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  • Expansion of the Reportable Tax Position Schedule to large private companies and corporate groups

    Your feedback

    This document seeks your feedback on expanding the Reportable Tax Position (RTP) Schedule to large private companies and corporate groups.

    Closing date for comment: 5 August 2019.

    Provide feedback by email to: Reportabletaxposition@ato.gov.au

    Contact officers:

    For private company and business related queries please direct to Michael Drogaris on (02) 9374 2323.

    We encourage you to raise any other relevant issues or specific concerns about matters discussed in this paper. Your responses may be made available to the public on the ATO website unless you indicate that you would like all or part of your response to remain in confidence. Automatically generated confidentiality statements in emails do not suffice for this purpose. Confidential elements should be marked or provided in a separate document.

    Purpose of paper

    This document seeks your feedback on expanding the requirement to lodge a Reportable Tax Position (RTP) Schedule to large private companies and corporate groups.

    Its purpose is to facilitate consultation between the ATO and the community as part of the process of developing a strategy and advice on the administration of the tax law. Its content is preliminary in nature and cannot be relied upon. It should not be taken as representing either an ATO view or that the ATO will take a particular view.

    Background of the RTP Schedule

    1. The RTP schedule was introduced in 2012 and initially required the top 100 public and multinational taxpayers to complete it. In the 2018 income year the requirement to complete the schedule was expanded to all public and multinational companies with a total business income exceeding $25 million that are part of an economic group with total business income of greater than $250 million. From the 2019 income year, these groups were required to self-assess the need to lodge the RTP schedule.

      The intent of RTP is to provide a transparent mechanism for taxpayers to inform the ATO of areas of the tax law they find ambiguous and require further guidance and inform taxpayers of positions that we view as high risk arrangements.
    2. The information collected supports the principles of justified trust and government initiatives including deterring tax avoidance.
    3. The benefits to the taxpayer client and the ATO are outlined in the table below:
    Table 1: Benefits

    Objectives

    Benefit to the taxpayer

    Benefit to the ATO

    Better understanding of tax risk for taxpayers, industries and the large market by understanding the prevalence of various risks in the large market

    Where we understand risks that are relevant for taxpayers, we can concentrate on addressing issues that are relevant to you

    We can better focus our resources to address actual risks in the large market

    Tailor our engagement where we focus and work with you on complex high risk arrangements

    Where we understand risks that are relevant for taxpayers, we can concentrate on addressing issues that are relevant to you

    We can better focus our resources to address actual risks in the large market

    Identify areas of uncertainty in the tax law that may need law clarification or legislative improvements, or further advice and guidance

    You have more certainty as to the tax positions you take as we will reduce tax uncertainty through guidance or law improvements.

    There will be fewer disputes caused by uncertainty in the tax law.

    By understanding the effects of uncertainties in the tax law, we can prioritise which areas of uncertainty should be resolved first.

    We resolve uncertainty in the tax law by providing advice and guidance and pursuing law improvements through Treasury.

    1. The type of disclosures made by taxpayers on the RTP are:
      • RTP Category A: Tax uncertainty reflected in the taxpayer’s income tax return – where a position that is argued is about as likely to be correct as incorrect, or less likely to be correct than incorrect (closely aligned to the ‘reasonably arguable’ concept).
      • RTP Category B: Tax uncertainty reflected in financial statements – where uncertainty about taxes payable or recoverable is recognised/disclosed in the taxpayer or related party’s financial statements (e.g. a provision in their financials for uncertainty).
      • RTP Category C: Specific risks and issues covered by RTP Category C questions which are based on public advice and guidance such as taxpayer alerts, practical compliance guidelines along with common observations made in compliance products.

    Expanding the RTP Schedule to companies in large private groups

    What are we trying to achieve

    1. We will provide a level playing field among large corporate groups by ensuring all large businesses have the same obligation to disclose their most contestable and material tax positions, irrespective of whether they are a public or private business.
    2. We will provide a consistent client experience for public and private taxpayers in the large market.
    3. Where a company makes an RTP disclosure it may also be used to:
      • tailor our engagement where we focus on high risk arrangements
      • identify areas where we need to provide further clarification / certainty on the correct treatment of transactions and complex high risk tax arrangements
      • better understand tax risk for taxpayers, industries and the large market
      • improve dialogue with large businesses about their risk profile and corporate governance.

    Justified trust contribution

    1. The RTP schedule is considered to be important in supporting the justified trust concept for large market taxpayers as it collects information on:
      • significant and new transactions through Category A disclosures
      • greater understanding of book to tax through the disclosure of uncertain position taken to reach tax expense via Category B disclosures
      • tax risks communicated to the market through Category C disclosures.
    2. Further, it supports the ATO’s assurance strategies by acting as a monitoring tool to verify the absence of risk and engage on significant issues, transactions and high risk arrangements.

    Scope of the expansion to large private companies

    1. In considering who within the large private group segment should be completing the RTP and what should they be disclosing consideration has been given to the general size of the group and corporate structure.

    Who are the impacted entities

    Our proposal is to keep the criteria to lodge consistent with the existing thresholds applied to public and multinational businesses. To that end it is proposed that all companies with a total business income exceeding $25 million that are part of an economic group with total business income of greater than $250 million will be required to complete the RTP Schedule. This includes standalone companies with total business income in excess of $250 million. See Reporting thresholds.

    1. The expansion is for companies within private groups only. We do not intend to expand the RTP schedule to trusts or individuals at this stage. Should there be any future change to the expectations about RTP Schedule requirements for private groups this would be the subject of community consultation.
    2. Large private companies will self–assess their requirement to lodge the RTP schedule, which is consistent with the approach taken with public and multinational businesses for the 2019 income year. The self-assessment approach is consistent with requirements to lodge other schedules.

    Periods that disclosures will relate to

    1. We will generally ask about arrangements that affect the current and future years, e.g. arrangements that were set up in the current year or ones that were set up in earlier years, but still deliver tax benefits.
    2. We are conscious that assessing the tax benefits of historical arrangements is contingent on the records that are maintained from the period the tax arrangement was entered into. Our expectation for the disclosure of historical arrangements is to confirm the existence of the arrangement and when it came into effect.

    Concessions for the RTP schedule

    1. The existing framework for the RTP schedule provides exemptions to certain public and multinational businesses from lodging and exemptions from making certain types of disclosure depending on an entities existing engagement with the ATO.
    2. Entities who are in an Annual Compliance Arrangement are exempt from lodging an RTP schedule
    3. Entities are not required to make a Category A disclosure where that specific disclosure is a position being considered as part of a private ruling or in the case of transfer pricing, is a position covered by an advance pricing arrangement.
    4. The ATO is interested in your proposals for any additional carve outs for large private companies. Refer to Consultation questions.

    Timing of the change

    1. Large private companies and corporate groups will begin completing the RTP Schedule for income years ending 30 June 2020 onwards. The first lodgments will be due in 2021.
    2. This provides sufficient time to undertake consultation and address any concerns raised during consultation. Further, the lead time is consistent with the lead time provided for the previous expansion of the RTP Schedule to large public and multinational groups.

    Indicative RTP schedule content for income year 2020

    1. The type of disclosures required in the RTP schedule for income year 2020 will be consistent with income year 2019. In particular, the scope of Category A and Category B disclosures will remain the same.
    2. In respect to Category C questions, consistent with the RTP schedule now, it will evolve as public advice and guidance relevant to companies in large private groups is released. This is in addition to the current Category C questions. Additional questions will be staged over subsequent income years reflecting the timing of the guidance issued.
    3. The consultation process will follow existing Category C consultation protocols through the RTP Working Party.

    Consultation questions

    1. Does the proposed start time of the income year ended 30 June 2020 give sufficient time to prepare, considering the forms will be due in early 2021?
    2. Do you have any concerns with the proposed thresholds that determine who in the large private market will be required to lodge the RTP schedule?
    3. Are there any concerns with applying the income tests during the year of lodgement?
    4. Under what circumstances should the ATO provide an exemption for the lodgment of an RTP schedule or the disclosure for certain types of disclosures specific to large private groups?
    5. Do you see any challenges in applying RTP Category C questions to companies in large private groups such as areas of tax law that may not be suitable for an RTP Category C question?
    6. What are the difficulties in detecting and disclosing arrangements that were set up in earlier years?

    Glossary

    Group total business income – calculated by adding up amounts in the total business income labels (see Total Business Income below), in the last tax return lodged by all active entities in the group

    Large market – We define large businesses as those entities that are part of an economic group with combined total business income greater than $250 million. This includes public, private and foreign-owned companies, partnerships and trusts

    Large private companies and corporate groups – Large market privately held companies that are not a public or multinational business

    Less likely to be correct than incorrect – A position that is more likely to be incorrect than correct (not reasonably arguable) or one that is about as likely to be correct as incorrect

    Multinational business is a business that is ultimately majority owned by offshore parties

    Reasonably arguable – A position that is more likely to be correct than incorrect

    Reportable tax position (RTP) – A position that is covered by RTP Categories A, B or C

    RTP Working Party – a working party that we consult on RTP schedule issues. Members include representatives from the Big 4 Accounting firms, large public groups and professional bodies (including Law Council of Australia)

    Total Business Income - The total business income of a company is the amount reported at the 'total income' label of the company income tax return. For 2018, the 'total income' was reported at label 6S.

    The total business income of an economic group is the sum of all income labels in the Australian tax returns of every group member. The income labels are added up in the company tax return (at S item 6), but need to be added up manually for trust and partnership tax returns

    All Australian income of group members is included in the calculation. Foreign income of group members is only included where the entity generating that income is an Australian resident entity.

    Reporting thresholds

    For large market companies and groups, all companies will need to lodge the RTP schedule for the income years ending on or after 30 June 2020 if:

    • Their total business income exceeds $250 million for the year, or
    • Their total business income is between $25 and $250 million for the current year, and they are part of an economic group and the total income of the group (sum of the income labels in the tax return of each group member) exceeds $250 million in the current or the immediate prior year.

    RTP instructions

    For your reference, the Reportable tax position schedule instructions 2019 are being used by Public Groups.

      Last modified: 08 Jul 2019QC 59559