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Australian Financial Markets Association Liaison Group key messages 11 November 2022

Key topics discussed at the Australian Financial Markets Association Liaison Group meeting 11 November 2022.

Last updated 19 February 2023

Welcome and opening remarks

Bill Neskovski opened the meeting by thanking everyone for joining and inviting for questions to be asked as the session is intended to be interactive.

He noted:

  • Virginia Gogan will be offline and assisting with other work for a few months. In the meantime, Andrew Nutman is taking on this position.
  • A brief update of the PG&I Line plan was provided, which sits under the broader ATO line plan.
  • The October 2022 Budget including the extension of the Tax Avoidance Taskforce and the recruitment of 1,200 staff.

With respect to new legislation announced as part of the October 2022 Budget, Rob Colquhoun suggested that Treasury and the ATO align the substance and timing of changes with other jurisdictions, and the ATO and Australian Financial Markets Association (AFMA) engage with Treasury on a unified approach to minimise compliance costs for companies. An example provided was beneficial ownership reporting requirements.


In relation to Buy Now, Pay Later (BNPL), Andrew Nutman noted that the ATO has commenced GST reviews to gain better understanding and provide advice and guidance, noting that most taxpayers have accepted the ATO’s views relating to BNPL. However, some BNPL taxpayers may buy and sell underlying goods which is different to the ATO’s assumption.

In relation to initial public offerings and Mergers and Acquisitions, Andrew Nutman mentioned that there seems to be a lack of understanding of GST rules, and the ATO is looking to issue guidance. Andrew noted that when a company makes an initial public offering, input tax credits may need to be restricted, and generally companies failed to restrict Indirect tax concession scheme (ITCS). Rob Colquhoun asked whether companies were quarantining costs for a period of time, or it was a matter of apportionment. Andrew noted that it was simply considering whether ITCs are to be blocked. Another issue is that some restructures give rise to share transfers, and where restructures occur to sell shares, a question arises as to what extent the restructure costs are attributable sale of shares.

The ATO wants to do an education campaign on reverse charge rules as businesses are not always aware of them or following them correctly.

Rob Colquhoun asked if there were any issues defining digital currency (for GST purposes), for large market participants. Andrew Nutman replied that the main difference is between stable coins and crypto currency, as stable coins are linked to an underlying real-world asset and may therefore be classified as a derivative. As it is a new concept, the GST team is still learning but there are no significant issues currently identified. Crypto mining could be a potential issue due to lack of precedence or rulings. Lack of evidence and ability to identify jurisdiction of supplier and recipients is a potential issue.

Rob Colquhoun mentioned that it is interesting how stable coins and crypto are different and how digital currencies are not treated as a foreign currency. From an AFMA perspective, they do not see a lot of these assets on balance sheets and nothing of concern from an institutional perspective. Andrew Nutman explained that the current focus is reaching common understanding of crypto assets. Non-fungible tokens and meta tokens sit outside of the Financial Services Industry space.

The ATO is still noticing problems with recipient-created tax invoices, where there are entities that are no longer or were never registered for GST purposes. The ATO will aim to consolidate the guidance to cover off this matter, including a refresh of existing legislative instruments.

Top 100 and Top 1,000 program

For the Top 100, the ATO’s aim is reaching high assurance and doing refresh reviews every 4 financial years. A brief explanation was provided of the ATO’s combined assurance review (CAR) work program (GST led CAR, IT led CAR and Next Actions cases).

Rob Colquhoun asked for elaboration on where GST would be the main driver for CAR reviews. Andrew Nutman replied that the bulk is within the BNPL space where there are specific GST issues that needed to be considered. James Campbell noted that there are 2 or 3 of these cases right now.

Andrew Nutman noted there were differences between a subsidiary model verses a branch model for GST purposes, and inter-entity transactions with netting off may require a closer look.

Banking and Finance strategy

Interest rate environment

The interest rate environment has changed rapidly, as the ATO’s Banking and Finance (B&F) team were previously working on materials for negative interest rates. These materials will now be used internally for retrospective years where the matter applies. There are issues regarding negative interest rates which have come up in 815C attribution issues, that is European bank raising money from debt markets in Europe with negative interest which is on-lent or attributed to Australia, and attributable income when an Australian branch makes a 'repayment'.

As interest rates are rising, the ATO is considering commercial impacts such as increased bad debts and impairments.

OECD Pillar I exclusion for regulated services

James Campbell noted that the ATO’s consultation OECD process is run by the internationals and treaties teams, and the B&F team have provided feedback on how the exclusion from Pillar 1 for financial services would operate in an Australian environment. James noted margins in financial services are different to other types of businesses and that looking at gross revenue alone was not necessarily a measure of success or appropriate sole selection criteria.

Rob Colquhoun noted that the model is burdensome for some of their members. He said there would be difficulties for taxpayers in resourcing and resolving the Pillar I and 2 measures for both the local and foreign jurisdiction, as well as a potential issue if Australia legislates the measures sooner than the counter-party jurisdiction.

Transfer pricing

The ATO has issued a transfer pricing expectations statement to all big banks and is developing detailed plans with banks to get to high assurance. The ATO is trying to be practical, now open to risk-based principals and sampling instead of a fully reviewing every individual related party dealing. A letter was provided to Top 100 taxpayers, with some of the suggestions in the letter having some relevance to Top 1,000 taxpayers. AFMA requested a copy of the letter.

The ATO currently has foreign bank CARs. A current challenge is a lack of Australia-specific documentation with transfer pricing methods to get the confidence for high assurance. There are cases where foreign banks can provide an explanation in meetings, but do not have appropriate documentation. The ATO is working with taxpayers in these situations to permit appropriate documentation to be provided later.

Head office expense allocation

The key challenge from an ATO perspective has been to ensure that the Australian operation is benefitting from the expense that is being charged, which requires some understanding of the nature of the charge beyond its title.

London Interbank Offered Rate (LIBOR)

Due to LIBOR ceasing, clients are likely to change multiple rates in contracts to ensure continuity of lending arrangements.

There are 2 different pieces of guidance released by the ATO. The first is general guidance based on exposure to contracts quoting LIBOR. The concern is with taxation of financial arrangements and withholding exemptions. If the changes are limited to changing the rate to a similar proxy, then the tax risk is low, however where there are arrangements where there are other changes, this may create a concern.

Rob Colquhoun asked if the ATO had received feedback on the LIBOR guidance. James Campbell responded that the guidance was effective and there was limited feedback to indicate otherwise.


James Campbell and Rob Colquhoun both noted that there were no updates since the election on whether Treasury would be interested in pushing through Part IIIB changes, however both the ATO and AFMA were committed to consulting with Treasury as required to instigate change if required, particularly as more taxpayers elect out of Part IIIB.

James noted the historical context was important. When the legislation was introduced, there was a lack of guidance. The industry and the way ATO administer branch attribution has changed. As a result, currently electing out of Part IIIB provides benefits.

Rob said there was a lack of feedback from members to pursue changes, and the LIBOR cap within Part IIIB was unlikely to be a significant issue.


The ATO is developing an understanding, internal definition and strategy for the Fintech groups, including looking at the materiality and potential tax risks in the market. Based on research and profiling to date, it appears the existing legislation is suitable for the new business models employed by new Fintech entities.

Danny Ong went through the different Fintech categories and mentioned that the products and services offered were based heavily on existing financial services offered by major institutions and thus there were no legislative interpretational challenges. Although crypto is different to Fintech, there is no major issue for Income Tax for PG&I taxpayers. A major risk identified was a lack of tax and corporate governance for rapidly growing start-ups, and guidance may be warranted to be issued to start-ups in the future.

Rob Colquhoun enquired as to the ATO’s internal definition of Fintech entities. Danny advised that the groups identified either self-identified as Fintech, were in media articles or were profiled based on ANZSIC coding. Subcategories identified were based on product/service offerings to end clients. An entity is considered a Fintech by the ATO typically when there is an offer of finance, money or investment product and there is no sale of an underlying product. Several hundred groups were profiled.

Some groups which self-identified as Fintech were better described as IT companies providing services to existing financial service providers, 'techfins', and therefore had tax risk profiles associated with information technology service providers.

James Campbell said BNPL is interesting as there is discussion on whether some players are BNPL or just credit card services. Those businesses sometimes provide an efficient way to capture data rather than a revolutionary new product.

Mergers and acquisitions

Multiple divestments with the big Australian banks. There are issues coming up with CGT calculations, especially when goodwill is involved or if good record keeping is not maintained. All taxpayers should consider the Transfer Act for acquisitions and disposals. Partial transfers when one bank buys a part of another one has caused interpretational issues with the Transfer Act and conflict with the Tax Law (prospective deeming only by the Transfer Act & determining a cost base), and the B&F team do not think corresponding tax outcomes are intuitive or work well. In one case the ATO is treating it as a usual sale instead of a sale under the Transfer Act.

Offshore banking unit (OBU)

James Campbell noted that the 10% and the interest withholding tax exemption will also no longer apply. The ATO is looking to develop OBU guidance, particularly for long-term transactions executed prior to law change. The guidance will likely cover the record-keeping and financial requirements which are expected to continue after the law change. The advice is expected to touch on Part IVA, which is something the ATO is currently working and will hopefully get something out by the end of the year.

Rob Colquhoun noted that AFMA members would appreciate if guidance were provided sooner rather than later.

James Campbell noted that only certain segments of the legislation were removed, rather than all the provisions being repealed (which may occur in future). This has created challenges. The ATO would like to prevent a situation where people are required to maintain extraneous records to avoid the risk of tainting. Long-term transactions are difficult, particularly with banks financing complex deals over multiple years. Immediate tax issues are Transfer Pricing and changes in functional profiles, particularly if functions are moved offshore, there needs to be evidence that this is happening in substance.

Common reporting standards (CRS)

CRS is managed by a central team in the ATO and is in a mature phase with their strategy. There is updated guidance on and we encourage taxpayers to look at the required reporting requirements and appropriate format. There is an increase of focus on governance and our CRS team expect less errors given the maturity of the program.

Third party data rectification

This issue was raised in the Royal Commission. The ATO is signalling that a new approach is required. There is a backlog of cases where the data proves to be incorrect. There is a big focus on financial institutions getting the correct data from customers instead of trying to settle it with the ATO.

Rob Colquhoun expressed that he understands the concept but there will be difficulties in developing other practical solutions. In terms of resolution, a new data file is required errors are discovered before third party tax returns are lodged. If post-lodgment of third party returns, there are difficulties in getting third party individual taxpayers to voluntarily lodge amendments. The rectification process is driven by the individual's business line.

B&F strategy approach to Top 100

There are 6 out of 7 that are in high assurance and the other one has progressed. The main issues for Top 100 are Transfer Pricing and Branches. Currently there is a transition from annual compliance arrangement to pre-lodgment compliance review (PCR). This transition is heavily linked to the maturity of the Justified Trust program. Going forward, the ATO is moving to a more consistent model that applies across the Top 100. The ATO is drafting a PCR framework document that sets out the level of engagement and information flow, what can be expected at certain times of the year, and what outputs will be provided in terms of ratings and assurance.

B&F strategy approach to Top 1,000

The main product is the CAR which cuts across both income tax and GST. Next Actions work focusses on risks identified in a SMSF annual return (SAR) and historically has worked well in getting taxpayers to high assurance.

Rob Colquhoun asked whether a low or medium assurance taxpayer should expect a guaranteed Next Actions case. James Campbell noted that these cases are allocated to a pool which is prioritised on different requirements (tax risks at play, materiality, resourcing). Some cases rated medium in the SAR may have a CAR in TAT II.

Katherine Leung noted a handful of Banking and Finance CARs commenced in June and with RFI 1 responses still outstanding. The ATO strongly encourages taxpayers to read the Top 1,000 observations letter issued to AFMA which identifies major issues required to get to high assurance. The issues noted in the letter are still current. Industry issues and guidance

Industry issues and guidance

Hybrid mismatch

The ATO is starting to do more work on hybrid rules more broadly and has received feedback from banks and advisory firms on the uncertainty of the application of different rules, that is, imported hybrid mismatch rules, particularly for disclosure requirements in reportable tax position (RTP) and International dealings schedule (IDS). Internal work is in progress, and we may seek assistance to gather fact patterns and scenarios where there is uncertainty or concern. This can be through the lens of whether the rules apply or whether it needs to be disclosed in the IDS.

Thin capitalisation

There are issues identified with outward investing authorised deposit-taking institution (ADI)s and the ATO is about to issue a letter. There are also problems with the thin cap rules drafted heavily focussing on ADI taxpayers, however, the ATO may withdraw from that focus.

The second issue is more relevant, which is a follow on from the Top 1,000 letter, which relates to the safe harbour method with attribution of Risk weighted assets (RWA) for Australia permanent establishments. Some foreign banks cannot evidence and articulate their tax decision making for thin cap calculations for RWA. Additionally, there is a lack of documentation.


AFMA sent a letter to Treasury advising the ATO and AFMA agree that application will give rise to issues under the existing law.

James Campbell expressed the ATO’s appreciation that AFMA engaged with Treasury, noting that the ATO’s preference is legislative clarification. With respect to the RTP, taxpayers should note the position if it is factually relevant but leave a note that this policy matter is currently in discussion with the ATO and Treasury.

Branch markup

From the ATO perspective, it is positive that foreign banks have moved away from the markups this year. It was noted that most banks are not charging markups, that this will likely give rise to double taxation given the amounts would be assessable in the counter party jurisdiction. The ATO is of the view that the mutual agreement procedure process does not assist where parties to a treaty take different interpretations. This case is very different, but the outcome produces double taxation. The ATO is hoping to release something to the market to give guidance on what to do with double taxation.

Rob Colquhoun mentioned that double taxation is not desirable and whether the ATO sees any consistency on the categorisation of services and whether markups should be applied to some categories. James Campbell noted that markups are not permitted to make profit on internal deals. Where a mark-up is used as a proxy for the attribution of income, this is more likely to be acceptable. If a taxpayer puts forward an argument on proxy for attribution of income, then the transfer pricing documents need to be detailed and reflect this.


Attendees list




Bill Neskovski Chair, Public Groups and International


Adrian Mow, Public Groups and International


Andrew Nutman, Public Groups and International


Danny Ong (Secretariat), Public Groups and International


James Campbell, Public Groups and International


Johanna Tang, Public Groups and International


Katherine Leung, Public Groups and International


Lindy Tan, Public Groups and International


Yan Diu, Public Groups and International

Australian Financial Market Association

Anley Viengkhou

Australian Financial Market Association

Monica Young

Australian Financial Market Association

Robert Colquhoun


Jeffrey Tan

JP Morgan

Alice Lam


Kane Nicholson


Jack Zheng


Dale Gordon


Peter To