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  • Australian Banking Association Steering Group minutes – 27 August 2018

    Meeting details

    The meeting was held on 27 August 2018 via Telepresence and chaired by Tony Pearson, Australian Banking Association.

    Attendees

    Organisation

    Name

    Australian Banking Association

    Aidan O'Shaughnessy

    Tony Pearson

    Australia and New Zealand Banking Group

    Darren Norman

    Bank of Queensland

    Dominic Grimson

    Bendigo and Adelaide Bank

    Ben Edwards

    Commonwealth Bank of Australia

    Gavin Marjoram

    Macquarie Bank

    Ernest Chang

    National Australia Bank

    Steve Southon

    Westpac Banking Corporation

    Michael Barbour

    ATO

    Jeremy Hirschhorn

    Anthony Marvello

    Sandra Farhat

    Marcus Ryan

    David White

    James Campbell

    Dean Lynch

    Jonathan Tang

    Arya Heryanto

    Melanie Sinn

    Arthur Wong

    Apologies

    Organisation

    Name

    Suncorp Bank

    Kate Locke

    ATO

    Yoke-Cheng Vaile

    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.

    1. Opening and introductions

    The Chairperson opened the meeting and welcomed attendees.

    2. Minutes of prior meeting and action items

    The draft minutes from the last ABA/ATO Steering Group meeting on 8 May 2018 were confirmed.

    There were no outstanding action items from the previous meeting.

    ABA members were reminded that going forward, minutes of the ABA/ATO Steering Group meetings will be published on the ATO website, as part of the ATO’s consultation framework.

    3. Emerging issues and trends in banking and finance

    The ATO made the following comments:

    • The ATO is yet to receive formal confirmation as to how the recent changes in the Ministry will affect the ATO
    • The final report of the Corporate Avoidance Tax Inquiry recommended that the ATO should disclose significant tax settlements in a dedicated section of the Annual Report. It was noted that this information was already captured as part of the ATO’s Annual Reports
    • Discussion was had around the impact of the Financial Services Royal Commission on the ATO
    • At the May 2018 Senate Estimates, a parliamentary order was issued to the Commissioner of Taxation to provide details regarding the tax history of a particular financial institution. The ATO was unsuccessful in its contention that information of this nature is subject to public interest immunity, and confidentially provisions in the tax law. A subsequent parliamentary order has been issued requiring the Commissioner to disclose details of financial sector entities with an annual turnover of over $100m that did not lodge tax returns and did not report nil tax payable between 2000 and 2016
    • The large and small superannuation funds tax gap will be released in the coming months
    • The next corporate tax transparency report is expected to be released in December 2018

    4. Tax challenges of the digitalised economy (BEPS Action Item 1)

    • ABA members noted a draft discussion paper prepared by the International Banking Federation (IBFed) on the tax challenges of the digitalised economy as relevant to banks. The ABA will circulate the IBFed’s discussion paper to the ATO once it is finalised.
    • If the OECD Inclusive Framework on BEPS is unable to reach a consensus on the tax treatment of digital transactions by 2020, inconsistent unilateral action by individual countries may lead to double or multiple-taxation.
    • A discussion paper exploring options for taxing digital businesses in Australia was announced in the 2018-19 Budget. It is unclear to what extent the recent change in Ministry will impact the release of this paper.
    • Further consultation between the ATO and ABA members will be arranged as required.

    Action item

    27082018-3-1

    Due date

    On-going

    Responsibility

    ABA

    Tax challenges of the Digital Economy

    ABA to circulate the IBFed’s discussion paper to attendees once finalised.

    5. 2019 ATO Strategy for financial institutions

    The ATO provided a high level overview of the 2018-19 PG&I Strategy for the banking and finance (B&F) industry. This includes:

    • Continuation of Streamlined Assurance Reviews for Top 1000 taxpayers
    • Continued management of Top 100 taxpayers through ACA/PCR arrangements, including provision of the Tax Assurance Report
    • Light touch due diligence to obtain better data, with the aim of reducing the amount of information requests issued.

    In relation to specific B&F issues, key areas of focus include:

    • Branch attribution in relation to the allocation of head office expenses, and funding costs. There is potential for guidance in relation to these issues
    • Pricing of cross border related party debt finance, including the impact of NZ interest limitation rules on the B&F industry
    • Tax issues associated with capital management, in particular hybrid buy-back/redemption tax issues where there is scope for guidance or law reform. See Hybrid Buy-backs below
    • Tax issues associated with OBU, including requests for OBU registration. The ATO is also currently assisting Treasury on the OECD Forum on Harmful Tax Practices review of Australia’s OBU regime. See OECD OBU review below
    • Tax impacts (e.g. on Taxation of Financial Arrangement rules) as a result of changes to accounting standard AASB 9
    • Major Bank Levy post implementation review
    • Tax issues resulting from action taken by other government agencies
    • Impact and transition to hybrid mismatch rules which commence on 1 January 2019

    A document outlining PG&I’s 2018-19 B&F Industry Strategy will be distributed to the ABA in the coming weeks.

    The ATO will provide a summary of issues to ABA members in relation to the tax impacts of AASB 9. A follow-up out-of-session discussion will be conducted as necessary.

    Action item

    27082018-3-2

    Due date

    On-going

    Responsibility

    ABA

    ATO to provide a summary of issues to ABA members on the tax impacts of AASB 9.

    6. ATO Justified Trust – Income tax vs GST

    Discussion focused on the concept of justified trust (JT), and its application to GST and income tax.

    It was noted that:

    • Under the JT methodology, the ATO considers four key focus areas:
      1. Understanding a taxpayer’s tax governance framework
      2. Identifying tax risks flagged to the market (e.g. taxpayer alerts, practical compliance guidelines, or public rulings)
      3. Understanding significant and new transactions
      4. Understanding why accounting and tax results vary
       
    • The ATO is seeking a greater degree of alignment in its review of GST and income tax matters under JT. Relevantly for GST, the ATO will be seeking to move to a top-down method when analysing the variation between financial and tax performance (e.g. analysis of sales and acquisition data compared to the GST paid), instead of its traditional bottom-up reconciliation approach.
    • The ATO also intends to expand the JT approach across other taxes.

    7. OECD OBU review

    • The ATO is working with Treasury to assist the OECD’s review of Australia’s OBU regime under the Forum on Harmful Tax Practices (FHTP). While the review is underway, it is business as usual for the ATO in administering the OBU regime.
    • The FHTP is scheduled to next meet in October 2018 to discuss the OBU Review. More information on the OECD Review should be released in the coming weeks.

    8. Hybrid buy-backs

    • Hybrid buyback and redemption offers raise a number of issues associated with the operation of the market value substitution rule and CGT rules. Taxpayers are encouraged to engage with the ATO for certainty on the tax treatment of their specific transactions.
    • Scoping is underway for a longer term solution to address these tax issues – for example, through law reform, use of the Commissioner’s remedial power, or a Practical Compliance Guideline.

    9. Update on AFI subsidiary exemption

    • The draft tax determination (TD) on the interpretation of the second limb of the term ‘financial intermediary business’ for the purposes of subsection 449(1) of the ITAA 1936 is expected to be circulated to the ABA for comment in September 2018.

    Action item

    27082018-3-3

    Due date

    ASAP

    Responsibility

    ATO

    Update on AFI subsidiary exemption

    ATO to send draft TD to the ABA for comment.

    10. Other business

    • The next ABA/ATO Steering Group meeting is scheduled for Thursday 15 November 2018, 2:00pm – 4:00pm.
    • Some agenda items were not discussed during the meeting due to time constraints. An update on these items will be provided out of session.

    The meeting concluded at 3:40pm.

    Updates provided post-meeting

    1. Update on liquidity management consultation

    • The ATO provided an overview of the compliance framework and principles outlined in the liquidity discussion paper at the last ABA meeting of May 2018.
    • A follow-up working group meeting was held with AFMA members and advisors on 26 June 2018. The objectives, scope and compliance framework proposed by the discussion paper were discussed. Discussion was also had around the varying models of liquidity management.
    • The working group members agreed to send through written feedback in relation to the varying liquidity model to ensure the compliance principles of the draft discussion paper reflect commercial practice. The ATO is yet to receive this information, and members are reminded to submit written feedback as soon as possible.

    2. Developing a standard approach to book to tax reconciliation

    • At the previous meeting, the ATO signalled to the ABA that work would be commencing on the development of a standard approach to book to tax reconciliation.
    • Meetings have been held with a number of banks to discuss their book to tax reconciliation process in the preparation of their tax returns.
    • The ATO is developing an expectations statement for the banks which will assist us in our move to a light touch due diligence approach to the book to tax reconciliation review process for the major banks.
      Last modified: 08 Feb 2019QC 57868