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  • Large Business Stewardship Group key messages 24 July 2019

    Welcome and introductions

    The meeting chair, Michelle de Niese, opened the meeting and welcomed all members and participants to the meeting and acknowledged country.

    Michelle noted the passing of Michael Andrew and recognised his contribution to this forum as the CEO of the Board of Taxation. A special welcome was extended to Lynn Kelly, who is the Interim Chief Executive Officer, Board of Taxation.

    Michelle welcomed, or noted the future attendance of, the following ATO staff as guest presenters:

    • Michael Morton, Assistant Commissioner, ATO
    • Chris Ferguson, Assistant Commissioner, ATO
    • Scott Treatt, Assistant Commissioner, ATO
    • Karen Price, Director, ATO
    • Amelia Teng, Director, ATO
    • Alison Lendon Deputy Commissioner, ATO Individuals and Intermediaries
    • Paul Southwell, Assistant Commissioner, ATO.

    Michelle informed members of the following apologies:

    • Mimi Ferguson, Group Taxation Manager, Adelaide Brighton Limited
    • Maryanne Mrakovcic, Deputy Secretary, Revenue Group, Treasury
    • Bevan Grace – Australian Super.

    Action items from the previous meeting were discussed

    • Action item 190329.1: The ATO to provide a brief at the next Large Business Stewardship Group (LBSG) meeting updating members on the integrated approaches (GST and income tax) post the realignment of the Client Engagement Group.
      • Status: Karen Price will be providing an update at this meeting. Open (another update will be provided at the next meeting).
       
    • Action item 190329.2: The ATO to provide the updated organisational chart for the Public Groups and International business lines to LBSG members.
      • Status: Christina Jong (previous secretariat) sent an updated chart. A newer version is now available and will be sent out with the key messages. Open.
       
    • Action item 190329.3: The ATO to circulate the Wolters Kluwer CCH slides presented in March 2019 on Justified Trust: Top 100 and Top 1000 Tax assurance programs.
      • Status: Christina Jong (previous secretariat) sent this out. Closed.
       
    • Action item 190329.4: The ATO to provide questions to members after the meeting seeking their feedback on the effectiveness and contribution of the LBSG.
      • Status: This was completed and an update is was included in the agenda papers. Rebecca will speak to it at the meeting. Closed.
       
    • Action item 190329.5: The ATO to provide LBSG members with a copy of Sharon Murray's brief on the private ruling program.
      • Status: Christina Jong (previous secretariat) sent this out. Closed.
       
    • Members requested an update as to whether the section on ‘comfort letters’ remained current.
    • Action item 190329.6: LBSG members to provide feedback on the Findings Report for the Top 1000 Tax Performance Program to Judy Morris by 12 April 2019.
      • Status: Complete. Closed.
       

    Treasury update

    Paul McCullough updated members on the status of the following policy matters of interest to large business:

    • it was noted that four bills were introduced into Parliament that morning.
      • Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019
      • Treasury Laws Amendment (Consumer Data Right) Bill 2019
      • Treasury Laws Amendment (Timor Sea Maritime Boundaries Treaty) Bill 2019
      • Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019
       
    • consultation on petroleum resource rent tax (PRRT) ‐ gas transfer pricing arrangements
    • thin capitalisation measures on revaluations proceeding
    • Significant global entities (SGE) changes deferred as ATO noted some problems with earlier draft
    • Research and Development (R&D) amendments are not being reintroduced immediately as the recommendations by the Senate Committee are being considered by Government
    • legislation to give effect to the Australia‐Israel treaty will be introduced
    • an update on the Organisation for Economic Co-operation and Development (OECD) work on the "Digital Economy" was provided
      • focus by G7 was noted
      • US response to France on digital services tax (DST) was noted
      • Australia has representatives on WP1, WP6, WP11
       
    • Forum of Harmful Tax Practices (FHTP) has cited Offshore banking units (OBUs) as an issue and Australia has been Grey Listed by the EU as a result. Solutions are being considered by Government/Treasury.

    Members noted concerns around whether stakeholders were sufficiently engaged in the Organisation for OECD digitisation work and requested Treasury consider convening an open working group, similar to that which was convened with the OECD base erosion and profit shifting (BEPS) project actions were first announced.

    Compliance risks and emerging issues

    Intangibles migration arrangements

    The ATO provided an update to members on the work of the intangibles migration cluster and observed intangibles migration arrangements which were of concern to the ATO. These arrangements appeared structured to derive the following tax outcomes:

    • avoidance of tax consequences upon the disposal of Australian generate intangible assets
    • avoidance of royally withholding tax obligations
    • claimed deductions for use of Australian generated intangibles for which legal ownership is held in a foreign jurisdiction
    • claimed derivation of income from use of intangibles in tax preferred jurisdictions.

    The commercial rational for the arrangements was not obvious.

    The members discussed:

    • intangibles becoming an emerging market with a rise in specialist advisers
    • the potential for marketed arrangements in the emerging market
    • characterisation of intangible assets is not consistent.

    In the coming months, the intangibles migration cluster intends to issue the following guidance material:

    • Taxpayer Alert - considering arrangements which involve a mischaracterisation of intangible and/or activities or conditions connected with the development, enhancement, maintenance, protection and exploitation of intangibles
    • Practical Compliance Guideline - outlining arrangements of concern and the ATO’s expectations in respect of contemporaneous documentation.

    Top 1000 Findings Report again noted

    The ATO gave an update on the Top 1000 Findings reportThis link will download a file and noted the following:

    • the report was based on the streamlined assurance reviews conducted to the time of the report
    • about 31% received High Assurance and another 52% Medium Assurance
    • related party financing and transfer pricing were the most common issues
    • it was noted that this level of transparency is unusual globally.

    Reportable Tax Position (RTP) schedule

    The ATO gave an update on the RPT schedule and noted:

    • it is developing a Roadmap outlining what information is being collected from the schedule and how it is being used
    • ATO acknowledged that RTP questions and guidance need to be clear and certain to ensure questions are as simple as possible to comply with. This should be an ongoing goal, given the importance, to the ATO, of the disclosures obtained from the schedule.

    Capitalised labour

    A confidential draft ruling has been issued as part of a targeted consultation.

    • Intention is to analyse the feedback with a view to issuing a Public Draft in a couple of months
    • Focus is on direct labour costs and not on indirect costs
    • Acknowledged that while the energy and natural resource (ENR) sector is mostly affected other industries will be impacted
    • ATO view is that this is reaffirming established legal positions.

    Members noted that there was a general appetite for more guidance and certainty around section 8-1 and deductible expenses and that the implications of this ruling should be carefully considered in the context of industries other than ENR.

    Hybrid mismatch rules

    The ATO provided members with an update on the administration of the hybrid mismatch rules including the status of recent ATO guidance and proposed guidance.

    In respect of draft guidance:

    • for Law Companion Ruling LCR 2018/D9 and Practical Compliance Guideline PCG 2018/D9 - some feedback has been accepted and will be incorporated into the final products
    • for Law Companion Ruling LCR 2019/D1 – comments received during consultation are being processed
    • work continues on development of guidance in respect of the interaction of the hybrid mismatch rules and foreign laws including the dual inclusion rule, the US dual consolidated losses (DCL) rules and the US global intangible low-taxed income (GILTI) rules. The ATO has, and is continuing to engage, external stakeholders on these issues.

    On the ATO compliance approach it was noted that the International dealings schedule (IDS) asked questions in relation to restructures for hybrids for the year ended 31 December 2018 even though the hybrid mismatch rules only came into effect from 1 January 2019. There was general discussion on whether such questions should be asked in the IDS or the RTP schedule. Members discussed the need to clarify scenarios which the IDS was intended to capture. ATO agreed provide an update in respect of consultation arrangements on the IDS.

    Research and development

    The ATO gave an update on the administration of the R&D tax incentive and discussed:

    • ATO and AusIndustry roundtable update
    • the ATO compliance focus
    • how the ATO approach to R&D compares to other jurisdictions.

    It was noted that there was a need to provide better education on the different roles that AusIndustry and the ATO have. The ATO and AusIndustry jointly administer the R&D tax incentive. AusIndustry manages the registration and eligibility of R&D activities while the ATO assesses the claims for expenses incurred on registered eligible R&D activities.

    Member discussion included:

    • it was noted that answers to surveys conducted by one external body on R&D demonstrated high levels of frustration with the administrative process.
    • there is a perception of high compliance costs and substantiation thresholds needing to be met in respect of eligibility for software. It was noted that more than 40% of claims have software attached. There was some discussion on how software had changed in the last two decades.
    • there was some discussion on the lack of technical expertise on Cloud Engineering and other specialist areas in AusIndustry and elsewhere and this was not surprising.
    • the role of advisors in the industry was also noted and corporates were in the minority at various round tables (which occur 2‐3 times per year).
    • the cost associated with compliance sometimes dissuade taxpayers from engaging in the AusIndustry substantiation process.
    • taxpayers cannot claim an offset in their tax return without registration. It was pointed out that lodgement dates are generous, and are even longer if returns are lodged by intermediaries – so taxpayers ensure they register with sufficient time to meet their lodgement obligations and should not claim an offset without registration being attained first.
    • member feedback will be provided to AusIndustry by the ATO and Corporate Tax Association (CTA) and to Government by the CTA. The CTA is currently conducting a survey of its members on the administration and related compliance costs of the R&D incentive which it will share with Treasury, the ATO and AusIndustry once complete.

    Board of Taxation update

    Lynn Kelly provided an update on the Board of Taxation and covered the following points:

    • Lyn Kelly (as Interim CEO) noted the passing of Michael Andrew and the resignation of Karen Payne. Julianne Jacques has been appointed as Acting Chair until a permanent replacement is found.
    • two reports have been finalised and provided to Government. They are the Modernising Residency Rules and the Small Business Tax Concessions. The FBT Compliance Costs Review and the posit implementation review of the Tax Transparency Code are expected to be completed in the coming months.
    • the review of the Tax Transparency Code considers both from a preparer and user perspective.
    • consideration is also being given to the taxation treatment of “granny flats arrangements” as part of the Government’s commitment to combatting elder abuse – units purchased within retirement villages.
    • Lynn called for ideas on new projects that the Board could embrace. Suggestions from the floor included a review of Announced But Un-enacted Measures (ABUMs), the administration of the R&D incentive and the Commissioner’s Statutory Remedial Power (SRP) (where it was pointed out that of the 43 candidates for SRP only two have been successful).

    Justified Trust and GST Integration

    The ATO provided an update on the integration of GST and PRRT work into the Justified Trust process and covered the following points:

    • the ATO are seeking to deliver an integrated client experience. One element of this has been to bring GST into the Justified Trust initiative (Top 100 and Top 1000 initiatives)
    • work on Next Actions following assurance reviews was continuing and updates would be provided in the coming months
    • ATO was working on improving GST streamlined reviews
    • it was noted that the types of issues being seen in reviews differed for income tax and GST issues with GST issues more around correct reporting and systems errors
    • ATO provided an overview of the GST analytical tool
    • members discussed the basis for GST errors in the context of complex spreadsheets and reconciling GST to accounting profit.

    Feedback on effectiveness of LBSG

    The ATO discussed the feedback from the effectiveness survey that was previously completed by members. Some of that feedback had been incorporated into the latest agenda to give more time for discussion and to have adequate pre-briefing material.

    In discussion it was noted that:

    • members were generally happy with the materials circulated prior to this meeting
    • members would like links to existing materials in the papers
    • member feedback should be shared but not attributed
    • briefing papers will not be for further distribution unless stated. Briefing papers that are stated to be appropriate for further distribution will be attached to final key messages
    • ATO and CTA should further discuss potential effectiveness measures.

    Individual’s compliance activities and approaches to employers

    The ATO gave an update on individual's compliance and approaches, specifically around when we would use a section 353-10 notice to employers. They discussed the following points:

    • the ATO may request information from employers during work related expense audits primarily to assist case officers establish a link between expenses and income producing activities. It is not our usual practice to seek information from employers in each case, rather only in instances where taxpayers cannot provide sufficient evidence and information to substantiate a claim, to help case officers make an informed decision.
    • when making an approach to employers, the ATO approach is not enforcement, rather a letter or a phone call, before applying 353-10 notices.

    Some members expressed concerns with:

    • no consistent addressee of such correspondence within large organisations. Some members thought such notices should be directed to the Head of Tax
    • tight timeframes with which to respond
    • section 353-10 notices are labour intensive and should only be issued by ATO officers as a last resort
    • privacy and thought a formal notice beneficial in protecting the company from possible action
    • members offered to provide the ATO with redacted notices and requests as examples
    • the ATO agreed to liaise with the CTA regarding current notices to determine whether improvements can be made to issuing processes and timeframes.

    Industry perspective – telecommunications industry

    Ben Guthleben, Taxation Executive, Telstra, gave an overview of the telco market and made the following observations:

    • the traditional market share for telecommunications is shrinking as a proportion of customers’ “wallet”, although overall spending by consumers is growing. Traditional revenues like SMS, voice calls and data are reducing over time in favour of spending on internet based applications, eg Google, YouTube, Facebook, Netflix etc
    • the Australian telco industry is also being impacted by the introduction of the NBN, market consolidation (eg a possible TPG/Vodafone merger) and 5G roll-out
    • 5G presents an opportunity for the industry.

    Taxation issues include:

    • indefeasible rights of use – in particular the treatment for grantors
    • GST on mobile repayment plans, eg the differences in timing of handset sales when included in a plan – timing of GST payments
    • digital taxes.

    Action items

    Action item

    240719.1

    Responsibility

    LBSG Secretariat

    Description

    The ATO to provide the most recent updated organisational chart for the Public Groups and International business lines to LBSG members.

     

    Action item

    240719.2

    Responsibility

    LBSG Secretariat

    Description

    ATO to confirm whether the status of comfort letters (as outlined in the ATO brief circulated following the last meeting) remains accurate.

     

    Action item

    240719.3

    Responsibility

    Treasury

    Description

    Paul to send treasury progress of bills update to send out with minutes.

     

    Action item

    240719.4

    Responsibility

    Grant Wardell-Johnson (member)

    Description

    Grant to send to the ATO and Treasury the productivity bulletin showing group trend lines in regards to capital expenditure.

     

    Action item

    240719.5

    Responsibility

    Treasury

    Description

    Treasury to consider further the possibility of a Treasury focused and run tax discussion forum – with digitisation being a central topic for external members.

     

    Action item

    240719.6

    Responsibility

    ATO

    Description

    Once ATO has collected and analysed the RTP data, they will provide a briefing to the group.

     

    Action item

    240719.7

    Responsibility

    ATO

    Description

    ATO to provide an update to members on consultation on the IDS.

     

    Action item

    240719.8

    Responsibility

    ATO

    Description

    ATO to provide an update to members on consultation on the IDS.

     

    Action item

    240719.9

    Responsibility

    ATO

    Description

    ATO will pass on members concerns in regards to the R&D concession to AusIndustry prior to the next Round Table meeting. Concerns include:

    • uncertainty around scope of roles of dual administration between AusIndustry and ATO
    • uncertain and/or onerous eligibility requirement for registration – cost/benefit concerns
    • concerns with AusIndustry expertise for assessing eligibility in cases of software
    • concerns with software start-ups
    • concerns with membership of the round table (stakeholders who do not in fact engage in the claims process).
     

     

    Action item

    240719.10

    Responsibility

    Lynn Kelly

    Description

    Lynn to take back suggestions for possible Board of Taxation reviews:

    • the administration of R&D concession
    • post implementation review of the Commissioner’s remedial power.
     

     

    Action item

    240719.11

    Responsibility

    CTA

    Description

    CTA to prepare a submission for Government and Treasury on concerns with the Commissioner’s remedial power.

     

    Action item

    240719.12

    Responsibility

    ATO and CTA

    Description

    Michelle and ATO to consider options to measure and report effectiveness of the LBSG.

     

    Action item

    240719.13

    Responsibility

    CTA/Members

    Description

    CTA to provide to ATO redacted versions of the s353-10 notices/information request for internal consideration.

    Attendees

    Attendees are listed below.

    Organisation

    Members

    ATO

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

    ATO

    Louise Andolfatto (Secretariat), Public Groups and International

    ATO

    Alison Lendon, Individuals and Intermediaries

    ATO

    Amelia Teng, Public Groups and International

    ATO

    Brendan O’Shea, Enterprise Strategy and Design

    ATO

    Chris Ferguson, Public Groups and International

    ATO

    Jeremy Hirschhorn, Client Engagement Group

    ATO

    Karen Price, Public Groups and International

    ATO

    Mark Konza, Public Groups and International

    ATO

    Michael Morton, Public Groups and International

    ATO

    Paul Southwell, Individuals and Intermediaries

    ATO

    Scott Treatt, Private Wealth

    Adelaide Brighton Cement

    Mimi Ferguson

    Australian Petroleum Production and Exploration Association

    Michael Fenner

    BHP Billiton Limited

    Premila Roe

    Big 4 Representative

    Grant Wardell-Johnson

    Board of Taxation

    Lynn Kelly

    Business Council of Australia

    Pero Stojanovski

    Cochlear Limited

    Kimberley Simpson

    Corporate Tax Association

    Michelle de Niese (Co-chair)

    Group of 100

    Marc Lewis

    Law Council of Australia

    Vivian Chang

    National Australia Bank

    Steve Southon

    Property Council of Australia

    Dudley Heywood

    SEEK Limited

    Josie Guastalegname

    Telstra

    Ben Guthleben

    Transurban

    Cristina Wolters

    Treasury

    Paul McCullough

    Apologies

    Apologies are listed below.

    Organisation

    Members

    Australian Super

    Bevan Grace

    Treasury

    Maryanne Mrakovcic

      Last modified: 20 Sep 2019QC 60156