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  • Australian Banking Association Group minutes - 8 May 2018

    Meeting details

    The meeting was held on 8 May 2018 via Telepresence and chaired by Anthony Marvello, Assistant Commissioner, Public Groups and International.

    Attendees

    Organisation

    Name

    Australian Banking Association

    Aidan O'Shaughnessy

    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

    Mark Ferrier

    Westpac Banking Corporation

    Michael Barbour

    ATO

    Anthony Marvello

    Marcus Ryan

    Anna-Maria Stephens

    James Campbell

    Melissa Gile

    Melanie Sinn

    Arthur Wong

    Yoke-Cheng Vaile

    Arya Heryanto

    Reuben Pace

    David White

    Chris Leech

    Brett Martin

    Michael Karavas

    Apologies

    Organisation

    Name

    National Australia Bank

    Steve Southon

    Suncorp Bank

    Kate Locke

    ATO

    Jonathan Tang

    Christina Jong

    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 6 March 2018 were confirmed.

    Updates were provided on the following action items:

    1. 06032018-4-1: Tax residence of foreign subsidiaries – TR 2017/D2: The ATO will seek an update on the status of this TR.
      Update: Subsequent to this meeting, TR 2017/D2 was published in its final form as TR 2018/5 on 27 June 2018, together with draft Practical Compliance Guideline PCG 2018/D3 Income Tax: central management and control test of residency: identifying where a company's central management and control is located.
    2. 09112017-3-1: Addressing the Tax Challenges of the Digital Economy (OECD BEPS Action 1): The ATO will arrange an out-of-session meeting with the ABA and its members to discuss the banks’ concerns around digital economy issues once the OECD releases its next guidance document.
      Update: The OECD released its interim report on the tax challenges arising from digitalisationExternal Link on 16 March 2018. It was agreed to discuss this matter at the next Steering Group meeting. Background material will be provided by ABA members prior to the discussion.

    ABA Members were advised 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. The ABA and ATO will liaise to discuss the details of this arrangement.

    Action item:

    08052018-2-1

    Due date:  

    As soon as possible

    Responsibility  

    ATO and ABA

    Publication of ABA/ATO Steering Group minutes

    ABA and ATO to discuss the details of publishing of Steering Group minutes.

    Action item:  

    08052018-2-2

    Due date:  

    Before the next meeting

    Responsibility  

    ATO and ABA

    Tax Challenges of the Digital Economy

    ABA and ATO to agree on discussion points for this agenda item at the next ABA/ATO Steering Group meeting.

    3. Anti-hybrid rules

    • The ATO is liaising with Treasury to finalise the Bill and the Explanatory Memorandum. A practical compliance guideline is also being developed to provide guidance on how the ATO may provide relief in respect of the application of Part IVA where taxpayers undertake business restructures in response to the hybrid mismatch rules.
    • The hybrid mismatch rules are expected to take effect from 1 January 2019.
    • Taxpayers are invited to engage early with the ATO, in particular where there is concern that the hybrid mismatch rules may have undesired impacts on other areas of tax law (e.g. forex and CFC rules). However, the ATO is not able to issue rulings on the hybrid mismatch rules until the rules receive Royal Assent.
    • Members can contact hybridmismatches@ato.gov.au for any queries on the proposed anti-hybrid rules, including proposed restructures to avoid the application of the hybrid mismatch rules.

    4. ATO risk focus areas

    Discussion was had around emerging risks and/or trends relevant to the banking and finance (B&F) industry. The ATO advised in relation to the B&F industry, some focus areas are:

    • the book-to-tax reconciliation process (to be discussed later in the meeting)
    • branch attribution issues associated with head office expense allocation, in particular, the methodology and pricing used to allocate costs to offshore branches
    • taxation issues associated with cross-border related party financing arrangements (e.g. those raised in PCG 2017/4)
    • other focus areas include offshore banking units, capital management, post-issuance assurance activity on s 215-10 arrangements, share buybacks, derivatives trading, restructures, sales and divestments, research and development, and post-implementation assurance on the major bank levy.

    It was agreed that emerging issues and trends would be discussed as a standing agenda item in the ABA/ATO Steering Group meetings going forward.

    The ATO also provided an update on New Zealand’s proposed interest limitation rules:

    • The New Zealand Parliament is on track to pass the Taxation (Neutralising Base Erosion and Profit Shifting) Bill by the end of June 2018, for effect from 1 July 2018. The New Zealand Internal Revenue Department is currently accepting submissions from industry groups on the Bill
    • While the proposed rules do not have targeted application to the banking industry it was acknowledged that it could have implications for banks e.g. where a bank is structured into New Zealand through a non-operating holding company. The ATO will need to consider its approach, where taxpayers do not wish to restructure to avoid the application of the proposed interest limitation rules, including any double taxation issues that may arise.
    Action item  

    08052018-3-1

    Due date  

    Next meeting

    Responsibility  

    ATO and ABA

    ATO Risk focus areas

    It was agreed for discussion on emerging issues and trends in the B&F industry to be a standing agenda item in ABA/ATO Steering Group meetings going forward.

    Action item  

    08052018-3-2

    Due date  

    Ongoing

    Responsibility  

    ATO

    New Zealand Interest Limitation rules

    ATO to continue to monitor and assess the possible impact of the NZ Interest Limitation rules on the B&F industry.

    5. ATO transformation or 2020

    This agenda item was addressed in a separate discussion between Jeremy Hirschhorn and the ABA members.

    6. Update on liquidity charges

    The ATO provided an update on the liquidity management discussion paper. A copy of the paper was provided to attendees prior to the meeting.

    • Further to ATO IDs 2012/90, 2012/91 and 2012/92, the discussion paper outlines the limited circumstances in which the cost of liquidity management, may be deductible to the Australian operations of multinational banks, and sets out the Commissioner’s expectations regarding the factors that must be present before a deduction for liquidity costs may be claimed.
    • Formal consultation on the discussion paper will be managed by the ATO in collaboration with the Australian Financial Market Association. The first working group meeting is proposed for late May – early June, and will consist of representatives from both domestic and foreign financial institutions.
    • Members were invited to provide feedback on any issues raised in the discussion paper, in particular the impact of APRA’s prudential framework on the principles outlined in the discussion paper.

    7. Update on Australian financial institution (AFI) subsidiary exemption

    • A tax determination (TD) has been drafted on the interpretation of the second limb of the term ‘financial intermediary business’ as defined in section 317 of the ITAA 1936, for the purposes of the AFI subsidiary exemption in subsection 449(1) of the ITAA 1936.
    • The draft TD is currently under ATO’s internal review and will be provided to the ABA for feedback and comments.
    • The ATO will request 2016 and 2017 data from the major banks via the ABA to update the information previously obtained and understand the extent to which the AFI subsidiary exemption is currently used.
    Action item  

    08052018-3-3

    Due date  

    As soon as possible

    Responsibility  

    ATO

    Australian financial institution (AFI) subsidiary exemption

    ATO to issue questionnaires to the banks via the ABA to obtain further information on the extent to which the AFI subsidiary exemption is currently used by the Australian banks.

    8. Developing a standard approach to book-to-tax reconciliation

    As part of achieving justified trust, the ATO is seeking assurance over the book-to-tax reconciliation process by:

    • increasing consistency and quality in the information received from each bank; although it is recognised that perfect consistency is not possible due to the varying systems and processes adopted by each bank
    • ensuring that the analysis undertaken by the ATO across the banks is consistent.

    Some of the current challenges in the Profit and Loss to Taxable Income reconciliation include:

    • reconciliation of global statutory accounts to tax consolidated group level profit and loss accounts – this is of particular relevance due to the Effective Tax Bourne calculation for large market participants
    • inconsistencies in how adjustments relating to Branch accounts are backed out in the book-to-tax process
    • difficulties in unpacking high level accounts to a level which allows an understanding of the rationale and tax treatment behind the account
    • the use of net accounts, which may obscure underlying material data
    • aggregation of information, such as combining many entities into one financial statement
    • lack of explanation or description of certain accounts.

    The ATO will organise one-on-one sessions with the major banks to discuss and develop a standard approach to book to tax reconciliation.

    Action item  

    08052018-3-4

    Due date  

    As soon as possible

    Responsibility  

    ATO

    Developing a standard approach to book-to-tax reconciliation

    ATO to organise one-on-one sessions with the major banks to discuss and develop a standard approach to book to tax reconciliation.

    9. Single Touch Payroll

    • The ATO provided an update on the progress of Single Touch Payroll (STP), which is commencing from 1 July 2018 for employers with 20 or more employees.
    • The ATO is actively monitoring the Top 20 payroll software providers. The majority of the providers are on track to be STP-ready by 1 July 2018. Where payroll software providers are unable to meet the deadline, providers can liaise with the ATO to obtain an official deferral. This deferral will cover the clients (i.e. end-users) of the relevant payroll software providers who are not STP ready; there is no need for individual employers to contact the ATO to request a deferral. The ATO has already issued several deferral letters to a number of payroll software providers.

    10. eSIGN – adoption by financial institutions

    • The ATO is working with other government agencies on the voluntary adoption of Electronic Statutory Information and Garnishee Notices (eSIGN) by financial institutions. eSIGN will enable financial institutions to respond electronically to information and garnishee notices to government agencies.
    • Benefits of eSIGN include: risk mitigation (in particular for criminal investigations), reduced future costs, increased productivity benefits; and increased security and privacy.
    • The ATO will meet with a number of banks over the next few months to discuss this voluntary adoption.

    11. Other business

    Action item  

    08052018-4-1

    Due date  

    As soon as possible

    Responsibility  

    ATO and ABA

    Confirm next meetings

    ATO and ABA to confirm the date and time for the final two meetings in 2018.

     

    Update:

    The next two meeting dates have been confirmed:

    Monday 27 August 2:00 pm – 4:00 pm

    Thursday 15 November 2:00pm – 4:00pm

      Last modified: 12 Feb 2019QC 57289