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  • Large Business Stewardship Group key messages 29 March 2019

    Welcome and introductions

    The meeting chair, Tim Dyce (Deputy Commissioner, Private Wealth), opened the meeting and welcomed all members and participants to the first meeting of the group for this year.

    Tim welcomed the following new members to the meeting:

    • Steve Southon, Chief Tax Officer, Group Tax, National Australia Bank, representing the Australian Banking Association.
    • Grant Wardell-Johnson, Partner, KPMG, will be taking over from Garry Bourke, Partner, Deloitte, as the representative for the Big 4 accounting firms.

    Tim informed members of the following apologies:

    • Jeremy Hirschhorn, Second Commissioner, Client Engagement Group.
    • Maryanne Mrakovcic, Deputy Secretary, Revenue Group, The Treasury. Paul McCullough, Division Head, Corporate and International Tax Division is representing Treasury in her place.

    There were three action items from the previous meeting:

    • Action item 181122.1: 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.
      • Status: Completed – MLI implementation discussed under the Compliance risks and emerging issues agenda item.
       
    • Action item 181122.2: 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.
      • Status: Completed – A response was provided to LBSG members by email on the 1 March 2019.
       
    • Action item 181122.3: 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.
      • Status: On hold.
       

    Recent developments in large business tax policy

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

    • 15 Bills with 27 tax measures passed by Parliament since July last year.
    • There are less announced but unenacted measures than previous years – 8 Bills with 16 tax measures are currently before Parliament including Staples Structures, Petroleum Resource Rent Tax (PRRT), thin capitalisation, research and development tax incentive.
    • Australia and Israel have signed a new tax treaty which represents the first tax treaty between the two countries.

    Client Engagement Group (CEG) realignment

    Rebecca Saint updated members on the Client Engagement Group realignment:

    • The realignment is the result of discussions within the ATO on how to shape ourselves around the client experience and offer a whole-of-tax experience.
    • Our new Group structure will include seven business lines, shaped around our clients:
      • Individuals and Intermediaries led by Deputy Commissioner Alison Lendon will focus on the largest group of taxpayers and the advisers who are key to their compliance behaviours.
      • Small Business led by Deputy Commissioner Deborah Jenkins will focus on all obligations for small businesses as taxpayers including the Black Economy work and will also have ownership of GST.
      • Superannuation and Employer Obligations led by Deputy Commissioner James O’Halloran will bring together a continued focus on superannuation with obligations functions for businesses as employers, harnessing the opportunities increased data and systems will provide.
      • Private Wealth led by Deputy Commissioner Tim Dyce will focus on wealthy individuals and their associated groups, with close alignment to Public Groups.
      • Integrated Compliance led by Deputy Commissioner Will Day will focus on behaviours at the more complex and/or deliberate end of the compliance spectrum, and in time, will coordinate whole of ATO special compliance projects.
      • Public Groups and International (PG&I), respectively led by Deputy Commissioners Rebecca Saint and Mark Konza will maintain its existing focus and gained the Indirect Tax Public Groups Engagement function.
      • Smarter Data led by Deputy Commissioner Marek Rucinski will continue to focus on data and analytics, including integrating automation and analytics into our delivery of services.
       

    We have brought across into PG&I approximately 130 GST staff and will be working on integrating the two functions over the next 9 to 12 months.

    Corporate Tax Association (CTA) relationship survey

    Michelle de Niese provided members with an update on the results from the CTA survey:

    • The CTA conducts five relationship surveys and this is the fifth survey to be conducted. There were about 45 respondents with 58% of respondents falling within the Top 100 category and 53% of respondents in the Top 1000 category.
    • The results were generally positive with:
      • 55% of respondents rated the ATO as having a good understanding of their business and industry.
      • 53% of respondents rated their relationship with Public Groups & International as very good to excellent. 38% of respondents rated their relationship with Indirect Tax as very good to excellent. Survey findings indicated concerns with access to Tax Counsel Network (TCN).
      • Survey findings indicated that good outcomes were not reflective of good relationships with 31% of respondents reporting that they were treated fairly all the time, 51% of respondents reporting that they were mostly treated fairly and 18% reporting that they were sometimes treated fairly.
      • The CTA also conducted a benchmarking survey for tax functions last year and noted a 21% increase in workload with no additional resources.
       

    Members noted that corporates do want to engage with the ATO on the justified trust program but the ATO needs to understand their resource constraints.

    Compliance risks and emerging issues

    Tim Dyce and Craig Powell led discussions on the following matters of interest in the context of indirect tax:

    • The Government will provide an additional $466.9 million to the ATO to extend the GST compliance program for a further four years from 2019-20.
    • Certain purchasers of new residential premises or potential residential land are required to withhold an amount from the price of the supply for payment to the ATO from 1 July onwards. The GST property credits withholding account is now viewable via the ATO online services for individuals and sole traders, and the Business Portal. Web guidance to support taxpayers is being developed and updated to reflect client and industry feedback.
    • Australia is applying GST to most sales of low value goods from overseas businesses to consumers into Australia from 1 July 2018. We continue to engage and support our clients and have been following up with businesses that are not complying with their obligations to ensure confidence and integrity in the tax system.
    • We are creating a project team to gather intelligence on the emerging residential accommodation ‘build-to-rent’ sector and understand the tax issues that may arise and for these developments. The scoping exercise is still at early stages however, we have already identified twenty developments that may fall within this category.
    • We are consulting with Retirement Village industry bodies on tax issues impacting industry participants. We are consulting on sales of villages by charities as ‘new residential premises’, development of a ‘safe harbour’ for apportionment of GST credits on construction costs and capital improvements, development of clearer guidance for ‘dual intention/ application’ of retirement villages, leasehold issues, transitional concessions.
    • We published draft Miscellaneous Tax Ruling MT 2018/D1 Miscellaneous tax: time limits for claiming an input tax or fuel credit for comment in November 2018.
    • In December 2018, we published GST Determination GSTD 2018/D1 Goods and services tax: determining the creditable purpose of acquisitions in a credit card issuing business for comment. We are also progressing legislative instruments that will set a consistent method for credit card issuers to use to work out their input tax credits.
    • We are also developing further public advice and guidance to assist those operating in the financial services industry – a draft GST ruling on transaction and deposit accounts and an addendum to GSTR 2004/4: Good and services tax: assignment of payment streams including under a typical securitisation arrangements that provides additional practical examples.

    Rebecca Saint and Michael Morton led discussions on the following matters of interest in the context of income tax:

    • The 2016-17 corporate transparency report was published on data.gov.au with a contextual analysis of the data on 14 December 2018. The results show that corporate tax is highly concentrated in a small number of taxpayers and is strongly correlated with the commodity market. The results reflect a bounce-back in tax paid in the energy and resources sector, which led to a strong increase in tax revenue from the large corporate sector overall.
    • A NTLG sub-committee will be formed on Legal Professional Privilege (LPP) to consult on the issues faced when the Commissioner uses his formal information gathering powers. Members noted that different advisors can have different views on LPP claims which can make it difficult for taxpayers considering when to make a claim.
    • Senate Order 1108 has been closed – we complied with the first element of the order on 18 October 2018 and the second element on 20 December 2018. The second element was provided in-confidence and was not published in Hansard or the Australian Parliament House website.
    • Research and development (R&D) tax incentive – we continue to receive findings from AusIndustry regarding large clients who have registered ineligible activities. We encourage corporates to seek advice from us and AusIndustry directly when seeking certainty on their R&D tax incentive claims. Members expressed concerns with the administration of the RTP incentive.
    • We published a taxpayer alert on 28 March 2019 on arrangements that appear to be structured to inappropriately reduce capital gains that would be otherwise payable on taxable Australian real property (TARP) involving the use of intra-group debt and the multiple entry consolidated group provisions. We also have concerns with arrangements involving the use of new trusts and exploiting the restructure rollover relief provisions to avoid capital gains tax on the disposal of TARP.
    • Draft Tax Determination TD 2019/D1: What is a ‘restructuring’ for the purposes of subsection 125-70(1) of the Income Tax Assessment Act 1997? was issued on 20 March 2019 and submissions are due by 30 April 2019. This is the first in a series of guidance on capital management and corporate restructures.
    • The Multilateral Instrument (MLI) entered into force on 1 January 2019. As at 28 February 2019, 10 treaty partners have ratified and deposited their instrument ratification with the OECD. We have released synthesised texts for Australia’s tax treaties with Japan, New Zealand, Poland, and the United Kingdom. We will publish a draft practical compliance guideline and practice statement on the principal purpose test for comment in 2019. We will continue our work on developing guidance products and tools to assist affected parties.

    Reportable tax position (RTP) schedule

    Michael Morton lead discussion on the RTP schedule:

    • RTP disclosures are an important information source and help us detect trends in emerging risks and understand the shifts in behaviour. Disclosures inform our resource allocation and influence how we engage with large market companies.
    • RTP disclosures support the justified trust program by helping us understand a company’s risk profile and the positions they have taken and will support our move to a ‘light touch’ approach for Top 100 companies once we have obtained high assurance.
    • We have concerns that some taxpayers are reading taxpayer alerts too narrowly and not making appropriate disclosures. We encourage taxpayers to be conservative when responding to Category C questions and to consider the substance of their arrangement and the risk referred to in the question.
    • RTP schedules are now being lodged by Top 1000 entities and as at 5 March 2019, 44% of entities who have lodged an RTP schedule have made a disclosure. From the 2019 income year, taxpayers will need to self-assess their requirement to lodge an RTP as opposed to being sent a notification. Some concerns were expressed by members regarding the RPT schedule.

    Justified trust and corporate governance

    Belinda Darling and Judy Morris led discussions on the Top 100 and Top 1000 programs:

    • Top 100 – as at the end of February 2019 we have issued 61 tax assurance reports (TARs). We are on track to deliver another 90 TARs before the end of December this year which will include a substantial number of second year TARs. We expect to get a majority of the Top 100 taxpayers to justified trust by 2020.
    • We have developed a justified trust credential (JT credential) which will be issued in conjunction with the TAR when they attain high assurance. This credential will be a document that taxpayers can use if they want to promote and advertise their good standing such as through messaging in their annual report, voluntary tax transparency code or on their website.
    • Reaching high assurance under the justified trust methodology should generate a tangible change in the client experience and a consequential scale-down of resource investment for both us and the client, as we move to more suitable ‘light touch’ approaches.
    • Top 1000 – we have issued 320 streamlined tax assurance reports (STARs) as at the end of January 2019 with an additional 300 streamlined assurance reviews (SARs) in progress. The Top 1000 findings report was tabled for comment.
    • GST program – we are still working through practically how our teams will operate and interact with taxpayer for the longer term as part of the integration of GST into the public groups business line.
    • Joint CTA/ ATO workshops - We have come a long way through the past couple of years with justified trust. We are now discussing where we are heading once we get the majority of taxpayers to justified trust. The CTA now understand and expect a tangible change in the client experience is around the corner for them once justified trust has been attained and we move to a ’light touch’ experience. The JT credential for Top 100 was received favourably and would assist with their messaging that they are paying the right amount of tax.

    Board of taxation (BoT)

    Karen Payne led discussions on the status of the post-implementation review of the Voluntary Tax Transparency Code (VTTC):

    • Following consultation with a wide range of stakeholders, the BoT is proposing amendments to the VTTC which are outlined in a consultation paper released for comment on 26 February 2019. Submissions are due by 26 March. The BoT will not be recommending that the VTTC become mandatory. Members noted that the VTTC although voluntary was becoming more and more complex.

    Private ruling program

    Sharon Murray updated members on the private ruling program:

    • General trends – the number of ruling requests received by Public Groups & International has increased over the past three years. Since 1 July we have received more than 400 income tax requests for rulings or early engagements. Top 100 and Top 1000 taxpayers are the largest users of our early engagement system, accounting for around 50% of our early engagement requests. Top 100 taxpayers alone account for nearly 30% of early engagements.
    • Early engagement process – the priority ruling process was superseded by the early engagement process. The early engagement process was introduced in 2009 and embeds into business as usual what was seen as the most beneficial features of the priority ruling process. Unlike the priority ruling process, it is not limited to a specific set of circumstances and is available to all taxpayers. The early engagement approach enables clients to engage more quickly and informally with the ATO to discuss an arrangement, identify key issues and concerns, and discuss the most appropriate form of advice required.
    • Comfort letters – We are currently reviewing the use of comfort letters. A comfort letter is the exercise of the Commissioner’s general power of administration which is neither a confirmation that the law applies favourably to a taxpayer nor a protection from the application of the law generally. A comfort letter is not legally binding like a private ruling however the Commissioner will stand by them unless the circumstances upon which they are issued change. A comfort letter will not be issued in the following circumstances:
      • an assessment has been issued for the relevant income year
      • the matter is already subject to a review or audit
      • another solution is more appropriate
      • the risk level for the arrangement is other than low
      • the arrangements are novel and require more scrutiny from the ATO from a strategic perspective
      • it would involve an unreasonable diversion of resources from higher risk or priority issues
      • where the Commissioner has material concerns that he is not apprised of all relevant facts
      • it would be used to remedy defects or omissions in the law
      • it would be used to accept non-compliance with the law by a particular taxpayer.
       
    • Advice and Guidance Assurance Template – this project was initiated to help support the Top 100 and Top 1000 Assurance teams in undertaking their assurance reviews and contributes to the justified trust methodology. Under this initiative, where a Top 100 or Top 1000 taxpayer has received ATO advice on a transaction, they will be expected to confirm that the specific transaction has been entered into and whether they have followed our advice as part of the implementation. Top 100 and Top 1000 taxpayers may soon see targeted questions, which focus on transactions that they have recently sought advice on, as part of their assurance reviews.

    ATO data strategy

    Nadine McBain led discussions on ATO’s data strategy:

    • The emergence of new technologies, advanced analytics, rapid digitalisation and unprecedented data flows is creating fundamental changes. The main challenge we face is the explosion of data, both growth in frequency and variety of data. Our technology strategy is one of many strategies in the ATO which has been developed to help the ATO keep pace with the rapidly evolving technology environment and digital ecosystem.
    • In mid-2015 the ATO brought all their data resources into a centralised area called Smarter Data. The Smarter Data program has been running for four years and is continuing to focus on their 2024 Vision:
      • Scale – reach across business
      • Scope – data and analytics maturity
      • Speed – responsiveness to your needs
       
    • In 2018-19 our focus is on:
      • optimise our governance, infrastructure and technology to best manage and reuse data to drive actionable outcomes for the ATO
      • use the enterprise client profile platform and insights from analytics models, to deliver client risk scoring and analytics value realisation
      • make use of data, analytics and tools to extend automation and analytics use cases, and enhance our realised artificial intelligence capabilities
      • comparing returns prepared by tax agents to similar client bases to see if claims are comparable and highlighting differences
       
    • Single Touch Payroll – new way of reporting tax and super information to the ATO. With real time reporting of employment data in line with pay cycles occurring throughout the year, the opportunities to make greater use of our insights emerge. For employees of STP-enabled employers, an income statement in myGov will include year to date payroll and super guarantee information.

    Industry perspective

    Michael Fenner led discussions on emerging trends and issues in the oil and gas industry:

    • Australia’s upstream oil and gas industry is approximately 2% of Australia’s GDP with a production value of approximately $30 billion per annum.
    • Capital investment in liquefied natural gas (LNG) since 2010 is over $200 billion. The value of Australia’s LNG export is forecast to grow from $31.7 billion in 2017-18 and to $42.4 billion in 2019-20. Australia mainly exports to the Asia Pacific region as the demand is there and there are low transportation costs.
    • Australia has nine LNG projects: North West Shelf Venture, Darwin LNG, Pluto LNG, Queensland Curtis LNG, Santos GLNG, Australia Pacific LNG, Gorgon LNG, Wheatstone LNG and Ichthys LNG.
    • Australian petroleum liquids production peaked in 2000 and has generally been declining since. Australian petroleum exploration is also in decline since 2009 which generally correlates with crude oil prices.
    • The current tax issues faced in the industry include:
      • rollover for realignment arrangements
      • section 8-1 deductions for capitalised salary and lease costs on major projects
      • marketing hub issues
      • PRRT.
       

    Action items

    Action items are listed below.

    Action item

    190329.1

    Responsibility

    LBSG Secretariat

    Description

    The ATO to provide a brief at the next LBSG meeting updating members on the integrated approaches (GST and income tax) post the realignment of the Client Engagement Group.

     

    Action item

    190329.2

    Responsibility

    LBSG Secretariat

    Description

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

     

    Action item

    190329.3

    Responsibility

    LBSG Secretariat

    Description

    The ATO to circulate the Wolters Kluwer slides presented in March 2019 on Justified Trust: Top 100 and Top 1000 Tax assurance programs.

     

    Action item

    190329.4

    Responsibility

    LBSG Secretariat

    Description

    The ATO to provide questions to members after the meeting seeking their feedback on the effectiveness and contribution of the LBSG.

     

    Action item

    190329.5

    Responsibility

    LBSG Secretariat

    Description

    The ATO to provide LBSG members with a copy of Sharon Murray’s brief on the private ruling program.

     

    Action item

    190329.6

    Responsibility

    LBSG Secretariat

    Description

    LBSG members to provide feedback on the Findings Report for the Top 1000 Tax Performance Program to Judy Morris by 12 April 2019.

     

    Attendees

    Attendees are listed below.

    Organisation

    Members

    ATO

    Tim Dyce, Deputy Commissioner,Private Wealth (Meeting Chair)

    ATO

    Rebecca Saint, Deputy Commissioner, Public Groups (LBSG Co-Chair)

    ATO

    Megan Yong, Assistant Commissioner, Client Engagement Group

    ATO

    Belinda Darling, Assistant Commissioner, Public Groups

    ATO

    Judy Morris, Assistant Commissioner, Public Groups

    ATO

    Michael Morton, Assistant Commissioner, Public Groups

    ATO

    Sharon Murray, Assistant Commissioner, Public Groups

    ATO

    Nadine McBain, Assistant Commissioner, Data Management

    ATO

    Craig Powell, Director, Indirect Tax

    ATO

    Christina Jong, LBSG Secretariat, Public Groups and International

    Corporate Tax Association

    Michelle de Niese, Executive Director (LBSG Co-chair)

    Board of Taxation

    Karen Payne, Chief Executive Officer

    Treasury

    Paul McCullough, Division Head, Corporate and International Tax Division

    Adelaide Brighton Cement

    Mimi Ferguson, Group Taxation Manager

    AustralianSuper

    Bevan Grace, Group Tax Manager

    Australian Banking Association

    Steve Southon, Chief Tax Officer, Group Tax, National Australia Bank

    BHP Billiton

    Premila Roe, Vice President Tax Asia Pacific

    Business Council of Australia

    Pero Stojanovski, Senior Economist

    Chevron Australia

    Michael Fenner, Taxation Manager, Chevron Australia (APPEA representative)

    Cochlear Limited

    Kimberley Simpson, Head of Group Tax

    KPMG

    Grant Wardell-Johnson, Partner (‘Big 4’ representative)

    Law Council of Australia

    Vivian Chang

    Property Council of Australia

    Dudley Heywood, Chair, Income & International Tax Working Group

    SEEK Limited

    Josie Guastalegname, Group Head of Tax

    Telstra

    Ben Guthleben, Director Taxation

    Transurban

    Cristina Wolters, General Manager Taxation

    Woodside Energy Limited

    Marc Lewis, Global Head of Tax (Group of 100 representative)

    Apologies

    Apologies are listed below.

    Organisation

    Members

    ATO

    Jeremy Hirschhorn, Second Commissioner, Client Engagement Group

    Treasury

    Maryanne Mrakovcic, Deputy Secretary, Revenue Group

      Last modified: 15 Jul 2019QC 59664