised at the level of disclosure in the RTP in the past year, and whether members provided more information than necessary.

The ATO stated that the RTP team owns the schedule and will liaise with Banking & Finance Strategy regarding industry issues. This may warrant a specific discussion with that team to talk through the questions relevant to the industry.

The ATO noted that, where it could see that there are some questions that would cause concern for industry taxpayers, Banking & Finance Strategy would liaise with the RTP team regarding the instructions or set in place a realistic expectation. However, changing the RTP instructions usually involves a long lead time.

AFMA noted that, for parent to branch funding arrangements, where there are no appropriate transfer pricing documents in place, this would fall under RTP. However, if the taxpayer is under Part IIIB, then it should not be an issue for the ATO, because the deductions are capped under London Interbank Offered Rate (LIBOR).

The ATO stated that if that were the case, from a Banking & Finance Strategy perspective, disclosures wouldn’t be expected. This should be clarified in the RTP schedule instructions 2020.

Justified Trust

The ATO noted that a lot of processes are currently on hold.

Before restrictions came into place, the ATO was trying to commence the remaining foreign bank cases in the Top 1000 program, but now timeframes are being pushed out for a number of taxpayers per their request. It is difficult to say now when the remaining cases will be completed.

Currently, the ATO is two thirds of its way through the program. The findings and observations have been fairly consistent. It is seeing that funding is not the huge risk it was thought to be at the start of the program. Funding is mostly coming from third party, domestic sources.

The ATO is not seeing red flags, and issues are not such a high risk that it will need to be taken to market with a taxpayer alert. For example. the ATO is seeing situations where some form of guidance may be appropriate, but it is waiting until the entire population is completed.

AFMA noted the appreciation of some members’ tax managers who have said their cases were being put on hold.

The ATO noted that the first round of the program was meant to be concluded by 30 June 2020 but was extended to 31 December 2020. However, with COVID-19, this seems unlikely, and likely will be pushed into next year.

It is still very much an income tax program, as the ATO is not yet in a position to integrate GST.

London Interbank Offered Rate

Since the consultation session with industry, the ATO has taken away the views from the market, as well as some feedback following the session.

Internally, the ATO has tried to break up the feedback into issues that require legislative change and those that require administrative change.

In terms of the legislative changes:

• Part IIIB would require legislative change. It may also warrant a broader review of Part IIIB as well.
• Hedge effectiveness, which was already an issue with the move to AASB 9. Where a financial arrangement references LIBOR, this adds another layer of complexity. Feedback from the Taxation of financial arrangements (TOFA) ATO area is to not just consider this in light of LIBOR changes, but also the broader accounting standards problem.

In terms of administrative changes:

• advanced pricing agreements and rulings that refer to LIBOR will need to be considered, and whether some substitution can be made.

AFMA noted it was thinking of issues outside of TOFA but had no scenarios yet.

The ATO is having a discussion with Treasury, who is looking at it seriously. Treasury will likely come back to ATO and industry for further dialogue, as they think about how law should be drafted.

AFMA noted that a LIBOR website is to be established. The letter from Australian Securities Investment Committee will be published, which notes the need to be fair to counterparties, so there should not be any materially adverse adjustments to counterparties.

Other Business

Bail-in rules are part of AFMA’s pre-budget submissions. If AFMA prepares additional pre-budget submissions in October, it will reiterate the need for reform regarding bail-in mechanisms. The ATO noted that it would help if AFMA continues to make submissions to Treasury. It was noted that bail-in rules technically trigger an RTP, but taxpayers can make comments that the ATO is aware of the issue through the ATO/AFMA Liaison Group.

Regarding JobKeeper, members have not been able to show a considerable drop in turnover. AFMA queried the policy intent about carving out input-taxed supplies and whether the ATO has had any interaction with Treasury about the turnover definition. The ATO stated that, based on the drafting of the provisions, it seems that the bulk of the financial services market would not be able to access JobKeeper, which appears to be the case. Other industry associations have also queried the definition, and Treasury has stated that it was intended, and that JobKeeper is operating as intended. AFMA noted that, regardless, across its members it is not seeing particular distress, and is not expecting substantial change.

The ATO provided an update about staffing changes. Megan Croaker, who was overseeing financial supplies issues, is now working in another role. Phil Daniel is now in Megan’s role, while Sarah Hong is covering for Phil.

In terms of GST issues, the Top 1000 program has been deferred. Some settlements have been embedded with the major banks. The ATO is looking to find the right approach for the Top 1000 program, which will probably start in conjunction with the second phase of the Top 1000 income tax program. The ATO suggests that members revisit their apportionment methodologies in light of the recent PAG documents. The focus from the ATO is the cost base and the acquisitions themselves.

Attendees