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  • Large Business Stewardship Group key messages 22 November 2018

    Welcome and Introductions

    The meeting chair, Michelle de Niese (Executive Chair, Corporate Tax Association), opened the meeting and welcomed all members and participants to the third and final meeting of the group for this year.

    Michelle welcomed the following new member to the meeting: Ben Guthleben, Director Taxation, Telstra.

    Michelle advised that Gavin Marjoram, Former General Manager, Group Taxation, Commonwealth Bank of Australia has sent his apologies and is standing down from the LBSG. Michelle thanked Gavin for his contribution to this forum.

    Michelle informed members of the following apologies:

    • Neil Olesen, Second Commissioner, Client Engagement
    • Tim Dyce, Deputy Commissioner, Indirect Tax
    • Maryanne Mrakovcic, Deputy Secretary, Revenue Group, The Treasury. Paul McCullough, Division Head, Corporate and International Tax Division was due to represent Treasury in her place
    • Marc Lewis, Global Head of Tax, Woodside Energy Ltd
    • Michael Fenner, Taxation Manager, Chevron Australia.

    Recent Developments in Large Business Tax Policy

    Paul McCullough was an apology and this Agenda Item was omitted.

    Board of Taxation (BoT)

    Karen Payne led discussions on recent developments at the BoT:

    • Tax Transparency Code – the report to the Minister is yet to be finalised and will be considered at the next Board meeting on 14 December. The report will consider matters such as how to improve the Code, how to improve users’ engagement with the Code, whether the Code should remain voluntary, whether the ATO should take on an oversight role, and whether the ATO should manage and publish the reports on the ATO website.
    • Fringe Benefits Tax Compliance Cost Review – consultation is progressing well. There was a great response to the two surveys (ie the statistical survey that included a random sample of taxpayers as well as an online survey for voluntary participants). The survey data is being analysed.
    • Residency for individuals – consultation on whether individuals can be residents of ‘nowhere’ and how the residency rules can be simplified has been finalised.

    Compliance Risks and Emerging Issues

    Jeremy Hirschhorn, with contributions from Rebecca Saint and Michael Morton, updated members on the following matters:

    • The ATO has completed the annual risk moderation process for the Top 100 public and multinational businesses and is issuing letters for the 2017–18 income year. The progress made to date with our justified trust approach has enabled the ATO to implement a more efficient and robust Top 100 moderation process. There is alignment between the outcomes communicated in tax assurance reports and risk categorisations. The ATO is communicating the outcomes to the relevant taxpayers; Heads of Tax are receiving draft letters for factual review before final letters are issued.
    • The 2016–17 Corporate Tax Transparency report will be published on data.gov.au in mid December 2018. We will publish revised general guidance material and a contextual analysis of the data.
    • Senate Order 1108 – the Senate has ordered the ATO to provide details on APRA-regulated entities with outstanding or income tax return lodgments or income tax returns lodgments more than 6 months after the original due date for the 2001 to 2016 years inclusive to the Australian Parliament’s Economics Legislation Committee (Economics Legislation Committee). The ATO has undertaken a data verification process with taxpayers. This has led to some entities being removed from the list. The ATO has written to the Economics Legislation Committee to outline its strong concerns with providing taxpayer specific information in compliance with the order.
    • Independent Assurance of Settlements program – as reported in the ATO Annual Report 2017–18, we have engaged four former Federal Court judges and referred the most significant settlements to them for review. During the year, the judges reviewed 12 settlements (10 of which were for the large market) and found that 11 provided a fair and reasonable outcome for the Australian community. Their insights have provided valuable information into improving how the ATO undertakes settlements.
    • Co-design of legislative churning integrity measures assurance process – the ATO wants to obtain assurance that taxpayers are reviewing their past transactions as the consolidation churning integrity measure has retrospective application to 14 May 2013. We will hold a workshop in February 2019 to co-design an assurance process. Members were invited to participate in this co-design workshop.
    • Significant global entity (SGE) penalties – we have not applied SGE penalties in many instances to date. However, the ATO is working on a more structured remission framework. Members noted that corporates had concerns the ATO would apply the SGE penalties liberally because the ‘failure to lodge’ provisions are quite broad in application. The ATO noted that SGE penalties must be applied manually and that there are protocols in place to ensure they not apply unintentionally.
    • ATO use of formal powers – our use of formal powers has been fairly consistent over the last 3 years. Our preferred approach to information gathering is to work collaboratively with taxpayers and third parties in obtaining relevant information on an informal basis and to only exercise formal powers where this is not possible.
    • Reportable tax position (RTP) schedule  
      • The ATO has commenced consultation with the RTP working party on proposed changes to the RTP Category C questions for the December 2018 update.
      • We are preparing additional guidance on the application of RTP Category A to the transfer pricing positions.
      • Some taxpayers have been interpreting taxpayer alerts narrowly to avoid Category C disclosure. Members were advised that it is important to remember that disclosure is still required even if the arrangement entered into is not exactly like the arrangement described in the taxpayer alerts.

    Tim Dyce was an apology and the discussion on Indirect Tax was omitted.

    Mutual agreement procedure (MAP)

    Mark Konza led discussions on the peer review program on MAP:

    • Australia’s peer review was conducted over the first 6 months of this year for the period 2015 to 2017.
    • Our stage 1 report was published on 30 August 2018 and provided the following key recommendations:  
      • Ratifying the multilateral instrument (MLI) as soon as possible – Australia ratified the MLI on 26 September 2018.
      • Updating our MAP guidance – we are in the process of withdrawing outdated guidance and we have updated guidance on our webpage.
      • Clarifying whether MAP should be available to cases involving conflict between our general anti-avoidance rules and a treaty – our new web guidance clarifies whether MAP is available for Part IVA, multinational anti-avoidance law (MAAL) and diverted profits tax (DPT).
      • Provide access to MAP in cases of audit settlements – we are reviewing our practice in response to this recommendation.
      • Continue to resolve cases within an average 24-month time frame – Australia is currently meeting this standard; we resolve transfer pricing cases within an average 20-month timeframe and non-transfer pricing cases within a 6.4 month timeframe.

    Country-by-Country (CbC) reporting

    • Anthony Siouclis, with contributions from Mark Konza, led discussions on insights from the recent workshop jointly organised by the OECD and the Chinese State Administration of Taxes (SAT) and CbC reports that have been lodged to date:
    • 21 jurisdictions, including Australia, attended the OECD/SAT meeting and the key issues noted include:  
      • Unification of filing deadlines across jurisdictions and the standard or required adherence to the minimum standard
      • Concerns about information security / data safeguards
      • Concerns about CbC reporting avoidance structures
      • Encouraging standardised tax risk assessment
      • The need for an effective exchange framework
      • Considering the relevance of certain fields and removal of those that are not useful.
    • 183 CbC reports have been lodged for the 2018 financial year with 120 lodged to date for the 2019 financial year.
    • CbC reports due 31 December 2018 will have a blanket deferral to 15 January 2019. Further deferrals will be considered on a case by case basis. Members raised concerns with the date chosen for blanket deferral as it was earlier than the previous year.

    Justified Trust and Corporate Governance

    • Belinda Darling and Judy Morris led discussions on the Top 100 and Top 1000 programs and reviews of tax risk management and governance:  
      • Top 100 – we have finalised approximately 75% of the first year tax assurance reports (TARs). The majority of TARs to date have a medium or high assurance rating. We are on track to deliver nearly all Top 100 TARs by the end of the calendar year. Where a rating is not green, we will continue to engage with clients as part of the ‘future assurance plan’ as outlined in the TAR.
      • Top 1000 – we have 250 reviews in progress and expect to have delivered more than 300 streamlined assurance reviews (SARs) before the end of the calendar year. For streamlined tax assurance reports (STARs) issued to Top 1000 clients as at October 2018, 33% have achieved high assurance, with 52% on medium assurance, and 15% on low assurance. We are commencing a data-driven, more streamlined review for more than 100 large superannuation funds, MITs and AMITs.
      • Our Top 1000 Next Action group is working to consistently address unassured areas arising from Top 1000 reviews. The group is designing a standardised program to obtain greater assurance and to address identified tax risks.
      • Tax risk management and governance – the published guide is being used in our Top 100 and Top 1000 reviews and is designed to help businesses self-evaluate their governance framework and report on their management of strategic and operational tax risks. This guide sets out the ATO’s view on better practices and contains a series of recommendations, rather than mandates. It is not a checklist and it is incumbent on taxpayers to explain their situation in circumstances where they may have compensating controls or a framework that achieves appropriate governance but may not be in line with the guide.
      • At present a ‘stage 2’ rating is considered a good rating for governance for Top 100 taxpayers. We are working with a small number of Top 100 taxpayers who are seeking to reach a ‘stage 3’ rating.
      • Our most common rating for Top 1000 taxpayers is ‘stage 1’, which means evidence has been provided that a tax governance policy exists. We encourage these taxpayers to take steps towards the next rating.
      • Members queried what is on the horizon for those who achieve high assurance which led to discussions on the action differentiation framework.

    Action Differentiation Framework (ADF)

    Jeff Stevenson led discussions on the status of the ADF project:

    • In August 2018, we commenced a consultation process on the ADF (and also the ATO’s 2024 Visions and Goals) which is now finalised. ADF-related feedback was provided in three main key categories:  
      • Communication – the ADF terminology and key messages need to resonate with external stakeholders
      • Differentiation approaches – suggestions included more timely and flexible approaches for Partnering and Encouraging clients, an independent escalation point for Partnering and Encouraging clients, and establishment of ‘easy to find’ contact points for clients not in ongoing engagement
      • Implementation – align timing of ADF implementation with related strategies (where possible) and ensure ATO staff adopt the ADF principles consistently.
    • The findings from the consultation process will be consolidated and recommendations considered by the ATO. It is anticipated that initial external communication about the ADF will commence in early December 2018.

    Key Client Manager (KCM) Review and Redesign

    Jennifer Moltisanti led discussions on the status of the review and redesign of the KCM model:

    • We are reviewing the role of relationship managers in the ATO.
    • In August 2018, we held a co-design workshop with the Corporate Tax Association and six principles were identified to help guide the ongoing relationship: clear points of contact, focus on tailored outcomes, transparency, professionalism and responsiveness, being readily available, knowledgeable, and clarification of the lead relationship manager role.
    • Members commented that an annual ‘check-in’ is important for the overall relationship.
    • We are working on incorporating the feedback to refine the relationship manager role subject to capacity and resourcing considerations.

    Focus areas for 2019

    Jeremy Hirschhorn led discussions on the focus areas of the ATO in 2019:

    • We will focus on implementation of the ADF.
    • We are continuing to deliver on our Taskforce commitments, including implementation of the data and analytics strategy.
    • Anti-hybrids legislation – we are monitoring restructures to ensure that those who unwind hybrid arrangements do not enter into other high risk arrangements. PCG 2018/7 which provides guidance on the application of Part IVA to restructures was published on 25 October 2018 and we are working on developing further guidance on the definition of structured arrangements, the targeted integrity rule and foreign law interactions.
    • Continuing implementation of the OECD’s base erosion and profit shifting (BEPS) measures such as the multilateral instrument and CbC reporting.
    • We are seeing an increasing trend of inappropriate claims for legal professional privilege. We will be focusing on challenging these claims and the promotion of next generation schemes by tax professionals and other advisors as part of our Advisor Strategy.
    • Continuing our assurance work under the justified trust program – we expect to see a lighter touch in 2019 for the Top 100 as we gain high assurance over most taxpayers, and for the Top 1000 we expect to move onto next action work.
    • The GST top down tracker will be piloted. Members noted that systems will need to be updated to support a book to GST reconciliation and noted that there are likely to be teething issues during the first few years of implementation.

    Other Business

    No other business was raised.

    Action Items

    Action item

    181122.1

    Responsibility

    LBSG Secretariat

    The ATO to provide a brief at the next LBSG meeting updating members on the implementation of the MLI including any issues with the dual resident competent authority requirement. 

    Action item

    181122.2

    Responsibility

    Anthony Siouclis

    Anthony Siouclis to review the 15 January 2019 date chosen for blanket deferrals for CbC reports due to be lodged by 31 December 2018 as members raised concerns that it was earlier than the previous year.

    Action item

    181122.3

    Responsibility

    Tim Dyce

    Michelle de Niese requested that the GST top-down tracker pilot include a stage where all participants be able to meet with the ATO and discuss issues encountered

      Last modified: 26 Apr 2019QC 58679