• NTLG Minutes - 17 March 2016 meeting

    Meeting details

    Venue:

    Australian Taxation Office - Canberra
    McKay Boardroom, Level 10, Amungula Building
    26 Narellan Street
    Canberra City ACT 2601

    Date:

    17 March 2016

    Start:

    9:30am

    Finish:

    3:30pm

    Chair:

    Andrew Mills, Second Commissioner, Law Design and Practice Group

    Co-chair:

    Grant Wardell-Johnson, Chartered Accountants Australia and New Zealand

    Attendees

    Organisation

    Name

    ATO

    • Neil Olesen, Second Commissioner, Client Engagement Group
    • Lesley Slevin, Assistant Commissioner, Design and Change Management
    • Jorge del Busto, Senior Executive Advisor, Tax Counsel Network
    • Shirley Forlin, Senior Director, ATO Consultation Hub, Design and Change Management (Secretariat)
    • Robyn Theacos, Senior Director, Design and Change Management (Secretariat)
     

    Treasury

    • Rob Heferen, Deputy Secretary, Revenue Group
    • Simon Duggan, Division Head, Corporate International Tax Division 
     

    Chartered Accountants Australia and New Zealand

    Michael Croker

    Corporate Tax Association

    Michelle de Niese

    CPA Australia

    Paul Drum

    Institute of Public Accountants

    Tony Greco

    Law Council of Australia

    • Adrian Varasso
    • Clint Harding
     

    The Tax Institute

    • Arthur Athanasiou
    • Tim Neilson
    • Stephanie Caredes (Professional Bodies' Coordinator)
     

    Additional guest attendees

    Organisation

    Name

    ATO

    • Michael Cranston, Deputy Commissioner, Private Groups and High Wealth Individuals
      (Agenda item 1.3)
    • Lyndall Crompton, Assistant Commissioner, International Programs, Public Groups International (Agenda item 1.4) (via teleconference)
    • Steven Fahey, Director, International Engagement, Public Groups International (Agenda item 1.4)
    • Jacqui Curtis, A/g Chief Operating Officer
      (Agenda item 2.1)
    • Erin Holland, Deputy Commissioner, Tax Practitioner & Lodgment Strategy (Agenda item 2.1)
    • Michelle Crosby, Deputy Commissioner, Customer Services and Solutions and ATO Digital Officer (Agenda item 2.1) (via teleconference)
    • Will Day, Deputy Chief Tax Counsel, Public Advice and Guidance (Agenda item 2.2) 
     

    Minutes

    Meeting open - attendance and apologies

    End of example

    Second Commissioner Andrew Mills opened the meeting and welcomed new members Arthur Athanasiou, representing The Tax Institute; Clint Harding representing the Law Council of Australia; Simon Duggan, Division Head from the Corporate International Tax Division in Treasury and Lesley Slevin, Assistant Commissioner, Design and Change Management.

    The Chair noted that this will be the last meeting for:

    • Shirley Forlin, who is retiring at the end of March 2016, and conveyed best wishes for her. He noted that Shirley has led the Consultation Hub since its establishment in 2013 and that Robyn Theacos will be taking over Shirley’s role in the Consultation Hub and as Secretariat for the NTLG
    • Rob Heferen, who is finishing his work with Treasury, wishing him well in his new role at the Department of Industry, Innovation and Science. The Chair thanked Rob for his frank contributions, which have greatly assisted the effectiveness of discussions at the NTLG.

    Co-Chair Grant Wardell-Johnson endorsed the Chair’s comments on Rob Heferen, noting the great intellectual rigor he has brought to the tax debate and his open, frank and savvy style, for which he was commended and greatly appreciated.

    The Co-Chair noted that with lesser discussions on tax reform and the BEPS debate being now on a different path, there was scope to revisit a number of second level system wide issues, such as CFC rules, Division 775 and others.

    Key events December 2015 to March 2016

    The summary of key events to June 2016 provided at Attachment A for the information of members was noted.

    Members queried whether the scheduled ATO appearance before the Inquiry into External Scrutiny of the ATO on 11 May 2016, the day after the Budget, was susceptible to be rescheduled, as they may be asked to attend the hearing. It was noted that the day reflected advice received the Committee’s Secretariat but that potential changes cannot be ruled out.

    NTLG action items

    Members agreed that the following action items could be closed.

    NTLG 1512/1

    Establishment of cyber security limited life working group

    Members noted the update.

    CAANZ representative Michael Croker (Co-Chair of the working group) also briefed members on the working group’s meeting held on 16 March 2016 and shared with members a confidential draft SWOT analysis that CAANZ had tabled at the meeting, highlighting the importance of cyber security and the common threats shared by all stakeholders with an interest in data security.

    NTLG 1512/2

    Finalise draft NTLG Charter

    Members noted that the draft Charter had been finalised and published and available on the ATO’s website.

    Segment 1: Issues of significance in the tax law interpretation, policy and law design space

    Agenda item 1.1: Changes in environmental factors "On and Over the Horizon"

    End of example

    Presentation by the Corporate Tax Association on The management of information requests and global dispute resolution options

    Michelle de Niese noted that she intended to cover issues related to the management of information requests and global dispute resolution options that are likely to arise over the next 10-15 years. The objective is to identify potential information gaps and risks and how to address them.

    The context is given by Country-by-country (CbC) reporting of master and local files, with rulings being a secondary issue. Australia is ahead with legislation already in place implementing CbC reporting. Once the information is put together and shared between tax authorities, questions will inevitably arise and they will need to be managed, pointing to an early gap in the process.

    Jurisdictions with different backgrounds, cultures and experiences may be involved in disputes, which will also need to be managed, constituting another gap in the process. 2013 ATO data on the level of related party transactions between Australia and the rest of the world shows that 94 per cent of related party revenue and 86 per cent of related party expense is with 20 countries, 5 of which are non-treaty countries.

    Only 31 of the 34 OECD countries have signed the Multilateral Competent Authority Agreements (MCAA) on the automatic exchange of CbC reports and Common Reporting Standards, with the US, New Zealand and Turkey still pending. Under an inclusive BEPS implementation framework, non-OECD countries, like China, may join the MCAA. Treasury undertook to inform members which non-OECD countries have joined the automatic exchange of information. With countries being in different stages of implementation of CbC reporting, there is a need for a reasonable approach with transitional rules facilitating alignment between early and late adopters.

    Members commented on the need to facilitate understanding by all jurisdictions involved of the information being shared and also to ensure its security and confidentiality, in particular the local files beyond the master files. This pointed to another gap that needs addressing, in particular the need for robust protocols.

    Regarding dispute resolution, the limits of mandatory arbitration were noted. As per the 2013 ATO data on the level of related party transactions between Australia and the rest of the world, only 44 per cent of related party revenues and 52 per cent of related party expenses are with jurisdictions that have committed to a mandatory binding mutually agreed procedures (MAPs) arbitration in their tax treaties.

    Members suggested that there might be a role for Australia to explore a ‘best practice’ model for dealing with requests arising from information provided through the implementation of CbC reporting. It would be better to have a process rather than having random responses impacting on current resources. The development of a best practice model could potentially involve working with the New Zealand Inland Revenue as part of Trans-Tasman dialogue. Members agreed that Simon Duggan will explore with Mark Konza the possibility of setting up the suggested ‘best practice’ model for dealing with information requests arising from the implementation of CbC reporting.

    Action item:

    NTLG 1603/1

    Due Date:

    14 June 2016 NTLG meeting

    Responsibility: Simon Duggan with Deputy Commissioner, International
    (Mark Konza)

    Dealing with information requests arising from the implementation of CbC reporting

    Treasury representative Simon Duggan and Mark Konza to explore a ‘best practice’ model for dealing with information requests arising from information provided through the implementation of CbC reporting.

    Post-meeting secretariat note: The information on countries that have formally agreed to exchange Country by Country information automatically was sent to NTLG members on 31 March 2016.

    Agenda item 1.2: Treasury reports

    End of example

    Rob Heferen briefed members on the work undertaken by Treasury supporting the consideration by Government of options for tax reform that are aimed at promoting economic growth and job creation.

    Regarding other points of interest raised by members, it was noted:

    • Proposed new tax task force - consideration is being given at how to deal with current limits on the engagement of new staff.
    • Proposed whistle-blower legislation - what is being sought is to replicate the same level of protection across the Acts, as there is a gap in tax. While a reward element had been considered, similar to experiences in the US and the UK, this had proved difficult to administer. Members queried how the proposed whistle-blower legislation would work in the context of other provisions requiring professional judgment, such as Part IVA. Treasury noted there will be consultations on the proposed legislation which will cover, amongst other things, the size of entities and the type of behaviours that will be covered.
    • Submissions received on Treasury’s consultations on the BEPS transfer pricing guidelines were broadly supportive of proposals. Key issue being considered is the start date.
    • Board of Tax consultations on the anti-hybrid rules - the key issue being considered is dealing with regulatory capital. The Board’s report is expected to be delivered to Government by the end of March 2016. The Board’s report on the voluntary tax transparency code is currently being considered by Government.
    • Legislative program - the priority is to progress the innovation related legislation within the limited sitting days available. Work continues on examining potential changes to the same business test for carry-forward company tax losses.

    Agenda item 1.3: Corporate Tax Issues

    End of example

    Commissioner’s address at Senate Estimates Committee on 10 February 2016

    Second Commissioner Neil Olesen noted that the Commissioner’s address at Senate Estimates was consistent with the messages delivered as part of the ATO’s strategy. For the majority of people and businesses who do the right thing, we continue to make their experience as easy as we can. This means being helpful, open, professional, purposeful and pragmatic, engaging early and constructively wherever we can. It is also important that the community has confidence in the system, knowing that corporates are paying their fair share of tax. In the small minority of cases where we see concerning behaviour and evasive tactics, the ATO will challenge them and has powers at its disposal to bring things to a head.

    Members commented that more focus should be placed on highlighting the strength of the system, which will assist in rebuilding trust in the corporate tax system. It was also noted that reporting on the cash economy, for which tax gap analysis will be helpful, will contribute to bring more balance to the tax debate.

    Tax transparency reports

    Michael Cranston briefed the meeting on the tax transparency reports and the planned publishing on 22 March 2016 of the information on the 321 Australian owned resident private companies with total income of $200 million or more for 2013-14.

    The ATO has been seeking feedback from some accounting firms on the anticipated reactions to the publishing of the transparency reports. Together with publishing the data, the ATO will provide three explanatory guidance documents to contextualize the information covering (i) how the law and the tax system works, (ii) background information on industry knowledge and (iii) further explanations of the data being published.

    The Commissioner will also be briefing the media to further assist in the understanding of the published data. The contextualizing guides will explain the various reasons why corporates may not be paying tax. While 30 per cent of the reporting private corporates do not pay tax, a result which is consistent with that of the reporting by public companies, the ninety-eight companies that reported nil tax are associated with other entities not included in this measure that reported over $700 million in income tax. Of the 321 private corporates, 40 have been exempted from reporting to ASIC under the 1995 grandfathered provisions, so this will be the first time these companies are on the public record.

    The ATO has been encouraging private corporates to provide in their websites further explanations of the published data. In general, younger wealthy individuals are more comfortable with public disclosure than previous generations.

    Members commended the ATO for the work done on the transparency reports, including on the explanatory guides to facilitate understanding of the information being published.

    Agenda item 1.4: International related initiatives

    End of example

    Co-Chair Grant Wardell-Johnson noted that external members had submitted a draft discussion note to contribute to the consideration of the costs and benefits for Australia of adopting mandatory disclosure rules dealing with aggressive tax planning. The note was prepared by externals on their own initiative and was independent of any process undertaken by the ATO.

    Over the past 15 years there have been a number of administrative and legislative responses to marketed tax schemes that have changed the situation profoundly. The introduction of product rulings in the early 2000s and of the promoter penalty regime in 2007, the issuing of Taxpayer alerts, the CFC rules, transferor trust rules , the general anti-avoidance provisions and Project Wickenby have all assisted in creating a more effective environment for dealing with tax schemes.

    There remain some areas of concern, such as cost base step ups, wash sales and others, but they are so specific that they are unlikely to fit into a mandatory disclosure regime. On the other hand, mandatory disclosure rules may bring reputational damage, as occurred in the UK in the Margaret Hodge led inquiry, and can increase the cost of compliance for taxpayers. In case they were implemented, a limited gateway approach would be preferable to a hallmark approach as it would be more definitive.

    It was noted that the ATO has been in consultations with Treasury since mid-January and it is expected that a discussion paper will be issued for public consultation. Treasury is mindful for any potential duplication or overlap to be taken into account and does not intend to add to compliance costs.

    Segment 2: Strategic initiatives to improve the tax system and its administration

    Agenda item 2.1: The Reinventing the ATO program

    End of example

    The Reinventing the ATO program

    Jacqui Curtis noted that 2016-17 is the year when the ATO will be delivering significant change under its Reinventing program. This follows from 11 workshops held in 2015 where feedback was sought from all groups included in the blueprint on their experiences, the main irritants they faced and the priority initiatives that would make the most positive difference.

    In May 2016 the ATO will publish the road map of expected deliverables during 2016-17. The program of work is being driven by co-design with stakeholders. With respect to tax agents, the priorities are building a trusted relationship model, providing additional functionality in their practice management software and fixing issues with the Portal.

    Work is also continuing on AUSkey and MyGov related improvements as part of the digital by default program. A Beta site has been implemented as an online interaction tool to obtain feedback on the design of a new Digital Business Account, which will allow businesses to access services in a secure online channel. A new virtual assistant, Alex, has been made available 24/7 on ato.gov.au to help clients find information and support when they need it freeing up call centre staff for more complex queries.

    A communication strategy will also be implemented to make people aware of the new digital services being offered and assist them in their use. Work with our partners also continues in the context of the future of the tax profession and the journey to 2020 working group. A handout outlining a summary of achievements and expected deliverables under the Reinventing the ATO program was provided to members, noting that an electronic version will be distributed to NTLG members out of session.

    Post-meeting secretariat note: The electronic version with a summary of achievements and expected deliverables under the Reinventing the ATO program was sent to NTLG members on 7 April 2016.

    Addressing tax practitioners’ concerns regarding MyGov, the Portal and transitioning to better platforms (including brief on tailored engagement and support program of change)

    The Chair noted that the Commissioner considered this to be a very important topic but was not available to address it at the meeting, as had been requested by members. In his absence, Erin Holland provided a summary of the ATO’s strategies to address the concerns raised.

    Three strategies are being implemented. The first one, fixing the basics; this strategy deals with issues related to, for example, accessing the Portal, the clients’ correspondence list and the interactions with MyGov. A new SBR-enabled practice management lodgment service is being introduced, but leaving the former electronic lodgment service as a safety net available until March 2017.

    A second strategy deals with tax practitioner engagement, marketing and communication. This includes things like the 45 planned open forums in capital cities and regional towns over the next six months.

    A third strategy deals with developing a trusted advisory relationship, developing criteria to determine who can be in that category, including requirements to keep security in communications. Three pilots will be commencing at the end of the current financial year.

    A complex resolution unit has also been set up to answer queries on complex issues within a five day timeframe.

    Members commented that the majority of complaints come from a reduced number of tax agents and are mostly on administrative issues. These have been mostly related to a perception that the ATO was planning to break the agent / client nexus. These perceptions are being addressed through improvements to MyGov interactions and the clients’ correspondence list.

    Contemporary Digital Services program

    Michelle Crosby noted there were over 1,000 responses to the ATO consultations on its digital by default program. The findings from these consultations were published on the Let’s Talk website; they include the message that the community supports the digital initiatives but also wants alternatives and support being provided during the transition phase, as it takes time to adapt to the new working environment. There is also a need to raise the level of awareness of the initiatives.

    A member queried whether the ATO and the Digital Transformation Office (DTO) were working under a whole of government approach, as the ATO appeared to be focused on interactions that include taxpayers and their intermediaries whereas the DTO was focused on direct Government to citizen interactions. It was clarified that the ATO is working closely with the DTO on a number of initiatives including improvements to MyGov and addressing usability issues with AUSkey.

    It was noted that on 20 April 2016 there will be a Digital Showcase for small businesses, including individuals and associations that will be attended by the Assistant Treasurer. 

    Agenda item 2.2: ATO Advice and Guidance

    End of example

    Will Day noted that in his current role as Deputy Chief Tax Counsel for the Public Advice and Guidance (PAG) Centre, he is leading a new approach to providing greater certainty and guidance for taxpayers and professionals in all forms of public advice and guidance. It was also noted that both projects, Public Advice and Guidance and the Review of Private Advice, work very closely together. An example of the connections between these projects is the My Rulings product, which will involve private advice being delivered through a public platform.

    Overall, there is a philosophical and strategic change, aimed at providing streamlined, timely, practical and savvy advice. The focus of the discussion was on practical examples being delivered that illustrate this change in approach.

    A layered approach to the provision of public advice is being tested on the ATO Beta site, aimed at meeting the needs of different users. More sophisticated users will be able to access more detailed information, including cases and rulings, according to their needs. This can be explored at ‘Fast track to detailed content’ in the beta.ato.gov.auExternal Link site.

    The guidelines describing the regime of the ‘Law Companion Guidelines’ were issued last week along with supporting material. This new product is aimed at complementing principles-based legislative drafting and providing effective early certainty for taxpayers.

    The first three 'Practical Compliance Guidelines’, dealing with fuel tax credit safe harbours, were released this week. This new product will allow safe harbours, which are assisting with the reduction of compliance costs, to be easily located.

    A number of academics have been engaged to review current rulings issued more than 10 years ago to advise on their relevance and priority, whether they could be withdrawn or need updating. Private firms have also been engaged to advise on rulings, with four so far being examined, including one on software issued in 1993.

    With respect to the Review of Private Advice, there was a good response to the discussion paper, with over 2,600 comments and 50 submissions received in addition to a number of webinars and two workshops held in Sydney and Melbourne. Overall, there is strong support for the proposals including for an increase in the timeliness in the provision of private advice. We are currently aiming to publish the outcome of the review.

    Members queried the level of protection provided by the new products. It was clarified that once a law is passed the corresponding Law Companion Guide will turn into a public ruling, with clarity on its binding nature. The Practical Compliance Guidelines will not be binding as a public ruling, but staff will follow them, similarly to the practice statements.

    Very shortly there will be an explanation on the website of the different products and their hierarchy together with an indication, as suggested by members, of the level of protection they confer, presented in a tabular form.

    Members queried the likely areas where the proposed Commissioner’s Statutory Remedial Power could be utilised. It was recommended by a member that a group, including externals, could look at possible topics, similar to the rulings panel.

    A member noted that on occasions taxpayers applying for private rulings received instead comfort letters and queried the level of protection they provide. This will be discussed further with the private advice team with a view to its potential inclusion in the tabular table to be published in the website.

    A member suggested that in line with the Digital by Default project, there is a need to modernise the tax law and examine practical topics, such as record retention periods, which could be undertaken by a working group comprising Treasury, the ATO and externals.

    With respect to the review of rulings a member queried whether the draft ruling on earnouts was on the list to be reviewed. Will Day undertook to follow up on this.

    A member also noted the need for an archive site to allow access to material that was previously available. It was noted this may be considered as part of version history.

    Action item:

    NTLG 1603/2

    Due Date:

    14 June 2016 NTLG meeting

    Responsibility: Deputy Chief Tax Counsel, Public Advice and Guidance (Will Day)

    Draft ruling TR 2007/D10 - Income tax: capital gains: capital gains tax consequences of earnout arrangements

    Will Day to follow-up whether Draft ruling TR 2007/D10 was on the list of rulings to be reviewed.

    Agenda item 2.3: Red-tape reduction

    End of example

    NTLG ‘safe harbours’ project

    Michelle de Niese briefed members on progress on the safe harbours project.

    The project has been running for over a year, with safe harbour working groups reporting to the Safe Harbour Steering Group on a monthly basis. Jeremy Hirschhorn has been leading the project, with Michelle de Niese and Michael Croker as Co-Chairs. Will Day has recently joined as Co-Chair, which will assist to progress the initiatives with the involvement by the Public Advice and Guidance Centre.

    Overall it has been a slow process to get specific initiatives to their implementation phase, in part related to difficulties in determining their compliance costs savings. The initiatives around transfer pricing were the first being delivered earlier this year, although they represented a continuation of work commenced earlier. As noted above, safe harbours on fuel tax credits have just been released under the new Practical Compliance Guidelines product. Some working groups have struggled to come up with implementable initiatives and might need to be disbanded.

    A member commented that the Government had just published the report on compliance cost savings for 2015 totaling $4.8 billion, of which the Treasury portfolio contributed $700 million.

    ATO deregulation activities

    Members noted the paper provided for this item.

    Agenda item 3: Other business

    End of example

    Any other business

    Renaming of Compliance Group to Client Engagement Group

    Neil Olesen noted that the Compliance Group, which used to be named as the Audit Group, has now been renamed as the Client Engagement Group to more properly reflect the different tools that the ATO uses to engage with clients. The new name also better reflects the culture of the group and its strategic direction, with its emphasis on developing quality relationships. Responding to a query by members, it was noted that anecdotal evidence indicates that staff is supportive of the change.

    Changes to create the new BSL Design and Change Management

    Andrew Mills noted that a new business line, Design and Change Management, has been established led by Jane King. It brings together staff capabilities on change management together with 220 people from the design part of the former Integrated Tax Design business line. A presentation on this new business line will be given at the next NTLG meeting.

    Renaming Integrated Tax Design BSL to Policy, Analysis and Legislation BSL

    Andrew Mills also noted that following from the creation of the new Design and Change Management business line, Andrew England’s business line has been renamed as Policy Analysis and Legislation, reflecting its more focused activities on policy related functions.

    Meeting close

    End of example

    Closing remarks

    Andrew Mills noted that the next NTLG meeting is scheduled for Tuesday, 14 June 2016 in Melbourne.

    Proposed agenda items for the next NTLG meeting on 14 June 2016

    Andrew Mills noted that as the new Australian Small Business and Family Enterprise Ombudsman had only recently taken up her role, a discussion of ATO’s engagement and working arrangements with her will be scheduled for the June 2016 meeting

    As the report by the Senate Economics Reference Committee on Corporate Tax Avoidance has been deferred to 22 April 2016, a discussion of this item will also be scheduled for the June 2016 meeting.

    The report on the Review into Complexity in Tax Policy has not been finalised yet and will also be discussed at the June 2016 meeting.

    There being no further business, the Chair closed the meeting at 3.30pm.

    Disclaimer

    NTLG agendas, minutes and related papers are not binding on the Australian Taxation Office (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. These minutes have been formally endorsed by the members.

      Last modified: 11 Jul 2016QC 48822