Commissioner's address to ICAA
Chris Jordan, Commissioner of Taxation
Keynote address to the Institute of Chartered Accountants Australia (ICAA) Practice Forum,
Sydney, Thursday, 12 June 2014
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End of attention
Thank you for the opportunity to be part of your practice forum, to talk about what we’re doing in the ATO, how it’s relevant to you, and what we might have in common as we think about our future.
I recently spoke at a tax symposium where the prior speaker talked about building Australia’s future prosperity and whether we can still be a lucky country. I commented about how a good tax system is one of the foundations for building a nation’s prosperity.
I made the point that a lucky country has a tax system that is fair, has integrity, collects the right amount of revenue, and works to support the productivity and competitiveness of its nation.
And, in a very lucky country, everyone chooses to participate in the system and do the right thing.
As Commissioner, I believe my job is to influence and help realise these outcomes by:
- building trust and confidence of the community and key stakeholders in the ATO, and
- influencing, and providing useful, quality input, into policy and law design.
Today I’d like to talk about how I am going about these two important tasks…
Building trust and confidence
In taking up the role of Commissioner in January 2013, I was given feedback that the ATO had become isolated from, and lost the confidence of, some of its key stakeholders and segments of the community.
I was asked to bring to the role, the different perspectives of having been a user of the system, a practitioner, and an advisor to both sides of government. I was also asked to work on relationships with government, other agencies – especially Treasury – and the business community in particular. I consider you, members of the tax profession, as critical players and stakeholders in the tax system.
Let me describe the thinking that has caused us to examine the ATO’s burning platform for change…
We live in an age when communities are losing faith in institutions, individualism is strong, and demands on government are increasing. We – like all of you – are expected to achieve more with less, be green, keep up with technology and communication practices, understand and deal with globalisation and take on board the implications of changing demographics.
Just like the private sector, public service agencies are being challenged by new business models, digitalisation, blurring of boundaries and having to rethink their value-add. Just because you’ve always been around, doesn’t mean it’s a guarantee for the future, nor can you rely on ownership of legislation as certainty of your role.
With the Coalition Government’s ‘open for business’ mantra and its push for productivity increases and de-regulation, we have to show efficiency improvements and reductions in red tape across the board. This would be music to the ears of yourselves and your clients, I’m sure! We are actively looking at how we can reduce red tape and how we can automate the simpler transactions and interactions.
Our drive to have standard business reporting (SBR) adopted is aimed at making things easier and less painful for businesses and for you – so compliance with tax and other government reporting obligations is more seamless. There is no doubt that the productivity challenge for Australia will continue to be a driver for all of us.
Reinventing the ATO
So, in response to this burning platform, we are reinventing the ATO – changing the culture and making the ATO a contemporary and more service-oriented organisation. I have five and a half years to make this real (my term expires 31 December 2019).
The new top leadership team, with Andrew Mills joining us in March as Second Commissioner, Law Design and Practice, is very different to the ATO Executive of the past. It is now made up of people who are based in different states with diverse backgrounds, skills and perspectives.
Furthermore, two new appointments – to Chief Tax Counsel and Deputy Chief Tax Counsel – were announced on Tuesday. Jeremy Hirschhorn will join us in August in the Chief Tax Counsel role and Kirsten Fish will come on board as Deputy Chief Tax Counsel in December.
Jeremy is widely experienced in providing taxation advice, particularly across the financial sector and has been a partner with KPMG’s tax practice for over 10 years. Kirsten is a highly respected tax adviser and has been a partner with Clayton Utz for the past six years.
New mission vision and values
As we develop our program of reinvention, we’ve set, and are constantly communicating, our new directions to 2020 and I’m using every opportunity to keep our key stakeholders well informed.
While some of the words in our vision statement are not new, the context is different and they raise questions about our core business – causing us to challenge longstanding beliefs and practices. Our new mission is:
to contribute to the economic and social wellbeing of Australians by fostering willing participation in the tax and superannuation systems
How do we foster willing participation? How can we effect a position in Australia where people consciously want to do the right thing? What might that mean for you in your professional role and personally?
The level of willing participation is good in Australia with more than 95% of the revenue the ATO collects coming in voluntarily; the balance as a result of our active compliance efforts.
Our high level of willing participation in Australia is the result of many factors – such as belief in taxes, trust in the fairness and integrity of the administration, structure of systems such as Pay As You Go, dividend franking, and of the deterrent effect of enforcement actions.
We know from experience and research that there’s a strong correlation between levels of trust and confidence, and levels of willing participation. We also know that positive client experiences, great service and strong relationships contribute significantly to building community trust and confidence.
So, how do we design and administer systems that suit the majority of people who do the right thing, rather than for a small minority who don’t?
How can we get the right balance of investment in functions like help and education and compliance enforcement, and revamped technology that saves time, effort and money for everyone? How and when do we appropriately play protector/enforcer and enabler/facilitator? How do we better risk-manage and move to a lighter or no-touch system for those willing to comply but make it harder for those who don’t?
Keeping promises and demonstrating quick wins
I know that people are watching the ATO to see whether we can deliver and if all the words about new directions etc. are just rhetoric – I am sure some of you are wondering that too.
I recognise that changing an organisation like the ATO takes time, so in the last year we’ve purposefully selected and delivered some quick wins – big and small – to signal the ATO’s genuine commitment and capacity to change.
You may be aware that we recently recruited tax and audit professionals from outside the ATO. As an aside, they’ve just given us feedback about their first 100 days working in the ATO. They seem to be enjoying their new roles and have given us suggestions for how we could improve the way we manage audits. Their suggestions (perhaps not surprising to you) include better project management of audits, some greater sense of materiality levels, improvements to communications, and better targeted and streamlined information gathering. Many of these ideas are already being implemented in our Public Groups and International business line and we intend to adopt these principles more widely across the ATO for other taxpayers as well.
Let me share with you a few examples of changes already made to ATO products, processes and services.
Our new app was received well – with access to services like tracking the progress of individual tax returns and links to YouTube videos about tax. In January we added small business information and by next month, we will have superannuation available on the app as well.
We launched a new online interactive product called Small Business Assist – accessible on our website and through our app. It provides easy access to information and tools with the option of an after-hours call back service if more help is needed.
And for those with straightforward tax affairs, this Tax Time we have a new simplified tax return called myTax, available via myGov on smart devices or any computer. The new myTax service prefills information to make lodging tax returns quicker, easier and more convenient – with just 10 main screens to review.
In recognition that time is money, a cultural shift in itself, we are encouraging more early, face-to-face discussions with taxpayers (and their advisors) to get to the core issues more quickly and short-circuit unproductive paper wars between the parties. Since 2011-12, this early engagement in the large market has helped us reduce median cycle times for rulings down from 80 days to 40 so far this year.
However, I want to emphasise how important it is to have both parties willing to come to the table early and discuss issues openly and in good faith.
I know you are interested in the information gathering process and the burden that can place on taxpayers; we are already instructing our teams to look at how to gather information in a more efficient and less imposing way. This may mean accessing publicly available material and better targeting our requests.
Our Small Business/Individual Taxpayers business line and Private Groups and High Wealth Individuals area are also starting to engage with clients earlier and looking at ways to better target information requests.
Consistent with this concept and the idea of leveraging other rigorous processes like statutory audits, our Public Groups and International area has been exploring and consulting on External Compliance Assurance Process – referred to as ECAP. ECAP aims to leverage already rigorous external audit and assurance processes for public companies and give some taxpayers with turnovers of between $100 million and $5 billion, the opportunity to use their company auditors to review factual matters we have an interest in. We have operated in a self-assessment tax system for almost 30 years and providing taxpayers with the tools to undertake self-assurance makes sense in today’s business environment.
We are now ready to pilot this approach. It is important that we continue to seek guidance and advice through the pilot stage, so we will look to set up a temporary joint steering group. While further details will be announced within the next week, we are likely to commence the pilot in July, starting with a small group of 32 taxpayers before going wider. Some auditor information sessions will be organised towards the end of this month as well.
We are also driving sensible closure to unnecessarily long running cases and audits – recognising when we reach the point of diminishing returns or an impasse. If agreement or settlement cannot be reached, we need the courts to decide. Continuing dialogue for five years or more is not productive, prevents closure and damages trust.
While most of these changes have occurred in the large business space, they are concepts that we will adopt more broadly. Being realistic, this will take some time.
We are pleased with the results from our independent review function for income tax audits of large businesses. This function was established on 1 July last year and sits outside of our Compliance Group, providing a fresh set of eyes. Our new separate area is called Review and Dispute Resolution (RDR) and is led by Debbie Hastings within Andrew Mills’s Law Design and Practice Group. In March we announced that we would extend independent reviews to include GST for large businesses starting on 1 July 2014.
Fourteen cases of independent review have been completed (as at the end of April), with seven and a half of those found consistent with the ATO’s original position and six and a half in the taxpayer’s favour. You may also be interested to know that we are now in settlement negotiations for six of the cases found in favour of the ATO.
In July 2013, we also moved large market income tax objections out of Compliance and into Review and Dispute Resolution, and from 1 July, objections for public companies and privately held entities with over $100 million turnover will also come under RDR. Beyond that, the next possible expansion is to include High Wealth objections.
We are having very good results with alternative dispute resolution and settlements – with earlier, direct and open contact with taxpayers and use of in-house facilitators for less complex disputes. We continue to use third parties such as former Federal Court and High Court judges for early neutral evaluation or mediation in complex disputes and we are keen to expand all of these approaches.
Influencing policy and law design
Another piece of feedback I had coming into the role of Commissioner, was to lift the ATO’s level of influence and quality of input to policy and law design. While elements of this were about the relationship we had with Treasury, it was also about the way we raised issues with Treasury, and the way we formed and communicated our view about what we were seeing in practice and what might be needed in terms of new or changed law.
Instead of many letters of complex advice somewhat randomly sent to Treasury, we need to provide whole of system, prioritised, simple, compelling business cases for change.
Quite clearly the ATO has the advantage of seeing what works and doesn’t in practice and can use those insights to advise Treasury. Our new Integrated Tax Design Unit has been set up to make this happen and to ensure we give good advice based on our observations and input from the community. At this point I would like to acknowledge the work done by the Institute of Chartered Accountants in this space. The recent ICAA submission to the Board of Taxation – Review of Impediments Facing Small Business – is a good example of constructive input to the policy and law design process.
Law change cannot always be the solution and some of you would be aware of the proposal for remedial powers for the Commissioner or as some describe it, ‘Commissioner’s Discretion’. The concept here is to give us some flexibility in interpretation of the law when the words in law do not give the right outcome and result in something contrary to the original policy intent.
We think that remedial powers could have helped in the past, with the number of announced but un-enacted measures likely to have been significantly reduced if these powers had been in place.
We are coming to the end of consultation on this matter – thanks to Andrew White for his involvement on behalf of the ICAA – and have arrived at a draft jointly owned statement, from ATO, Treasury, the profession and major players. It is an example of the more purposeful and outcome oriented consultation we are trying to implement across the board.
The new consultation arrangements we implemented last year are intended to streamline and get better value from our structured engagement with the community. We have moved from nearly 1500 external people in 230 meetings a year as part of 68 ongoing committees to eight formalised stewardship committees and project-like consultation on specific issues; the right people on the right issues at the right time. Substantially less cost for everyone – and hopefully with better outcomes.
Key consultative committees, on which the ICAA is represented well by Michael Croker, are changing the way they function. They’re focusing on solution-based approaches and holding co-chaired, workshop-style meetings. As an example, the Small Business Consultative Group, led by our Steve Vesperman, has introduced new agenda items seeking more active input from small business representatives to ensure we jointly work on solutions to issues that matter.
We need your help to identify problems that you confront in practice. We need to better understand what issues need our attention, rather than working on what we think you need to know. What plans, new products or arrangements need the ATO view – early in their inception? What streamlining or red tape reductions can be made? How can we make it easy and less costly for people to do the right thing?
International tax matters
Let me turn to the international tax arena which is under the spotlight with Australia’s presidency of the G20 this year. We are taking an active leadership role to combat global tax problems and implement the 2013 OECD Action Plan on Base Erosion and Profit Shifting (BEPS).
Our focus is to:
- administer the current law competently,
- provide Treasury with insights and observations about the system in operation and what is or is not working well, and
- actively lead or participate in multi-lateral work with OECD and other international counterparts.
You would know we are already working with other tax administrations to share intelligence, undertake risk assessments and take compliance action. For BEPS and multinationals, we are putting together top down, global pictures of these companies so we can understand what that means for each of our jurisdictions.
While large Multinational Enterprises (MNEs) in the digital space have had high profiles in the media, our compliance checks have indicated potential BEPS risks in a wide range of businesses such as small internet businesses and even brick and mortar businesses locating automated activities on offshore servers. We have also turned our attention to other industries that use marketing or service hubs.
We are focusing on companies that indicated in their international dealings schedule that they have undertaken an international business restructure or have significant related party cross-border arrangements. Our focus includes:
- business restructures like digital duplication of domestic business to shift profits to a low tax jurisdiction
- IT companies with low domestic tax and large ‘stateless income’
- pricing mismatches, with large mark-ups ending up in an offshore ‘services’ hub
- the alienation of intangibles at ‘non arms-length’ prices
- debt dumping into Australia, sometimes involving inflated asset valuations to provide a façade of compliance with thin capitalisation safe harbours.
In addition to our compliance action, Australia will continue to provide input to the OECD BEPS action plan via working parties. Ultimately we will need to work with Treasury and government as to whether Australia adopts any recommendations related to policy or law change. There is still much consultation to be done – here and internationally – to understand the potential impacts of implementing aspects of the action plan.
The Tax Symposium in Tokyo in early May brought together for the first time business representatives, academia, members of the tax profession, and tax authorities from 40 different countries to talk about BEPS issues. This kind of broad consultation, getting buy-in to the problem and willingness to act, has not occurred on this scale and in these circles before. Beyond the structure of the OECD, we have now brought other countries into the fold.
On the issue of offshore evasion, in March I announced a limited offer disclosure facility until December this year. Project DO IT: Disclose offshore income today recognises that there is no such thing as a safe haven for tax schemes. So far results are promising with 16 disclosures and 33 expressions of interest from others who intend to make a disclosure. We are confident that this program will bring many taxpayers back into the system with direct and future compliance dividends.
There’s a lot on and we can’t sit still. We have to adapt, improve and move with the times. How will you do the same and how can we jointly view the future so we can work towards the common goal of a more user-friendly tax system.
We have to continue to help improve the productivity of Australia at the same time as ensuring we have tax and super systems that give the country what it needs. What is your role in making this work – for your clients and for the country?
I want the ATO to be known as a leading organisation, with contemporary service, expertise and integrity. I expect these themes will resonate with you – and the ATO needs to better understand how you are part of that vision.
You have my word that I will do what I can to transform the ATO and improve the experience individual Australians and businesses have of the tax and superannuation system.
I look forward to working with the Institute of Chartered Accountants on this journey and want to acknowledge the support and contribution you have made so far.
Commissioner Chris Jordan's address to the Institute of Chartered Accountants Australia (ICAA) Practice Forum, Sydney, 12 June 2014