• Music industry royalty payments data matching program protocol

    1 Data matching guidelines

    The Australian Taxation Office (ATO) has committed itself to voluntarily comply with the Guidelines on data matching in Australian government administration (2014) (guidelines) published by the Office of the Australian Information Commissioner.

    The music industry royalty payments data matching program protocol is prepared and published in accordance with these guidelines.

    2 Overview

    The ATO is proposing to obtain data relating to royalties paid to composers, song writers, lyricists, music publishers and mechanical copyright owners for the 2010-11 to 2012-13 financial years inclusive.

    This data will be compared with other data collected by the ATO, a profile of the industry developed and compliance trends and issues identified. Based on this analysis the ATO will tailor compliance approaches based on the risk assessment.

    All compliance activities are conducted in accordance with the ATO’s Taxpayers’ charter and Compliance model (more information on these publications can be found on the ATO’s website).

    3 PURPOSE & OBJECTIVE

    Purpose

    The overall purpose of the music industry royalty payments data matching program is to detect and deal with non-compliance with taxation and superannuation obligations within this industry.

    Objectives

    The objectives of the music industry royalty payments data matching program are to:

    • Develop a profile of the industry, including any risks and trends of non-compliance with taxation and superannuation obligations
    • Tailor educational strategies specifically for participants in the music industry
    • Identify cases for lodgment enforcement activities
    • Detect instances of potential non-compliance, especially with:
      • omitted income
      • alienation of personal services income (i.e. passing income through an interposed entity to minimise tax payable on income derived from personal exertion)
       
    • Ensure compliance with other registration, lodgment, correct reporting and payment of taxation and superannuation obligations

    Overall, the ATO is seeking to obtain external data to cross-reference with its own internal data to identify relevant cases for administrative action, including compliance and educational strategies.

    4 Agencies & entities involved

    Matching & primary user agency

    The ATO is the matching agency, and will generally be the sole user of the data. In very limited and specific circumstances, the ATO may provide individual records to other agencies, including state and territory revenue authorities and law enforcement agencies as permitted by law.

    The data matching program will be conducted on the ATO’s secure computer facilities and in accordance with approved policies and procedures.

    Source Entities

    Data will be obtained from:

    • Australasian Performing Right Association (APRA)
    • Australasian Mechanical Copyright Owners Society (AMCOS)
    • APRA New Zealand Limited
    • AMCOS New Zealand Limited

    APRA and AMCOS are separately constituted bodies, with their own boards and governance structures, but they do share certain resources, such as premises, website and staff.

    APRA collects and distributes royalties to its composer, song-writer, and music publisher members in Australia and New Zealand, while AMCOS collect and distribute royalties for the copyright owners of music media (cassette tapes, record albums, CDs, DVDs, digital music etc).

    These bodies account for collection and distribution of most royalties within the music industry in Australia.

    In accordance with Guideline 5.9 the ATO will advise the source bodies they should take reasonable steps to notify their membership of their participation in this data matching program.

    5 Data issues

    Data elements

    The ATO will obtain the following data items from the source agencies for the 2010-11; 2011-12 and 2012-13 financial years:

    • Full name (first, middle and surname or business name/trading name)
    • Full address (residential and postal)
    • Date of birth (where held)
    • Australian Business Number (ABN)
    • Name of contact officer (if any)
    • Contact officer details (telephone number, email address, postal address)
    • Total amount of royalties paid for each financial year
    • Date of payment or payments made to recipients
    • Value of each payment (exclusive of Goods and Services Tax) made to the recipient
    • Amount of Goods and Services Tax (if any)
    • Bank account details where payments were deposited (where applicable)
    • Country where payment was made from (country of remitting affiliated society)
    • Foreign tax credits paid on recipients behalf
    • Amount of PAYG withholding tax withheld from payment (remitted to ATO)

    A full copy of the data dictionary is included in Appendix A.

    Number of records

    APRA have advised they distribute payments to between 12,000 and 16,000 entities within Australia per year, of which around 95% are individuals.

    Data quality

    Discussions with APRA-AMCOS have confirmed they have sophisticated systems to manage the volume and value of the transactions. They also confirmed they collect Australian Business Number (ABN) information from their members, otherwise they withhold under the Pay As You Go - Withholding regime.

    Data will be transformed into a standardised format and validated to ensure it contains the required data elements prior to loading to ATO mainframe systems.

    Data integrity

    The ATO has a mature identity matching engine, Client Identification Compliance system (CIDC). This ensures a high confidence in the integrity of the identity matching as the system utilises more than one identifier in the matching process. For example, where an ABN, name, address and date of birth are available all fields are used in the identity matching process. Very high confidence matches will occur where all fields are matched.

    Some data is anticipated to be matched at lower confidence levels where there are not matches on all fields, or there is missing data or differences in the data.

    Where administrative action is proposed, additional checks will take place to ensure the correct entity has been identified. The entities will be provided the opportunity to verify the accuracy of the information before any administrative action is taken.

    Data security

    ATO staff are subject to the strict secrecy and privacy provisions contained in Division 355 of Schedule 1 to the Taxation Administration Act 1953 and include terms of imprisonment in cases of serious contraventions of these provisions.

    All ATO systems are strictly controlled, with features including:

    • System access controls and security groupings
    • Login identification codes and password protection
    • Full audit trails of data file and system accesses

    The ATO will utilise its secure Data Exchange Facility to obtain the data from source agencies.

    6 Discrepancy matching

    Matching process

    The identity matching process is described above under ‘Data integrity’, and is the first step in the matching process.

    Records with a sufficient confidence level in the identity match will be loaded on the ATO’s secure data warehouse where data analysts will use various techniques to identity potentially high risk discrepancy matches for actioning within compliance areas. Cases selected for administrative action will be loaded to mainframe case management systems for allocation to compliance staff.

    Lower risk discrepancy matches will be further analysed and a decision taken to either take some form of compliance or educational activity, or to destroy the dataset.

    Quality assurance

    Quality assurance processes are integrated into ATO processes and systems and are implemented throughout the data matching cycle.

    These assurance processes include:

    • Registering the intention to undertake a data matching program on a central register and approvals being obtained from the Data Matching Gatekeeper and Senior Executive Service (SES) officers prior to any activity being undertaken
    • Conducting program pilots or obtaining sample data to ensure the data matching program will achieve its objectives prior to full data sets being obtained
    • Notifying OAIC of our intention to undertake the data matching program and any intentions to vary from the data matching guidelines
    • Maintaining access management logs recording details of who has access to the data, why access is required and how it will be used
    • Quality assurance processes embedded into compliance activities

    These processes ensure data is collected in accordance with the ATO’s data management policies and principles and complies OAIC’s data matching guidelines.

    7 Previous program

    This is a new data matching program.

    The ATO will obtain a small sample of the data (less than 1,000 records), complete identity and discrepancy matching, and undertake analysis of the results based on the sample.

    Further, while this is a new program, experience can be drawn from a similar program examining sports people and entertainers. These lessons relate to the nature and scope of compliance activities, and lessons include:

    • The strategies adopted when dealing with people that have a high public profile (as an additional integrity measure the ATO places further restrictions on access to their tax and other records. Only a small group with additional security clearances and attributes are granted access to those records).
    • Compliance approaches adopted to deal specifically with alienation of personal services income related matters.

    8 Action resulting from the program

    In the first instance, cases will be identified for lodgment compliance activities (i.e. taxpayers followed up where there is evidence they are receiving income but not lodging returns and will be reminded of these obligations).

    When lodgment is, or already has been, received, discrepancy matching techniques will be used to detect cases of potential undeclared income or strategies to minimise tax payable through alienating personal services income. These may result in some form of audit or review activities.

    Before any administrative action is taken, taxpayers will be provided with the opportunity to verify the accuracy of the information obtained by the ATO. Taxpayers will generally be given at least 28 days to respond before administrative action is taken. An example of the type of correspondence to be sent to taxpayers is included in Appendix B.

    For example, where discrepancy matching identifies that a taxpayer is not reporting all of their income, but in fact they are reporting the income under another entity, the taxpayer will be given the opportunity to clarify the situation.

    The data may also be used to ensure that taxpayers are complying with their other taxation and superannuation obligations, including registration requirements, lodgment obligations and payment responsibilities.

    In cases where taxpayers fail to comply with these obligations, even after being reminded of them, escalation for prosecution action may be instigated in appropriate circumstances.

    Where a taxpayer has correctly met its obligations, the use of the data will reduce the likelihood of contact from the ATO.

    Analysis of the dataset may also identify systemic errors or issues within the music industry and educational campaigns can be designed to improve voluntary compliance in the future.

    9 Time limits applying to the program

    The collection of data under this program protocol is expected to occur during July 2014.

    Data will be destroyed in accordance with the guidelines as follows:

    • Where the data matching process does not lead to a match and the data is no longer required, at least within 90 days of the end of the data matching process
    • Where a discrepancy match is identified, a decision as to whether administrative action will be taken will be made no later than 90 days after the data matching process
    • Where a decision is taken to not pursue administrative action, the data will be destroyed within 90 days of making that decision
    • Where administrative action is pursued, the data is then incorporated into the taxpayer’s file and can be retained indefinitely in accordance with item 6.3 of General Disposal Authority 24 and Records Disposal Authority 1194 issued by the National Archives

    10 Public notice of the program

    The ATO will publish a public notification of this data matching program in the Commonwealth Government Notices Gazette in the week commencing 18 August 2014. A copy of the gazette notice will be provided to the data providers and the OAIC. A copy of the proposed gazette notice is included in Appendix C.

    A copy of this data matching program protocol will also be published on the ATO’s website.

    Data providers will also be advised they may also notify their clients of participation in this data matching program.

    11 Relationship to lawful functions

    The Commissioner of Taxation has responsibility for ensuring taxpayers meet their taxation and superannuation obligations. Compliance with these obligations is a matter the ATO takes seriously and a failure to address non-compliant behaviour has the potential to undermine community confidence in the integrity of the taxation and superannuation systems and the ATO’s capacity in administering those systems.

    The ATO’s data matching program is one of the strategies used to identity and deal with non-compliant behaviour. Data matching programs provide a degree of assurance that taxpayers are meeting their obligations.

    12 Legal authority

    ATO legislation

    The data will be obtained under the ATO’s formal information gathering powers contained in the following legislative provisions:

    • Section 264 of the Income Tax Assessment Act 1936
    • Section 353-10 of Schedule 1 to the Taxation Administration Act 1953 (administering indirect taxes)
    • Section 128 of the Fringe Benefits Tax Assessment Act 1986
    • Section 77 of the Superannuation Guarantee (Administration) Act 1992

    These are coercive powers that obligate the data providers to furnish the information requested. The ATO will use the information for taxation and superannuation compliance purposes.

    Privacy Act

    This use is within the limits on the use of personal information imposed by Australian Privacy Principle 6 (APP6) contained in Schedule 1 of the Privacy Act 1988 and in particular:

    • APP6.2(b) – the use of the information is permitted by an Australian law; and
    • APP6.2(e) – the use is necessary for the ATO’s enforcement related activities

    In accordance with APP6.5, this program protocol constitutes the written note of the data being used for enforcement related activities.

    13 Alternative methods

    The ATO has considered a range of alternatives to this data matching program to ensure entities are complying with their taxation and superannuation obligations. Relying only on data already held by the ATO is of limited value for the following reasons:

    • The ATO only receives data from taxpayers that are correctly registered and meeting their lodgment obligations
    • The ATO has no other data to cross-reference against to ensure taxpayers are reporting their obligations correctly other than by directly contacting every taxpayer
    • Industry classification records are of limited value, particularly in situations where a taxpayer may conduct more than one business activity, and the industry under examination in this data matching program is not the primary business activity of the taxpayer

    This data matching program will allow the ATO to identify taxpayers that may be operating outside the taxation and superannuation systems. It will also reduce the likelihood of the ATO unnecessarily contacting a taxpayer that is complying with their taxation obligations.

    Data matching is an effective and efficient method of examining records of thousands of taxpayers to ensure compliance with lodgment and reporting obligations that would otherwise be a resource intensive exercise examining records individually.

    It also assists the ATO effectively promote voluntary compliance by notifying the public of areas and activities under scrutiny, despite some negative perceptions toward data matching.

    14 Costs & benefits

    Benefits

    The main benefits of conducting this data matching program include:

    • Integrity of the taxation and superannuation systems – there are inherent risks in taxpayers not complying with their obligations, including those that deliberately abuse these systems – this program will assist the ATO in detecting, dealing with and deterring those that are not meeting their obligations
    • Reduce risks to taxation revenue by identifying those that may be operating outside the taxation system
    • Enabling enforcement activity and recovery of taxation revenue – identifying taxpayers that may not be complying with their taxation obligations and correcting that behaviour – without undertaking this data matching program and subsequent compliance activity there are no assurances that a wider risk to revenue does not exist
    • Maintaining community confidence in both the taxation and superannuation systems by creating a level playing field, and also maintaining community confidence in the ATO’s capacity to fairly administer those systems.

    Costs

    There are some incidental costs to the ATO in the conduct of this data matching program, but these will be more than offset by the total revenue protected:

    • Costs associated with obtaining and storing the data
    • Data analyst resources to identify potential instances of non-compliance
    • Compliance resources to manage casework and educational activities
    • Governance resources to ensure that the guidelines and Privacy Act are complied with, and quality assurance work to ensure the rigour of the work undertaken by analysts and compliance staff

    Appendix A – Data dictionary

    Field Name

    Field Description

    REF-NUMBER

    This field is provided to allow data records in the submitted dataset to be related back to data holdings from which the submitted data record may have been extracted, or, for use in indexing a dataset in order to merge the matching result details with the original source dataset.

    SRNM

    The surname of an individual

    1ST-NM

    The first given name or first given initial of an individual

    OTHR-GVN-NM

    The second given name or second given initial of an individual

    FULL-NM

    The name of a non-individual entity

    BRTH-YR

    The year of birth of an individual

    BRTH-MTH

    The month of birth of an individual

    BRTH-DAY

    The day of birth of an individual

    ADDR-LN-1

    The first line of the address

    ADDR-LN-2

    The second line of the address

    STATE-CD

    The state or territory of the address

    LCLTY-NM

    The suburb, town or city of the address

    POST-CD

    The postcode of the address

    FULL-ADDR

    The field may contain address details that cannot readily be structured into address lines, locality and post code

    RPT-ID-NUM

    Australian Company Number (ACN) or Australian Business Number (ABN)

    CNT-NM

    Name of contact officer

    CNT-DET

    Contact officer details (telephone number, email address, postal address)

    ROY-10

    Total amount of royalties paid for the year ended 30 June 2010

    ROY-11

    Total amount of royalties paid for the year ended 30 June 2011

    ROY-12

    Total amount of royalties paid for the year ended 30 June 2012

    ROY-13

    Total amount of royalties paid for the year ended 30 June 2013

    DATE-PYT

    Date of payment of payments made to recipients

    VAL-PAYT

    Value of each payment (exclusive of Goods and Services Tax) made to the recipient

    GST

    Amount of Goods and Services Tax (if any)

    BANK-ACCT

    Bank account details where payments were deposited (where applicable)

    CNTRY-PAYT

    Country where payment was made from (country of remitting affiliated society)

    FOR-TAX-CR

    Foreign tax credits paid on recipient's behalf

    PAGY-WTH

    Amount of PAYG withholding tax withheld from payment (remitted to ATO)

    Appendix B – Sample correspondence

    Have you included payments for your musical works in your tax return?

    Dear [Mr][Mrs][Ms] [Surname]

    Information available to the Tax Office shows you received (a payment/s) totalling (amount) as a songwriter, composer, music publisher or copyright owner that (do/does) not appear to have been included in your (year) tax return.

    What you need to do

    Review the above information and if you have left out any (payment/s) you should include them in your tax return without further delay. Go to our website www.ato.gov.au/correctingtaxerrors for more information.

    If your (payment/s) (has/have) been incorrectly reported at another label on your tax return or in another entity you do not need to contact us and no further action is necessary. We do want you to get this right next time as we may apply a penalty if we need to contact you to correct this again.

    More information

    If you have any questions, phone 13 28 66 between 8.00am and 6.00pm, Monday to Friday. Go our website www.ato.gov.au/Business, for information on how to include income in your tax return.

    Yours sincerely

    Deputy Commissioner Name

    Deputy Commissioner of Taxation

    Appendix C – Gazette notice

    Commissioner of Taxation

    NOTICE OF A DATA MATCHING PROGRAM

    The Australian Taxation Office (ATO) will acquire details of entities collecting and distributing music royalty payments for the 2011, 2012 and 2013 financial years from the following sources:

    • Australasian Performing Right Association (APRA)
    • Australasian Mechanical Copyright Owners Society (AMCOS)
    • APRA New Zealand Limited
    • AMCOS New Zealand Limited

    It is estimated that records for more than 15,000 entities will be obtained, of which most will be individuals.

    These records will be electronically matched with certain sections of ATO data holdings to identify non-compliance with registration, lodgment, reporting and payment obligations under taxation laws.

    This program is called the music industry royalty payments data matching program and its purpose is to detect and deal with non-compliance with taxation and superannuation obligations within this industry. Its objectives are to:

    • Develop a profile of the industry, including any risks and trends of non-compliance with taxation and superannuation obligations
    • Tailor educational strategies specifically for participants in the music industry
    • Identify cases for lodgment enforcement activities
    • Detect instances of potential non-compliance, especially with:
      • omitted income
      • alienation of personal services income (i.e. passing income through an interposed entity to minimise tax payable on income derived from personal exertion)
       
    • Ensure compliance with other registration, lodgment, correct reporting and payment of taxation and superannuation obligations

    A document describing this program has been prepared in consultation with the Office of the Australian Information Commissioner. A copy of this document is available:

    Attention

    The ATO complies with the Office of the Australian Information Commissioner’s Guidelines on data matching in Australian government administration (2014) which includes standards for data matching to protect the privacy of individuals. A full copy of the ATO’s privacy policy can be accessed at ato.gov.au/privacy

    End of attention
      Last modified: 03 Sep 2014QC 42286