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  • 1. Welcome and Introductions

    The meeting commenced at 11:00am.

    The meeting chair, Tim Dyce (Deputy Commissioner, Indirect Tax), opened the meeting and welcomed all members and participants to the third and final meeting of the group for this year.

    Tim respectfully acknowledged the traditional owners and custodians of the land on which the meeting took place, and paid respects to their elders, past and present.

    Tim welcomed the following guests and members to the meeting:

    • Neil Olesen – Second Commissioner, Client Engagement
    • Andrew Mills – Second Commissioner, Law Design and Practice
    • Cristina Wolters – General Manager Taxation, Transurban – Cristina replaces John Ciardulli
    • Michael Fenner – Taxation Manager, Chevron Australia – Michael replaces Tony Principe as the new LBSG representative for the Australian Petroleum Production & Exploration Association (APPEA).

    Tim advised members that the following members will be stepping down at the conclusion of this meeting and thanked them for their contributions to this forum:

    • Andrew Woollard – Partner Tax & Law, Ernst & Young – Garry Bourke of Deloitte will be the new LBSG representative for the Big 4 Accounting Firms next year
    • Dr Niv Tadmore – Law Council of Australia - There will be a new LBSG representative for the Law Council of Australia from the beginning of next year
    • Andrew Porter – Group of 100 – Andrew has been appointed President of the Group of 100 and a new G100 representative will be nominated shortly for his replacement on the LBSG.

    Apologies were received from:

    • Mark Konza – Deputy Commissioner, International
    • Pero Stojanovski – Senior Economist, Business Council of Australia
    • Gavin Marjoram – General Manager, Group Taxation, Commonwealth Bank of Australia – Alyson Rodi is attending on Gavin's behalf.
    • Abs Osseiran – Group Tax Director, Lion Pty Ltd – Abs has stepped down from the LBSG. His contribution to the forum is greatly appreciated.

    Action items from previous meeting

    There were no action items from the 7 August 2017 LBSG meeting.

    2. Recent developments in large business tax policy

    Maryanne Mrakovcic updated members on the status of the following policy matters of interest to large business:

    • Black economy:
      • the report has been presented to the Minister (October 2017) and is still with the Minister.
       
    • Petroleum resource rent tax:
      • preliminary high level advice has been provided to the Treasurer but some issues are still being followed up
      • process is well advanced.
       
    • Stapled structures:
      • first round of consultation has been completed
      • a preliminary report is with the Treasurer for consideration
      • the issue is not unrelated to other issues including MIT (such as affordable housing).
       
    • Anti-hybrid legislation:
      • exposure draft legislation will shortly be available
      • Treasury will be cognisant of the Christmas break in managing consultation timeframes.
       
    • Current corporate landscape
      • tax integrity is one of the main focus areas for Government given Australia's heavy reliance on income tax (85-90% of the Commonwealth tax base is based on income tax)
      • while the Government is cognisant that Australia needs to remain competitive in the global setting, it can be difficult to distil a shared view amongst business stakeholders of the importance of a cut in the statutory rate versus different tax expenditure that results in different effective tax rates.
       

    3. Compliance risks and emerging issues

    Nick Maley led discussions on the Diverted Profits Tax (DPT):

    • The Practical Compliance Guideline (PCG) for the DPT seeks to complement the broader suite of DPT guidance products that are being released in the near future.
    • Final PSLA will be published with the draft Law compliance guideline (LCG) very shortly. The draft LCG will be available for public comment for up to eight weeks.
    • The ATO has met with representatives from the Big 4 firms to discuss the interaction of the DPT and the Advance Pricing Arrangement (APA) program. A clause has been drafted for inclusion in future APAs to address the DPT. Existing APAs will be considered on a case-by-case basis.
    • The ATO has engaged with industry leads in the development of the PCG, particularly in respect to the Sufficient Economic Substance examples and the engagement strategy. This has led to additional time being required to prepare the draft PCG.
    • Members suggested that the ATO consult directly with corporates on the examples (if this does not result in any delay to publication). The ATO will take this suggestion into consideration.

    Mal Allen led discussions on:

    • General purpose financial statements (GPFS):
      • The ATO published guidance including a transitional administrative approach on 28 September 2017.
      • The ATO opened further consultation at that time seeking details of additional issues that may arise given the complexities of account preparations for Significant Global Entities (SGE) in their global operations. We are currently working through the submissions received. This includes seeking external counsel advice on the primary issue raised (ie in what circumstances parent accounts prepared in accordance with home country accounting standards could meet the GPFS reporting requirements).
       
    • Corporate tax transparency 2015–16:
      • The ATO will publish the 2015–16 corporate tax transparency report on data.gov.au in early December 2017.
      • This year it will again be one list of all entities over the relevant threshold (ie over $100 million for public and foreign owned entities and over $200 million for Australian privately owned entities).
      • Revised contextual guidance material was published on ato.gov.au in early November and further guidance in the form of analysis of the data will be published at the same time as the report.
       
    • Corporate residency:
      • Following further consultation, the draft PCG has been extensively revised to address feedback from the consultation group.
      • The ATO anticipates publishing the revised draft for further and wider consultation in early 2018 (including with members of the LBSG).
       

    Jeremy Hirschhorn reflected on the ATO's current focus areas in terms of income tax which include:

    • Franking credit trade schemes
    • Synthetic hybrids
    • Loan backs
    • Pharmaceuticals and e-commerce
    • Soft commodities (including agriculture) and trading hubs

    Katie Welsh led discussions on the following matters of interest in relation to indirect tax:

    • Digital services/products registration:
      • The ATO has received registrations from entities from over 40 countries.
      • Simplified system registrant numbers are positive and close to initial expectations and, separately, the ATO is reviewing those that have instead registered in the standard GST system.
      • Simplified system numbers are higher than similar approaches in other countries such as Russia, Japan and Taiwan.
       
    • Law value imported goods:
      • The ATO is currently in the 'awareness' phase of its communication strategy. All awareness letters have now been issued to potential registrants.
      • The ATO is holding international information sessions for business and tax professionals to inform them about the GST changes for low value imported goods. The sessions will be held in the United States, United Kingdom, Belgium and China.
      • The seminars are designed for online marketplaces, merchants, and re-deliverers that supply these goods. They are also designed for advisers and tax professionals.
       
    • Financial services and insurance/cross-border new measures consultation:
      • The ATO has held three external consultation sessions with the financial services and insurance industry bodies and advisors regarding the impact of the new cross-border GST measures in the industry.
       
    • GST emerging risks consultation:
      • The ATO has been undertaking consultation with a range of stakeholders in relation to emerging risks in the GST environment.
      • Members should refer their interest to the LBSG secretariat if they wish to be involved.
      • Some emerging risks identified so far include:
        • Robotics
        • Gambling and apportionment
        • Mergers and acquisitions
        • Structuring rules
         
       

    4. Justified trust, Key taxpayer engagement, Top 100/1,000 programs

    Michelle de Niese, Jeff Stevenson, Jennifer Moltisanti, Judy Morris and Belinda Darling led discussions on initial insights from the joint ATO/CTA workshops on Justified trust, Key taxpayer engagement, and the Top 100/1,000 programs:

    • The ATO and the CTA have been co-hosting a number of collaborative workshops around major capital cities. Over 172 CTA members representing more than 100 corporates and about 300 ATO staff have attended the jointly sponsored workshops. The workshops have been well received.
    • The ATO has also been running joint staff briefing sessions following the workshops during which many issues have been discussed at an operational level, including how justified trust is applied in practice. About 450 staff from Public Groups and International and Indirect Tax have attended these sessions.
    • The workshops provided CTA members and ATO staff with the opportunity to obtain a shared understanding of the objectives of these programs, including how they are being implemented and the types of service and assurance activities clients will experience.
    • The ATO and the CTA will be preparing a joint document responding to the themes that have come out of the workshops to share with clients.
    • Some themes that have come out of the workshops include:
      • The importance of the ATO publishing tax assured (or similar) outcomes to communicate its confidence to the community.
      • What is the Tax Assurance Report (and Streamlined Tax Assurance Report) and how they will be used?
      • Cross-tax synergies and how the virtual teams will work.
      • Keeping the client informed and the importance of a 'no surprises' approach.
      • Use of existing information and the depth of information gathering to obtain tax assurance.
      • Risk differentiation framework and the Top 100 population.
      • Governance and the best practices outlined in the ATO's Tax Risk Management and Governance Review Guide to be applied on a 'fit for purpose' basis.
      • Lessening of intensity in ATO activity once justified trust is obtained.
       
    • The ATO will also be running sessions for the large professional advisory firms shortly.

    Members reflected that most taxpayers are looking forward to seeing their Tax Assurance Reports and Streamlined Tax Assurance Reports and welcomed the opportunity to collaborate with the ATO as part of these workshops.

    5. Accounting standards

    Andrew Woollard led discussions on upcoming changes to accounting standards which are likely to materially impact large corporates:

    • IFRS 16 (leases) will take effect for accounting periods commencing on or after 1 January 2019.
      • From the lessee's perspective, the majority of leases will be 'on balance sheet' with exceptions for short term or low value leases.
      • Recognition of a leased asset (reflecting the right of use of the asset). The asset is amortised for accounting purposes, often on a straight line basis (unless another method better reflects the pattern of use – eg units of production method).
      • Recognition of a lease liability (present value of future lease payments).
      • Lease asset likely to reduce in early years more quickly than lease liability should reduce.
      • Potential tax impacts include accounting profits and the ability to pay dividends, along with recognition of assets and liabilities for thin capitalisation purposes.
       
    • IFRS 15 (revenue recognition) will take effect for accounting periods commencing on or after 1 January 2018.
      • Requires assessment of individual contracts, and require unbundling of contracts into performance obligations.
      • Potential tax impacts include treatment of transitional adjustments to retained earnings and ongoing revenue recognition for tax purposes.
       
    • The ATO recognises the issues raised and will work with the AASB (through the AASB/ATO Liaison Group) on the provision of guidance or other practical solutions.

    Members remarked that they would find it helpful for the guidance to be made available earlier rather than later.

    6. Industry perspective

    Kimberley Simpson led discussions on emerging trends or issues in the Health Services Industry:

    • Cochlear Limited's (Cochlear) headquarters are on campus at Macquarie University in Sydney, Australia.
    • In the 2017 financial year, Cochlear invested $152 million in research and development (R&D) and earned 96% of revenue overseas.
    • The main issues affecting an innovative health services company such as Cochlear include:
      • R&D tax concession and technology
      • Private health insurance changes
      • Delays associated with Therapeutic Goods Administration approvals
      • Changes to the European Commission Medical Device regulations
       
    • Members were interested in how the company budgets for R&D and how it plans to protect its intellectual property when it extends its manufacturing operations into China.

    7. Tax and Corporate Australia and the Tax Gap

    Jeremy Hirschhorn led discussions on ATO publication Tax and Corporate Australia (TACA) and the large corporate groups income tax gap:

    • On 11 October 2017, the ATO published the TACA (which is about the tax compliance of large corporate groups in Australia) and released the large corporate groups income tax gap.
    • It is anticipated that the content of the TACA will be refreshed annually, with updates also being made as required where significant changes occur.
    • For 2014–15, the ATO estimated the net income tax gap for this group to be $2.5 billion or 5.8% of tax payable.
    • The tax gap estimate for 2014–15 is based on events and data that pre-dates many integrity measures that have recently taken effect such as the DPT and the effect of recently issued PCGs and taxpayer alerts.
    • The ATO is addressing compliance risks and, thereby reducing the tax gap, through four key strategies:
      • Active compliance
      • Active prevention 1:1
      • Active prevention 1:many
      • Tax assurance
       

    8. Country-by-Country (CbC) reporting

    Anthony Siouclis led discussions on ATO processes for CbC reports post-lodgement:

    • As at 31 October 2017, the ATO had received 368 Part A Local riles, 14 Part B Local files, 31 Short forms, 4 Master files, 1 CbC report and 2,258 entities have positively indicated that they are an SGE on their 2017 return.
    • The ATO has undertaken further consultation sessions in Sydney and Melbourne on the reporting of FX gains and losses in the Local File. The ATO will release additional guidance on reporting for FX gains and losses in year 2 and beyond by the end of this calendar year. The guidance will be released as draft to the consultation group so that they may provide any additional feedback before it is finalised.
    • The ATO will use information obtained from the three CbC statements:
      • to enhance client profiling capability
      • to provide greater levels of assurance that multinationals are paying the right amount of tax
      • to better inform our risk assessment and risk typologies
      • as part of the OECD's International Compliance Assurance Program pilot project.
       
    • Members urged the ATO to give consideration to an extension for lodgement given the globally resource intensive exercise associated with preparing these statements. The ATO advised that an extension is currently being considered.

    9. Exchange of information (EOI)

    Anthony Siouclis led discussions on the status of the ATO's development of EOI protocols:

    • On 29 September 2017, the ATO updated guidance on EOI and centralised the guidance on the website.
    • At this stage, we cannot predict whether there will be a material increase in EOI requests – both inbound and outbound. We are discussing this with Common Reporting Standards early-adopter jurisdictions and will learn from their experience.

    Action item:

    171120.1

    Responsibility:

    LBSG Secretariat

    The LBSG secretariat to provide the website link to the EOI guidance to the LBSG members.

    10. Board of Taxation

    Karen Payne led discussions on recent developments at the Board of Taxation:

    • Voluntary Tax Transparency Code
      • The Board is reviewing a sample of current Tax Transparency Reports to provide feedback (including to the Minister) on what additional disclosures and benefits the code is encouraging in terms of tax transparency.
      • The Board will also provide suggestions (as appropriate) on how the reports can be improved.
      • This review was self-initiated.
       
    • Recently, the Board undertook a stocktake of reports issued by the Board since its inception:
      • There appears to be some consensus that the following reports are matters of outstanding priority - reports on Division 7A, the debt-equity rules and the arms-length debt test.
      • The report on asset-back financing was generally viewed as a low priority.
      • The relative priority of reports is important to identify since there are many competing priorities.
       
    • The Board is currently scoping the following new projects:
      • review of the small business tax concessions
      • agriculture tax concessions
      • tax measures that could promote innovation
      • comparison of taxing rights we reserve under international treaties in real property
      • tax settings and digital disruption.
       

    11. Other business

    • Maryanne Mrakovcic – From 2 December 2017, Tony McDonald will be acting in the position of Division Head of the Corporate & International Tax Division pending processes for filling the role more permanently.
    • Jeremy Hirschhorn – Practical Compliance Guideline PCG 2017/D4 – ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions will be finalised very shortly.

    Next LBSG meeting

    The LBSG meetings scheduled for 2018 are as follows:

    1. Monday 26 March 2018 – Canberra
    2. Thursday 26 July 2018 – Sydney
    3. Thursday 22 November 2018 – Melbourne (Docklands)

    The meeting concluded at 3.50pm.

      Last modified: 04 Apr 2018QC 54958