Welcome and ATO updates
COVID-19 update
Many ATO staff were involved in the COVID-19 deployment to assist with the Government’s economic responses to the pandemic. Public Groups and International (PG&I) continued the compliance work where the taxpayers wanted the work to continue. PG&I found that most taxpayers within the large market wanted a continuation of the work.
The PG&I public advice and guidance program backlog has reduced with the program returning to business as usual.
Annual report
The Commissioner of Taxation Annual Report 2019–20 was released in October 2020.
Report of entity tax information
The 2018–19 Report of entity tax information was published on 11 December 2020. This is the sixth annual corporate tax transparency report that provides tax information on large corporate entities.
- The data has 32% of corporate entities reporting nil tax paid. There are many reasons why companies pay no income tax, including legitimate business or economic factors. Companies may pay no income tax due to operating losses, utilising losses from prior years, or expensing projects operating in a start-up phase. The ATO takes steps to verify that losses in the large market are not created through contrived schemes but are actual losses that can be traced back to commercial operations. Companies that report sustained losses year-on-year face scrutiny from the Tax Avoidance Taskforce.
- Over the last 12 months, a small number of Diverted Profits Tax matters have advanced significantly with one progressing to an assessment.
- The report highlights the amount of tax paid by the mining, energy and water segment which was primarily driven by strong commodity prices and export volumes. There were declines in tax payable in other industry segments.
- The Top 100 program covers the largest contributors to corporate income tax, excise, and Petroleum Resource Rent Tax collections, contributing a reported $34.1 billion or 41% of all corporate income tax. This increases to over 70% where Top 1,000 taxpayers are included.
Top 100 (income tax) program
The ATO published its second Top 100 (income tax) program findings report for tax assurance reviews completed to 30 June 2020. The report provides the community with insights and confidence about the large market’s tax performance and assurance ratings and allows taxpayers to compare how they are performing against their peers. The reviews completed to 30 June 2020 resulted in 30% of taxpayers achieving high assurance.
Top 1,000 tax performance program (income tax)
The ATO published the updated Top 1,000 tax performance program (income tax) findings report for streamlined assurance reviews covering 799 taxpayers. The reviews completed up to 30 June 2020 resulted in 27% of the taxpayers achieving overall high assurance and 56% of the taxpayers achieving an overall medium assurance rating.
Top 1,000 combined assurance program
The program integrates the income tax and goods and services tax (GST) elements into one program. It is part of the Tax Avoidance Taskforce and replaces the Top 1,000 tax performance program (income tax) that ended in December 2020.
Top 1,000 next actions program
The program is part of the Tax Avoidance Taskforce. The program is a further investigation of risks identified through the Top 1,000 assurance reviews.
Public advice and guidance
Capitalised labour draft TR 2019/D6 – The final Ruling: Income tax: application of paragraph 8-1(2)(a) of the Income Tax Assessment Act 1997 to labour costs related to the construction or creation of capital assets, and the associated Compendium, are expected to be published in 2021. The final Ruling confirms the ATO’s long-standing position about the tax characterisation of salary, wages and other associated costs incurred for the purposes of constructing or creating capital assets.
Related party financing: – Schedule 3 – Interest free loans between related parties to Practical Compliance Guideline PCG 2017/4: ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions was published on 10 December 2020.
COVID-19 and permanent establishments – the ATO website guidance has been updated to reflect the extension of the ATO compliance approach until 31 January 2021. In extending this compliance approach, the ATO added clear integrity elements to ensure it is only applicable to those entities who are impacted by the COVID-19 travel restrictions, such as not being able to repatriate affected employees, and not those seeking to achieve double non-taxation in Australia and internationally, or any other unintended tax outcomes.
Shipping schedule – website guidance with respect to offshore service hubs was published on 8 December 2020.
Findings report – Reportable tax position schedule Category C disclosures
The findings report – Reportable tax position schedule Category C disclosures will be published in January 2021. The report will provide an aggregate disclosure made by companies for the 2018–19 income year under Category C of the reportable tax position schedule. The report will provide insights of types of arrangements companies are entering. Taxpayers can see how their tax profiles align with their peers.
Intellectual property migration
The ATO is working on a draft Practical Compliance Guideline (PCG) which will set out the ATO’s proposed compliance approach to international arrangements connected with the development, enhancement, maintenance, protection and exploitation of intangible assets.
The PCG is targeted at a cross-section of taxpayers – our assurance and compliance work has revealed that issues associated with intangibles are present in all industries.
The ATO’s focus on significant transactions or change events such as the centralisation of intellectual property and key risk indicators. The ATO will be looking for the commercial rationale for changes and the relevance of the transfer pricing and anti-avoidance provisions.
We expect to receive consultation feedback by 18 December 2020. The draft for public consultation is expected to be released in early April.
Learnings from the GST Analytical Tool (GAT) ؘ– application in the Energy and Resources sector
The GST analytical tool is used by the ATO as part of our tax assurance reviews for Top 100 and Top 1,000 taxpayers in the large market. The GAT applies a standardised methodology to compare the audited financial statements with the GST reporting provided to the ATO via the business activity statements. The GAT assists the ATO with understanding the various streams of economic activity for each taxpayer, and how these are treated for GST.
The ATO encourages taxpayers in the energy and resources sector who may be part of the Top 100 or Top 1,000 populations to work collaboratively with us to apply the GAT. It will be mandatory for most assurance reviews, with the exception of those taxpayers that make predominately input taxed supplies.
The GAT methodology, including the supporting working papers and an illustrative GAT example are available for taxpayers and their advisors, and further guidance with respect to joint ventures will be released shortly. The ATO has been running one-on-one workshops with Top 100 taxpayers on the GAT methodology, and walking taxpayers through the preparatory work required, including, the information requirements as part of these workshops.
Of the 10 GAT analyses completed so far, 70% have reached Stage 3 and 30% have reached Stage 2.
The Corporate Tax Association (CTA) has been running workshops with their members on the application of the GAT. The ATO is working with the CTA on developing a frequently asked questions document. Common questions include:
- How do taxpayers reach a Stage 2 rating? The key element is understanding the adjustments between the financial statements and the business activity statements, and these need to be supported by reconciliation work-papers and any other objective evidence.
- What is the difference between Stage 1, 2 and 3 ratings? The staged system is like the governance ratings. The ATO has a ratings guide which will provide further information for taxpayers. The focus is on our understanding of the adjustments and the objective evidence to support the variances.
- Is the GAT essential? It will be applied in all Top 100 cases, and a selection of 1,000 cases except for those entities that make predominantly input taxed supplies.
The ATO welcomes feedback on the application of the GAT, and once we finalise the joint venture guidance, we would appreciate the opportunity to speak again with the working group members on the application of the justified trust approach to these types of arrangements more broadly, including the application of the GAT.
It is important to recognise the limitations of using this ‘top down’ analytical approach to taxpayer group activities and therefore requires a reasonable approach and a high level of materiality when considering potential variances. For example, it is not envisaged that the ATO or taxpayers will be required to explain all possible variances that arise from the results. In other words, this process is not viewed as a necessary reconciliation to support taxpayer GST compliance.
Other matters
New temporary full expensing measures
The ATO is in the process of updating website guidance to provide further information to help taxpayers apply the temporary full expensing measures. This includes guidance on the aggregated turnover test.
Significant global entity
More website guidance will be provided on the expanded definition of significant global entity (SGE).
Policy development
Members asked about the involvement of the ATO in the development of policy. Due to time constraints, this matter will be discussed at the next meeting. The ATO noted that whilst it works closely with Treasury, the ATO is not responsible for policy development.
Transparency
Members noted that they are keen to understand how the ATO can do more to support transparency by large corporates.
The ATO actively encourages large corporate groups to adopt greater transparency, including the Voluntary Tax Transparency Code. This includes entities treated as companies for Australian tax purposes and foreign multinationals with operations in Australia.
There are a range of other measures aimed at increasing tax transparency to the public, including the corporate tax transparency measure and the requirement for SGEs to lodge general purpose financial statements. The ATO also prepares significant information and analysis at a population level to assist the community position the raw company by company information. The ATO also encourages corporates to prepare some form of contextual information to flesh out the limited data.
The ATO would be interested in understanding what taxpayers and the tax professional associations are doing to encourage greater transparency (including adoption of the Voluntary Tax Transparency Code) and the quality and consistency of disclosures.
Revisiting the ATO consultation protocol and future direction and key focus areas (survey results and terms of reference)
The ATO thanked the working group members for their participation in the survey. The results show that the members think the group should continue to exist and that the terms of reference reflect the purpose of the group.
Changes proposed by members include:
- co-design rather than one-way traffic where members are engaged after the conclusion has already been reached
- seeking more feedback from industry professionals
- frequency of meetings – align with conference or event, or based on key issues and public advice and guidance products relevant to the industry
- inclusion of Treasury participants in consultations
- discussion of compliance issues for medium sized companies.
Other business
The ATO invited members to propose agenda items for the next meeting, including key industry issues.
Australian Petroleum Production and Exploration Association (APPEA) suggested decommissioning as an agenda item. APPEA seeks a conversation with the ATO as part of an agenda item or a sub-working-group. APPEA noted that if the ATO wishes industry updates, the members are to be involved as early as possible.
Attendees
Organisation |
Attendees |
|---|---|
ATO |
Rebecca Saint (Chair), Public Groups and International |
ATO |
Belinda Darling, Public Groups and International |
ATO |
Chris Ferguson, Public Groups and International |
ATO |
Faith Harako, Public Groups and International |
ATO |
Judy Morris, Public Groups and International |
Association of Mining and Exploration Companies |
David Ocello |
Australian Petroleum Production and Exploration Association |
Marc Lewis |
Australian Petroleum Production and Exploration Association |
Simon Staples |
Australian Petroleum Production and Exploration Association |
Therese Stephenson |
Chartered Accountants Australia and New Zealand |
Janelle O'Hare |
CPA Australia |
Gordon Thring |
Institute of Public Accountants |
Basil Mistilis |
Law Council of Australia |
Craig Bowie |
Minerals Council of Australia |
Dominic Smith |
Minerals Council of Australia |
Premila Roe |
Minerals Council of Australia |
Ross Lyons |
The Tax Institute |
Catherine Dean |
Treasury |
Oliver Mispelhorn |
Apologies
Organisation |
Members |
|---|---|
Association of Mining and Exploration Companies |
Warren Pearce |
Australian Petroleum Production and Exploration Association |
Sean Jermy |
Department of Industry, Science, Energy and Resources |
Joshua Reakes |
Minerals Council of Australia |
Anthony Portas |
Treasury |
Simon Winckler |