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  • National Tax Liaison Group key messages 14 June 2016

    The Future of the Development of Tax Law – presented by the Law Council

    The Law Council presented on 'Testing the law improvements in the development of the law' as part of the series of topics for 'On and over the horizon'. Two key issues – Testing the tax law and Developing ‘good’ tax law.

    Testing the tax law

    The Law Council felt there is a trend towards principles based drafting as opposed to black letter law drafting. Black letter law faces challenges as industry practices evolve very quickly and the continued pace of technology developments.

    During discussion it was suggested that a key element as to why there was a desire for certainty ie. black letter law, was the lack of trust within the system. Principles based drafting allows the law to be broad enough and to more flexibly accommodate evolving circumstances. However, does this mean there is greater reliance on extrinsic material.

    With more cases being addressed earlier through alternative dispute resolution processes there was less testing of the laws by the courts. It was noted that cases that are now going to the courts reflect a deliberate choice to be more strategically directed.

    Some areas for deriving guidance were noted as an opportunity to explore:

    • underlying principles applied in settlements
    • private rulings on similar matters, and
    • decisions of the General Anti-Avoidance panel.

    Members noted that in administering the law, the ATO influences commercial behaviour, as is the case with the ‘swim between the flags’ approach. It was suggested the need to pick with care the areas for ATO’s safe harbours guidance, providing detailed reasoning.

    Members noted there would be cases, such as on negative control, where testing the law with the courts would be preferable to ATO guidance. It was also noted that with the proposed legislation on SMEs restructuring, the draft Law Companion Guide had tighter conditions than those considered in proposed legislation.

    Developing the law

    The Law Council noted that consultation on the development of new law was not always consistent. The new Attribution Managed Investment Trust regime was noted as an example of effective consultation leading to good legislation, whereas earnouts, with changes in policy during the process, was a bad example, highlighting what not to do in drafting law.

    Treasury update

    Treasury is getting ready during the caretaker period to provide advice to the incoming government and also passively receiving feedback on open consultations such as on the diverted profits tax and the mandatory disclosure rules. It expects to be actively consulting in the second half of the year.

    The Board of Taxation continues working on the anti-hybrid rules, as this is an area where there is bi-partisan support. It has also released the Sounding Board as a collaboration platform to gather ideas and identify priorities for better tax regulation.

    Treasury is following the debate and public policy views expressed during the caretaker period, as part of its process of being prepared to provide advice to the incoming government.

    Members welcomed Treasury’s intentions to have a more active presence in Sydney and Melbourne and also the more active use of secondees from the private sector.

    Report on corporate tax avoidance

    The Senate Economics Reference Committee 2nd reportExternal Link on corporate tax avoidance had been issued before the election was called. At the final hearing Committee members expressed an interest to discuss implications of the Panama Papers for money laundering and corruption, tax evasion and corporate tax avoidance. The Committee has now ceased to exist, however given bi-partisan support in this area a similar committee could be reconstituted in the new Parliament.

    Two points were raised in the report, a public register of beneficial ownership, which is related to internationally efforts to promote transparency and a public register of tax settlements, which requires considering its pros and cons, including the examination of other means to give confidence to the community.

    The report reflects pressure for transparency, with discussions ongoing internationally on how best to define a common approach.

    The suggestions in the report for revisiting the transfer pricing rules reflect concerns on their capacity to appropriately address transfer pricing risks posed by distribution margins in the pharmaceutical industry.

    Members complimented Jeremy Hirschhorn for his last appearance at the Committee hearings, assisting to understand the broad range of information the ATO has at hand and the breadth of corporate tax issues.

    Reinventing the ATO

    The 2016–17 year is a year of consolidation and brings to fruition a number of significant changes. Planning for 2016–17 is being finalised and includes business as usual and intended changes. It is integrated with all initiatives across the ATO (including those of government), showing the key capabilities requirements and with appropriate sequencing and control for delivery on priorities and co-designed activities.

    Some of the focus for the tax profession includes:

    • an education program to assist portal usage
    • ongoing support for the use of the new practitioner lodgement service
    • building additional functionality for practice management software
    • offering better and more modern online services for agents
    • a new Partnership Relationship Model for tax professionals and software developers.

    The tax profession has been involved through consultations in co-designing new service offerings and educating activities on how to use these new offerings.

    A new partnership relationship model is being developed to improve collaboration and promote a flexible approach to providing better service to the community.

    New portal functionality will be tested and co-designed from September 2016, followed by a pilot phase 1 testing with a small group in November 2016 and extended to all tax practitioners in pilot phase 2 from April 2017.

    Targeting additional services being made available for practice management software from December 2016, which would assist the administration of the tax and superannuation systems.

    Members welcomed planned activities and offerings, noting that relevant stakeholders potentially extended beyond the tax profession to include accountants, lawyers and other business intermediaries and raised the need to consider implementation risks, including the possibility of setting aside a budgeted amount to address potential compensation for damages caused by failures in the roll out of services.

    Australian Small Business and Family Enterprise Ombudsman

    Steve Vesperman and Judy O’Connell met the Australian Small Business and Family Ombudsman on 17 May 2016. Gateway arrangements have been agreed, with Judy O’Connell being the designated ATO key contact. The intention is to hold periodical bilateral meetings in addition to the existing multi-agency forum (involving ASBEFO, ASIC, FWO and ACCC) which meets quarterly to discuss cross agency support for SMEs.

    The Ombudsman was complimentary of ATO’s initiatives to support SMEs, including the simpler Business Activity Statements, the Small Business Newsroom and the Fix Squads initiative.

    The Ombudsman is aware of the potential for overlaps with the functions of the Inspector General of Taxation, which will be the subject of discussions in the near future.

    Review of Private Advice

    The Review of Private Advice – Findings report is available on the Let’s Talk site and reflects community feedback received on the discussion paper. There have been 20 focus areas identified, not all mutually exclusive, as potential initiatives to be implemented. Feedback was sought on their relative priority so that an implementation timeline can be set up with logical sequencing.

    Draft your own ruling was supported by members, which is also one initiative that can be more easily delivered.

    Other initiatives supported by members were:

    • a contemporary digital self-help solution, based on decision trees that lead to binding advice
    • a simpler private ruling process, using pro-forma questions expressed in plain English
    • a search engine that facilitates access to previous private binding rulings
    • earlier engagement with the right officers who can provide continuity during the whole private advice process.

    Recent inquiries into the ATO

    The reportExternal Link on the external scrutiny of the ATO has five recommendations aimed at:

    • improved coordination activities of all agencies involved in the scrutiny of the ATO
    • improving explanations in external scrutineer reports
    • improving communication between the ATO and the Inspector General of Taxation (IGOT),
    • conducting targeted reviews based on complaints and emerging issues in tax administration and
    • Standing Committee consider extending its scope of inquiries to cover the IGOT.

    It was noted that the ATO and the IGOT have been discussing how to improve their communications, currently meeting on a fortnightly basis and sharing early warnings on emerging issues. ATO’s engagement with the IGOT is at the highest level to improve communications.

    The report External Linkof the Inquiry into the 2015 ATO Annual Report has three recommendations:

    • a clear timetable for transition to the new portal
    • issuing notices of assessments when assessments are finalised, and
    • having sunset clauses on future draft rulings.

    Members commented that the recommendation on publishing notices of assessments appeared to generate unnecessary paperwork.

    Other business

    • ATO advised that with respect to the Budget measure for a $500,000 life-time cap on non-concessional contributions made on or after 1 July 2007, it is assisting the validation of the amounts contributed by superannuation fund members, based on reports received from superannuation funds as of 31 October 2015. A new tool has been implemented to speed up replies on inquiries received on this topic.
    • Members suggested the ATO should remind practitioners that the exemption which allows them to provide advice to self-management super funds without an Australian financial services licence (AFSL) will cease on 1 July 2016. Professional associations could also assist through their established communication channels
    • Post meeting update: ATO will publish an article in our SMSF news which has approximately 35000 subscribers. We will also look to include an article in the next Tax Professionals newsletter.
    • Members sought clarification on the level of oversight the Tax Avoidance Taskforce (announced in the recent budget) would have. ATO clarified that the taskforce will be a governing body for existing work as well as new work for which additional funding was received. It will be a virtual taskforce integrating staff from different business lines.
    • The ATO noted that retired Justice Gary Downes AM is developing assurance mechanisms for settlements with a focus on the Large market segment. The ATO has suggested to the ANAO to review the settlement process and in particular the process of engaging judges as a means to give confidence to the community that settlements are reasonable.
    • The next meeting will be on 6 September 2016 in Sydney, and will cover the ATO review into Complexity in Tax Policy, a presentation on the Design and Change Management business line and Tax Gap.
      Last modified: 11 Jul 2016QC 49601