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  • Large Business Stewardship Group key messages 20 November 2019

    Welcome and Introductions

    The meeting chair, Rebecca Saint, opened the meeting and welcomed all members and participants to the meeting and acknowledged country.

    Rebecca welcomed the following ATO staff as guest presenters:

    • Michael Morton, Assistant Commissioner, ATO
    • John Dardo, Assistant Commissioner, ATO
    • Belinda Darling, Assistant Commissioner, ATO
    • Keir Cornish, Assistant Commissioner, ATO.

    Rebecca informed members of the following apologies:

    • Jeremy Hirschhorn Second Commissioner, Client Engagement Group, ATO
    • Mimi Ferguson, Group Taxation Manager, Adelaide Brighton Limited
    • Steve Southon Chief Tax Officer, Group Tax, National Australia Bank Limited (representing the ABA)
    • Pero Stojanovski Senior Economist, Business Council of Australia.

    Action items from the previous meeting were discussed.

    • Action item 240719.1: The ATO to provide the most recent updated organisational chart for the Public Groups and International business lines to Large Business Stewardship Group (Large Business Stewardship Group) members.
      • Status: Complete. Closed.
       
    • Action item 240719.2: ATO to confirm whether the status of comfort letters, as outlined in the ATO brief circulated following the last meeting, remains accurate.
      • Status: Confirmed at this meeting. Complete. Closed.
       
    • Action item 240719.3: Treasury to send treasury progress of bills update to send out with minutes.
      • Status: Closed.
       
    • Action item 40719.4: Grant Wardell-Johnson to send to the ATO and Treasury the productivity bulletin showing group trend lines regarding capital expenditure.
      • Status: Complete. Closed.
       
    • Action item 240719.5: Treasury to consider further the possibility of a Treasury focused and run tax discussion forum – with digitisation being a central topic for external members.
      • Status: Complete. Closed.
       
    • Action item 240719.6: ATO to present a briefing on collected and analysed Reportable Tax Position (RTP) data.
      • Status: Scheduled today’s agenda - Complete. Closed.
       
    • Action item 240719.7&8: ATO to provide an update to members on consultation on the RTP and International Dealings Schedule (IDS).
      • Status: Scheduled today’s agenda - Complete. Closed.
       
    • Action item 240719.9: ATO will pass on members' concerns regarding the research and development (R&D) concession to AusIndustry prior to the next Round Table meeting.
      • Status: Complete. Closed.
       
    • Action item 240719.10: Lynn Kelly to take back suggestions for possible BoT reviews:
      • Administration of R&D concession
      • Post implementation review of the Commissioner’s remedial power
        • Status: Complete. Closed.
         
       
    • Action item 240719.11: Corporate Tax Association (CTA) to prepare a submission for Government and Treasury on concerns with the Commissioner’s remedial power.
      • Status: Complete. Closed.
       
    • Action item 240719.12: ATO and CTA to consider options to measure and report effectiveness of the LBSG.
      • Status: Complete. Closed.
       
    • Action item 240719.13: Members to provide to ATO redacted versions of the s353-10 notices/information request for internal consideration.
      • Status: Complete. Closed.
       

    ATO Compliance risks and emerging issues

    Release of the corporate tax entity data

    The ATO will publish the 2017-18 Corporate Tax Transparency (CTT) data and report in December 2019. We will also publish the updated Tax and Corporate Australia report in December 2019. The reports include:

    • contextual analysis and 5 year trends when the data is released
    • clear messaging around the high level of tax compliance of large corporate groups, evidenced by the estimate of the tax gap for this market and our high level of engagement with them
    • articulating that we will be able to provide greater assurance to the community on the tax compliance of large corporate groups as the Top 100 and Top 1000 programs further mature.

    The members discussed the following:

    • the CTA would like to mirror the past ATO approach to collaboration with the CTA
    • a number of the member’s companies have released reports under Voluntary Tax Transparency (VTT) code. The CTT Linking to the VTT material is much clearer now
    • some corporates fail to send ATO link to VTT material. The CTA will send out messaging about the process.

    Tax gap refresh

    The ATO estimates that the net income tax gap of large corporate groups for 2016–2017 is $2 billion, or 4%. The gross gap before compliance activities was 8%. Accordingly, we estimate that large corporate groups paid around 96% of the total theoretical tax payable by them in 2016-17. That is an overall reduction in gross and net gap and the ATO hopes it will reach the 96-98% target by 2024.

    The ATO noted that numbers alone don’t tell the whole context and the ATO welcomes feedback on what else needs to be considered for the large corporate groups income tax gap.

    The group discussed the following points:

    • the context for the tax gap is important. It is important to understand what is driving the behaviour
    • it is also important to understand differences between markets too. For example, the drivers for the Individuals income tax gap will be very different to the large corporate groups tax gap and public context is important
    • the CTA will provide some further comments with tax gap team, focussing on how we emphasise some of the messaging for media/other audiences
    • there will be updated messaging from the ATO as part of the Tax and Corporate Australia (TACA) update
    • further information, including comparison with prior year estimates and key graphs is available on the ATO website.

    International Dealings Schedule (IDS) changes 2020 focus

    The ATO spoke of the latest developments affecting the IDS following consultation including:

    • removal of Questions 37a, b & c of the IDS to reflect the repeal of sections 820-683 and 820-684 of the Income Tax Assessment Act 1997 (ITAA 1997)
    • Label 37C will continue to show the total amount of asset revaluation for Division 820 purposes, including for assets recorded at fair value in the entity’s accounting records where the value for thin capitalisation purposes increased for the income year
    • a small number of wording refinements to Section G: Hybrid Mismatches reflecting the operation of the hybrid provisions for the 2020 year and assisting with reporting.

    The group discussed:

    • referencing draft guidance products are problematic when asking questions that are on a permanent form. The questions suggest that the draft is actually final. There are concerns also that if the draft is completed and then there are changes in the final document, the previous submission would be inaccurate. The NTLG was not in favour of this and the ATO have taken this on board.
    • IDS is governed by tax time, whereas the RTP has more flexibility
    • there should be visibility to the changes to the schedules, rather than just negotiating with software developers
    • the ATO has broadened the consultation regarding both the IDS and RTP.

    Reportable Tax Position (RTP) update

    The ATO spoke about the outcomes of recent consultation. The next steps are to:

    • release the RTP update with two new questions and one updated wording instruction, and come back in February 2020 with updated guidance
    • in 2021 roll out RTP reporting to private groups
    • continue to refine guidance in response to feedback
    • category C questions will only refer to final PAG products with the expectation where decision that disclosure is used to finalise the PAG – derivatives.

    The ATO will consult about adding new questions.

    Capitalised labour (draft ruling)

    The draft capitalised labour ruling has been through targeted informal consultation and will be published shortly.

    Digital Identity

    The ATO provided an update on the AUSkey transition, including:

    • summary of the Digital Identity program and current status of the AUSkey transition following the myGovID and Relationship Authorisation Manager (RAM) public beta releases update on the communication and engagement transition plan outlining key activities to support users in transitioning to the new solution.

    The group discussion included:

    • concerns around potential for companies to access personal information. The ATO have produced a number of FAQ’s to address such concerns
    • a solution for overseas taxpayers is in train for end of March
    • a big tip is to clean up AUSkey and ABR details to assist with migration. Migration support will be available.

    Some members were concerned at the lack of detailed knowledge in big corporates about preparation. It was suggested targeted communications could be useful. Chief financial officers and tax managers could use:

    • high level FAQs impacts messaging “What you need us to do now” in basic steps.

    The ATO will issue communications to Public Groups and International taxpayers in November 2019, with broader batch communications coming out in December 2020. Taxpayers can also get assistance from the ATO call centre.

    Board of Taxation (BoT) update

    Fringe Benefits Tax Compliance Cost Review (FBTCCR)

    The BoT gave an update on FBTCCR and discussed that:

    • it is a whole of population review
    • the review found two major drivers of cost
      • logistics of complying
      • decisions in complying (alternative methodologies)
       
    • there is no perfect model overseas to benchmark against
    • changes in what we consider a benefit in society has an impact
    • there will always be a tension between income and non-cash benefits.

    Post implementation review of Voluntary Tax Transparency Code (VTTC review)

    The BoT gave an update on the VTTC review and discussed that:

    • as of October 2019, there were 174 signatories and 160 of those were published
    • those signatories represent 64% of tax paid (approximately $45 billion in revenue)
    • transparency drives behavioural change.

    The next report will be enhanced by:

    • including best practice
    • improving the quality of disclosures
    • increasing visibility of adoption
    • global best practice.

    Corporate Tax Residency Review (CTRR)

    The BoT gave an update on the CTRR and discussed that:

    • The review is aimed at commercial board practices and has focussed on integrity.
    • The review process has included
      • a six step consultation paper
      • five round table discussions
      • a number of written submissions.
       

    The CTRR has found there are issues with the corporate residency law having regard to:

    • recent court decisions and ATO guidance
    • changes in corporate governance and structures
    • changes in technology.

    The BoT is planning a second round of consultation. Next week, an options paper will go out for a four week consultation period. The report will be finalised early next year.

    Treasury Update

    The Treasury gave an update on the Organisation for Economic Co-operation and Development's (OECD) discussions regarding Digital Tax and the progress of the working group. There are two pillars around:

    • Pillar 1 – redistribution of taxing right to consumer
    • Pillar 2 – buttressing existing system around minimum taxing rights.

    The Pillar 1 release is coming soon and contains challenges for all countries. Australia has been very active and has had its first meeting on Digital Tax. It would like to broaden its stakeholders and is keen to leverage off the LBSG.

    In terms of time frames, Treasury is planning:

    • a set of workshops for December 2019
    • an inclusive framework meeting in January 2020
    • January 2020 will start to see concerns raised throughout January to June 2020
    • it will go back to the G20 at end of 2020.

    Consultation issues discussed included:

    • the desire for work to develop on a ‘without prejudice’ basis
    • whether the OECD Secretariat would be allowed to develop proposals
    • Australia has a focus on multilateral consensus and redistribution to consumer countries.

    The Treasury notes ongoing interest in R&D and Productivity Boosters. In terms of R&D, a Senate Committee reported to the government and we are awaiting a response. In terms of Productivity Boosters, the Treasurer made a statement recently and there is no further information at this stage.

    Justified Trust (JT), GST Integration and FIRB update

    Justified Trust Top 100

    The ATO provided an update which included:

    • The ATO considers the program to be moving into a in a mature phase. One hundred assurance reports have been completed, with a further 30 to go out before year end.
    • The ATO is continuing to work closely with Top 100 taxpayers to attain a higher level of assurance as part of the yearly Pre-lodgement Compliance Review (PCR) and Annual Compliance Arrangement (ACA) processes.
    • Taxpayers who have reached overall high assurance will experience a tangible change in the taxpayer experience and a consequential scale-down of resource investment for both the taxpayer and the ATO, as we move to specified monitoring and maintenance approaches.
    • The Top 100 interim findings report is finalised and will be published in November. Thank you to those who provided feedback.
    • We are currently finalising the Top 100 risk differentiation framework (RDF) letters for the 2019 year. The majority of the annual RDF letters will be sent to taxpayers by 31 December 2019. The remainder will issue in early 2020.
    • From 2020, top 100 clients will know how we view their compliance behaviour and risk level through the level of assurance we obtain under our justified trust approach and their Action Differentiation Framework (ADF) categorisation. Top 100 clients will continue to receive an annual letter from the Commissioner. We will provide further guidance on our Top 100 categorisation approach in early 2020.

    Top 1000 program

    The ATO gave an update on the Top 1000 program progress including:

    • Over 850 taxpayers have been engaged and over 620 taxpayers have been reviewed (with reports issued) under the program as at 31 October 2019.
    • The program will be extended to December 2020.
    • A similar interim findings report for top 1000 is also available on the ATO website.
    • The ATO is increasing its focus on, and resources available, to support the next action work arising from streamlined assurance reviews. The initial focus is on those taxpayers that obtained an overall low assurance rating or a red flag assurance rating for a specific issue or transaction.

    GST integration

    The ATO advised it is working on a suite of public guidance that it hopes to publish soon. The purpose of this additional guidance is to explain how the justified trust methodology is applied to review the existence, design and operation of GST controls as part of an effective tax control framework. It will outline the core elements and what we look for when we review three pivotal GST controls:

    • periodic internal controls testing for GST (board level control 4)
    • data controls in place for GST purposes (management level control 4)
    • documented GST control frameworks (management level control 6).

    The GST Analytical Tool (GAT) is still being refined and is currently in a pilot phase. The GAT will be applied to top 100 taxpayers and selected Top 1000 taxpayers as part of the next phase of the pilot. The guidance regarding GAT has been finalised and can be obtained by emailing GATSupport@ato.gov.au

    The members discussed the following points:

    • Most business do not have something like the GAT but many have discrete common sense tests.
    • The GAT is intended to operate as a sense check. The ATO should provide guidance around what is an unacceptable variance and what are it is looking out for. The ATO should check the GAT operates effectively across the spectrum of large business.
    • The CTA is engaging with corporates about the GAT tool and is concerned with ensuring it won’t 'make a mountain out of molehill' as no two taxpayers do things the same way.
    • Members would like the ATO to share the learnings from the pilot.
    • Members noted that their resources are limited and increased GST compliance processes may be an impost on taxpayers.

    In summary, the ATO observed:

    • the ATO is being mindful to take sufficient time to trial and refine the GAT’s application in justified trust cases
    • the ATO welcomes feedback and insights from members, and has new guidance available. The ATO will be running GAT familiarity workshops for taxpayers in the New Year.
    • This is new for our staff. If members have difficulties please use the appropriate escalation channels to the relevant SES.

    Foreign Investment Review Board (FIRB)

    The ATO provided and update on the work of the Acquisition Engagement and Assurance Team for the large market. The update included that:

    • The team was set up to focus on completed transactions
      • assessing whether our risk assessment was correct
      • making a prima facie assessment of whether the identified risk may have occurred;
      • where a risk is thought to have occurred, referring cases to Ops teams for formal assessment
      • from its work, assessment of whether risk assessment processes can be approved.
       
    • The ATO has no mandate to engage with Taxpayers directly regarding FIRB applications. The ATO advises the Treasurer. ATO can be involved in discussions if invited by Treasury but is very limited in what it can say. It cannot make agreements on the risk assessment to be reached.

    Members discussed that the CTA believes tripartite discussions between the ATO, taxpayers and Treasury regarding FIRB applications are appropriate and should be allowed. This issue is being raised at the National Tax Liaison Group (NTLG).

    Corporate Tax Association benchmarking survey

    The CTA advised that the survey is being presented at NTLG and has not been made public yet. It will be released more broadly after the next NTLG meeting. The outline of the survey is:

    • The survey respondents are 130 CTA members of a wide variety.
    • The 2018 survey showed how respondents benchmarked against other and this well received.
    • The 2019 survey added a couple questions about a CTA client visitation program and specific questions about certain roles like head of tax.
    • There are two versions. A member version and a public version with individual members' details removed.
    • The aim from the CTA members’ perspective is to gain insights into current size and functions, costs and resourcing and heads of functions. This year also includes irritants that impact on productivity of teams.

    Results for compliance resourcing broadly include:

    • an increase in resources required for tax compliance
    • Corporate Tax Teams are shrinking in the order of two full time equivalents
    • there is expectation of increased workloads going forward
    • a general feeling that the most pressure is ATO disclosure and government requirements
    • there is some wariness of outliers skewing results.

    Members were interested in:

    • any breakdown of the results for Top 100/1000 taxpayers
    • seeing a comparison with next year’s finding and whether the findings show a reduction in resourcing costs as taxpayers transition into a more monitoring and maintenance phase in justified trust compliance activities.

    Action Items

    Action item

    201119.1

    Responsibility

    ATO

    Description

    ATO to provide CTA with agreed CTT material.

     

    Action item

    201119.2

    Responsibility

    CTA

    Description

    CTA will send out messaging to members about the process of providing the VTT link to the ATO

     

    Action item

    201119.3

    Responsibility

    Belinda Darling, ATO

    Description

    The ATO to publish a link to the relevant material on the Top 100 RDF letters

     

    Action item

    201119.4

    Responsibility

    LBSG Members

    Description

    Members to provide feedback on the Top 100 report to Belinda Darling or the Top 100 mailbox.

     

    Action item

    201119.5

    Responsibility

    ATO and LBSG Members

    Description

    CTA to have an agenda item on providing feedback on the GST Analytical Tool (GAT) at the next LBSG meeting.

     

    Action item

    201119.6

    Responsibility

    LBSG Secretariat

    Description

    Justified Trust to be made standing item at future LBSG meetings.

    Attendees

    Attendees are listed below.

    Organisation

    Members

    ATO

    Rebecca Saint (Co-chair), Public Groups and International

    Corporate Tax Association

    Michelle de Niese (Co-chair)

    ATO

    Belinda Darling, Public Groups and International

    ATO

    Brendan O’Shea (Secretariat), Enterprise Strategy and Design

    ATO

    John Dardo, Enterprise Solutions and Technology

    ATO

    Keir Cornish, Public Groups and International

    ATO

    Louise Andolfatto (Secretariat), Public Groups and International

    ATO

    Mark Konza, Public Groups and International

    ATO

    Michael Morton, Public Groups and International

    Australian Super

    Bevan Grace

    BHP Billiton

    Premila Roe

    Board of Taxation

    Lynn Kelly

    Chevron Australia

    Michael Fenner

    Cochlear Limited

    Kimberley Simpson

    KPMG

    Grant Wardell-Johnson

    Law Council of Australia

    Vivian Chang

    Property Council of Australia

    Dudley Heywood

    SEEK Limited

    Josie Guastalegname

    Telstra

    Ben Guthleben

    Treasury

    Maryanne Mrakovcic

    Transurban

    Cristina Wolters

    Woodside Energy Limited

    Marc Lewis

    Apologies

    Apologies are listed below.

    Organisation

    Members

    ATO

    Jeremy Hirschhorn, Client Engagement Group

    Adelaide Brighton Cement

    Mimi Ferguson

    Australian Banking Association

    Steve Southon

    Business Council of Australia

    Pero Stojanovski

      Last modified: 04 Mar 2020QC 61596