Large Business Stewardship Group key messages 23 June 2020

Treasury update

An update was provided which included the progress of the Organisation for Economic Co-operation and Development's Digital Tax working group and the COVID-19 response. In relation to the COVID-19 response, it was noted that the focus is now on steering the economy through reopening and how the stimulus will be structured to enable that.

Treasury is also considering the medium to long term impact of significantly increased levels of debt.

Board of Taxation update

The Corporate Tax Residency Review will be finalised shortly. COVID-19 has highlighted issues with the current rules as travel restrictions have meant directors are not able to travel to attend board meetings. Stakeholders indicated that corporate travel within their organisations will continue to be disrupted into future years, exacerbating existing pressures on corporate tax residency issues.

Consultation is underway on the Review of CGT Roll-overs. Recent virtual roundtables have focused on small to medium enterprises and marriage breakdowns. Key concerns cited to the Board by stakeholders include uncertainties around what is a restructure for the demerger rules (and similar concepts used in the small business rules), application of the 'nothing else' test, and back to back transactions. Some stakeholders indicated that uncertainty arises in part due to a perceived different understanding between the tax community and the ATO on the policy rationale underpinning some rollovers. The review is also considering international comparisons, including with jurisdictions such as Canada, France and the United States.

ATO compliance risks and emerging issues

The Business bulletins newsroom released last week had some important articles:

• our compliance approach for JobKeeper, including in the large market
• timing of when the ATO will commence new cases for the Next actions and GST assurance programs
• information in relation to related party arrangements, including examples of what might attract the ATO’s attention and transfer pricing frequently asked questions (FAQs).

The COVID-19 FAQs will be reviewed.

JobKeeper compliance

The ATO has been supporting large companies with JobKeeper in several ways. There have been dedicated staff engaging companies pro-actively to support the claim process. Public Advice and Guidance was fast tracked.

The vast majority of claimants are doing the right thing and there are a few who make honest mistakes.

Key areas of concern include where an employee is listed for more than one employer, where the employee did not actually get paid, and how turnover was calculated to meet eligibility requirements.

The ATO has announced that a compliance program focussed on large corporates satisfying the turnover test. The ATO has issued a 'Better Governance Guide' which will assist corporates when assessing their eligibility for JobKeeper and what evidence the ATO may seek to review.

Cash flow boost compliance

Some ineligible entities received refunds and the ATO has done an outreach program for effected entities to contact the ATO through the contact centre or their relationship manager.

Corporate tax residency

Meeting corporate requirements is difficult for some companies during COVID-19 travel restrictions.

The ATO has received requests to provide further guidance about its approach to corporate tax residency during COVID-19. The ATO requested members provide insights as to business and governance changes as a result of COVID-19.

Reportable Tax Position (RTP)

Consultation on RTP Category C questions for large private groups has concluded. The ATO is currently considering feedback.

2020 RTP stationery will be published in late June 2020.

Justified trust

ATO focus post COVID-19

The ATO provided an update on the status of the Top 100 and the Top 1000 programs.

During the COVID-19 response there have been no new cases started, except for a small number of top 100 cases where the taxpayer agreed for the case to commence.

New Next actions and GST assurance cases will commence in August and we have commenced notifying selected taxpayers. New Top 1000 are not likely to commence until October 2020, with the exception of a small number of managed investment trust reviews.

Consultation on the GST governance guidance has been finalised. The guidance has been refined and a compendium of feedback has been created. A walk through of these documents will be arranged for members.

Action items

ATO is preparing website guidance to assist taxpayers with their Top 1000 assurance reviews. The ATO will provide a list of proposed topics to Large Business Stewardship Group members.

Justified trust program

A paper for consultation was attached to the agenda. The objective of the paper is to outline what 'refresh year' and 'maintain and monitor' mean in practical terms for taxpayers. This paper was developed by an internal reference group and was put to the members for feedback.

Members’ comments

Staff turnover within the ATO was raised as a concern. Corporates invest a lot of time in building relationships with ATO compliance teams and knowledge is lost when staff changes are made unexpectedly.

Action items

The Corporate Tax Association will provide feedback on the consultation paper by August 2020.

Members will receive a copy of the Corporate Tax Association comments on the Justified trust consultation paper. They can provide comments directly or on the next version of the paper in September 2020.

ATO to consider better ways of managing staff changes in cases such as notifying changes in key client representatives, retaining corporate memory for the justified trust taxpayers and processes for 'warm' handovers.

Industry update: Advisers

During COVID-19 JobKeeper has been dominant focus area, with much of the advice on turnover for eligibility purposes.

There are trends towards structural changes for their clients.

The ATO support and guidance during COVID-19 has been useful.

More complex scenarios in relation to central management and control for public entities will continue to arise.

For the audit practice, there is a focus on impairments. This will have flow on impacts for thin capitalisation and the arm’s length test.

There has been an uptake in requests for advice in relation to hybrids, predominantly from those that have a smaller presence in Australia.

Research and development update

Some large companies are shifting their behaviour to ensure they are registering their activities with AusIndustry before going on to claim offsets in their tax returns.

Justified trust has driven better behaviours in relation to record keeping, better substantiation and better expense allocation.

Current guidance is focussed on supporting COVID-19. The Expenditure at Risk Ruling in relation to JobKeeper payments is due out in July 2020.

Reportable Tax Position information will provide insights into research and development disclosures. There have been some instances where the ATO has expected a Category C question response based on previous alerts. The ATO will follow-up instances where they expected a response but did not get one.

Action items

The ATO will consider what tailored approach could be used to assist taxpayers who find themselves unable to register with AusIndustry before lodging their income tax return.

The ATO will consider what data it can share in relation to research and development claims being made by large businesses.

Attendees