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Australian Financial Markets Association Liaison Group key messages 17 May 2023

Key messages from the Australian Financial Markets Association Liaison Group meeting 17 May 2023.

Last updated 25 July 2023

Introduction and opening remarks

Bill Neskovski provided an introduction and an overview of recently announced restructuring of business lines within the ATO.

The ATO is in the process of a client engagement group restructure – the implications of the restructure are expected to be minimal for AFMA members.

PG&I will be split into two business lines, which will allow the Deputy Commissioners to focus on their respective patches:

  • Public Groups with two Deputy Commissioners, Rebecca Saint (Client Experience) and Faith Harako (Engagement and Assurance)
  • International, Support & Programs led by Deputy Commissioner Hector Thompson.

Client Experience will be aligned to industry forums/groups and the way we interact. Engagement and Assurance will cover Top 100/1000 programs. From an Australian Financial Markets Association (AFMA) perspective, interaction will largely continue to be with Rebecca Saint. For compliance products on a case-by-case basis – engagement at client level will be with Faith Harako.

International, Support & Programs – will become a standalone business line under Hector Thompson. This will include International, CEG services, GST program and GST leadership. This is separate to GST compliance teams, which remain in Public Groups. Reporting and CCRS will remain with Jaydon Beatty and Belinda Darling.

There is a broader restructure for other business lines which will impact non-AFMA members. It is anticipated that a structure diagram will be shared with external clientsonce finalised.

AFMA/ATO Consultation Charter

Danny Ong provided context around the reintroduction of a consultation charter for most of the ATO’s consultation groups, and reminded attendees that items noted as confidential should not be disclosed outside the group or used for material benefit. Danny Ong noted that key messages are published on the ATO website and most content discussed with AFMA during meetings would not be confidential.

Banking and Finance Strategy Update

James Campbell lead the update for Banking and Finance (B&F) Strategy.

The planning process for next year has started, with an aim to produce new documentation in July.

  • The Top 100/JT program is a mature product and almost all groups in Banking and Finance are now high assurance (6 out of 7).
  • Some banks are now in the 'Refresh' year. The ATO is relying on work completed in previous reviews where possible to reduce compliance intensity.
  • Divestment and acquisition activity, as well as transfer pricing, hybrid mismatches and Offshore banking unit (OBU) transition are the highlights for the current and next period.
  • The annual compliance arrangement (ACA) program is transitioning to the pre-lodgment compliance review (PCR) program. The 2023 income tax year will be the last year under the ACA program, with 2024 being the first year under PCR.
  • Pre-lodgement engagement where signoff is requested will typically lead to a low risk letter, which can be relied on if the scenario described is taken to lodgement and translates to high assurance post lodgement.

Casework in progress in the Top 1000 includes products such as the next action reviews, Compliance Assurance Reviews (CAR) and GST-led reviews. The focus of the next action reviews from an income tax perspective was communicated to AFMA in the April 2021 letter.

For AFMA members, the Medium and Emerging work program (turnover <$250m) will ramp up next financial year. Members in this market can expect more issues focused engagement from the ATO that are likely to be project based, for example a risks and issues associated with withholding tax.

There will be continuing interaction between the B&F Strategy team and Medium and Emerging markets (M&E) Strategy team going forward. If any AFMA members have any banking specific issues, please let us know and we will assist.

Depending on the risk and nature of the issue identified, various filters are applied for the M&E market (e.g. materiality, lodged tax return figures)

Rob Colquhoun requested a strategy document for Medium and Emerging markets if this was available in future.

Justified Trust/Combined Assurance Review Update

Income Tax

Katherine Leung provided an update on Justified Trust/Combined Assurance Review program for income tax issues.

A couple of B&F CARs are scheduled for finalisation before 30 June 2023. No significant concerns identified to date. Some more CARs starting shortly and some next actions and GST-led reviews in progress. For these reviews, we cover every B&F issue to the extent they are relevant. Transfer Pricing and Branch Attribution are generally the key focus.

Where a new review product commences, we expect taxpayers to refer to their previous streamlined tax assurance report (STAR) and action any of the ATO’s suggestions and note what steps they have taken to rectify matters or provide reasons why an issue is no longer relevant.

Alice Lam asked whether there could be a continuity of teams and knowledge, given the intensive resources committed to previous review products. Katherine Leung and James Campbell commented that at the case team level, there were competing resourcing priorities for compliance officers, which may result in different teams being used. The Banking and Finance Strategy team would close this gap by providing continuity, and being a central hub attached to each case to provide assistance on requests for information, meetings, understanding responses, doing write-ups etc. A triage process occurs at the outset, which involves the Top 1000 core team, the Assistant Commissioner of the site, which will look through previous reports for a taxpayer and identify areas of focus. There is also a formal finalisation panel. These processes promote a level of consistency.

Number of cases for remaining for FY2023:

  • 2 CARs going to final panel
  • 4 Next Actions in progress, with 1 scheduled for final panel
  • 2 GST-led risk reviews with IT component in progress.

Andrew Nutman provided comments for the GST JT/CAR program.

Top 100, aware that GST perspective lagging behind. Lighter touch years, try and do those together to try and catch up so the reviews are more in line with last year vs 4 years ago.

ACA to PCR transition will not be particularly impactful for GST, as the PCR reflects what was in the ACA before. The ATO is aiming to be more prescriptive with information requirements and specifying what is required in lighter touch years (for example, specifying transactions and periods rather than asking for most material transactions).

Top 1000 Population extends beyond B&F (as it includes superannuation and insurance). It is anticipated that there will be more resources dedicated to resolving matters with Superannuation.

The existing GST issue which is being focused on is the reverse charge issue – lack of awareness or not fully understanding how it should work. The ATO has come to a view on these cases, however, is considering whether more clarity and guidance is required to be issued to the market.

Another issue is non-arm’s length transactions, which can be overseas parent to local sub or branch. Rules for connected entity are slightly more complex.

Rob Colquhoun noted that AFMA members would be keen to have a look at any guidance, and have a technical meeting if possible to discuss. Andrew Nutman suggested this guidance could be issued around July-August.

Rob Colquhoun enquired as to why these issues were arising now given that GST was introduced a while back (in 2000). Andrew Nutman noted that many international groups were used to VAT systems globally, and may be unfamiliar with specific rules in Australia which are quite unique.

Rob Colquhoun noted that there was no allocation of budget for multinational enterprise work – James Campbell and Bill Neskovski advised that the budget was announced for the multi-year program in a previous budget and therefore was not announced again in the most recent budget.

Budget Topics

Pillar 2

Bruce Matheson provided an update of the Pillar 2 changes.

The OECD Base erosion and profit shiting project – Action Item 15 became the Pillars project. Then Pillar 2 proposal – global minimum tax. The rate which has been globally agreed to is set at 15%.

With a global minimum tax, a country is permitted to tax a group’s profits if the profits are not taxed sufficiently in any other jurisdiction. For example, if profits are allocated to the Cayman Islands with a tax rate of 0%, those profits could be taxed in another jurisdiction at 15%. Traditionally, these jurisdictions have used their tax base to attract business via low tax rates.

Effectively you have to have a foreign sub and turnover >EUR750m per year. Based on actual accounts. Rely on audited financial accounts.

For the measures being introduced, not only is there a Global anti-base erosion (GloBE) tax, but also a Domestic Minimum Tax (DMT). The DMT is intended to give the home jurisdiction the first cut of the pie.

Outside of Australia, several countries have already produced legislation such as the UK and Germany. Other countries committed to Pillar 2 and DMT include Australia, New Zealand and Japan.

There is an incentive for countries to get involved. The way that it’s taxed – income inclusion rule – relies on your investment structure. Backup rule is the undertaxed profits rule. Replicate economic activity to direct profit for taxing.

Timing – income inclusion rule and DMT is from 1 January 2024 onwards. Undertaxed rule delayed by 12 months. The start date was brought forward to align with other jurisdictions expected to start from that date. The rationale is that if Australia did not start the income inclusion rule from 1 January 2024, another jurisdiction which implemented the rules would be eligible for adjustments.

USA has not signed up as they have no income inclusion rule. There is ongoing debate as to whether Global Intangible Low-Taxed Income is equivalent, and whether their Corporate minimum tax is similar to DMT. OECD don’t necessarily see those rules as complying with principles of Pillar 2.

The ATO is working with Treasury to focus on how the legislation can be administered. There may be some new legislation in relation to each of these measures (Globe Info Return and DMT). As a result there will potentially looking at 3 new tax returns that taxpayers will be subject to – GIR, DMTR (which is expected to be similar to GIR), and a GloBe Tax Return. The ATO will provide advice and guidance on issues relating to this.

The ATO and Treasury are working on ensuring that the rules implemented are qualifying rules, which refer to the Model rules and administrative guidance developed in consensus with ATO and OECD.

Countries aren’t allowed to deviate from Model rules in any substantial way, otherwise their domestic law become unqualifying – and they may not be able to collect top up tax.

Where issues arise that are considered global, then the OECD will provide guidance. If there are Australian unique issues, we will need to discuss with the OECD to ensure it won’t disqualify our rules. This is different to traditional ways of designing and developing the law.

There is anticipated to be minimal gap between compliance cost and revenue impacted – appreciate that there is significant compliance cost and not necessarily significant revenue at stake, given that most multinationals will restructure following the implementation of these rules to pay their fair share of tax.

Most firms have suggested it’s not just a tax issue. We have got feedback that it’s not a simple system solution and we are very aware that this is going to create significant work to implement.

Treasury are looking to issue draft law for open consultation in the future. The ATO will be happy to take thoughts and concerns in relation to the Globe rules – challenges we have from an admin perspective, consolidation and globe rules interaction.

Kane Nicholson enquired what the intended skill profile for resourcing to resolve and implement these new measures. Bruce Matheson noted that the ATO will have to skill resources, as many rules are based on accounting standards (tax effect accounting, DTL/DTA). It is likely to be a similar issue for taxpayers and software providers.

Jeffrey Tan and Alice Lam noted that their teams were likely to be working on a global solution and that it would be appreciated if any additional data points required from an Australia only perspective are provided to the market as soon as possible.

Part IVA changes

Danny Ong provided a summary of the Part IVA changes, notably that arrangements relating to withholding tax would now be included, and that the dominant purpose of avoiding foreign tax could no longer be argued. Further, although the start date was 1 July 2024, it would apply retrospectively to existing arrangements.

Rob Colquhoun asked whether there were any particular scenarios the legislation was aiming to address (for example Managed Investment Trust). James Campbell noted that these changes did not appear to originate from behaviour of Banking and Finance taxpayers.

Kane Nicholson commented that guidance relating to restructuring to avoid the new Part IVA in order to better comply with the existing legislation would be appreciated.

Thin Capitalisation Changes

Danny Ong noted that AFMA had provided feedback around the thin capitalisation changes, particularly around s25-90. A brief discussion around AFMA’s submission was held.

Rob Colquhoun noted that the AFMA submission outlined that because the general thin cap rules were coming online, there was no need for 25-90/230-15. Policy intent around ADIs should be maintained.

Rob Colquhoun suggested that an objective test for a financial institution should remain, and questioned whether what were the integrity concerns for changing the definition. James Campbell noted that the integrity concerns were unlikely to be from the PG&I Top 100/1000 space, but the B&F Strategy Team would look into this further.

Rob Colquhoun discussed the special purpose vehicle issue, and the lack of a carve out. This would impact taxpayers who deal with securitisation. James Campbell noted that this was likely to be managed by the internationals team which may see this risk.

James Campbell noted that there were differing levels of tracing, but it was unlikely that transactions could be traced all the way to the source of funding. The ATO had previously released a s25-90 proxy solution in 2018 for the purposes of filling in the informational fields of the tax return.

Danny Ong asked Rob Colquhoun to unpack the break costs issue. Rob Colquhoun noted that since the original funding costs were not traced, if new funding sources and break costs were incurred, it was unclear whether these break costs would be deductible under s8-1.

Public Country by Country Reporting

Danny Ong noted that the internal ATO team working on public country-by-country (CBC) noted there was limited information that could be provided prior to royal assent and passage of the new legislation. All fields expected to be made public were described. Some fields were likely to be commercially confident (for example value and description of intangible assets).

Rob Colquhoun noted that significant global entities with any presence in Australia may run into an issue where they are required to disclose information relating to their global operations, even if their Australian operations were very limited (minimal staff or revenue). This would be a significant cost for some multinational, and a de minimis measure would be good to consider. AFMA would appreciate enhanced guidance on what could be relied on for obtaining information and data as there were discrepancies between CBC guidance and the OECD.

Kane Nicholson noted that there may be statutory account disclosures required, and guidance for overlaps in regimes would be appreciated.

Alice Lam noted that there were issues and compliance costs with the existing processes of converting local files into XML for CBC reporting purposes. Danny Ong noted that it is anticipated the public CBC measures would leverage off the existing confidential CBC measures.

Danny Ong noted that feedback would be passed onto internal stakeholders.

Technical issues and other updates


Adrian Mow noted that Treasury had received a submission from AFMA. The B&F Strategy Team are working with our policy analysis team to arrange further meetings with Treasury. The ATO has been dealing with Greg Wood from Treasury in the past.

James Campbell acknowledged that the ATO was currently not pursuing the bail-in issue. Although the technical view indicates that the instruments are not debt (and thus no deduction is available for “interest” payments), the policy does not seem to be intended.

James Campbell noted this issue surfaced in 2019, however with rising interest rates, the need for clarity in the law has heightened. The current approach of abstaining from taking compliance action is not sustainable in the long term and therefore we would ultimately need policy clarification from Treasury.

Head Office Expense Allocation/MAPs

Danny Ong provided an update, noting that the B&F Strategy Team are in consultation with the mutual agreement procedures (MAPs) team as guidance drafted currently covers B&F related taxpayers (as they are the most likely to have inbound branches), however the matter extends to any taxpayer with an inbound branch.

Danny Ong noted that most MAP processes are in relation to transfer pricing and the appropriate costs and mark-ups for related party transactions, rather than a matter relating to jurisdictions having different approaches to a treaty article.

Rob Colquhoun asked whether there was appetite for changes from Australia’s Relevant Business Activity approach to the Authorised OECD Approach (AOA), given the incoming Pillar 2 changes. James Campbell noted it would be another factor adding weight to consideration of adopting the AOA , however this is a matter for government.

Risk Weighted Assets (Thin Capitalisation)

Johanna Tang and James Campbell noted that a discussion paper with examples was being drafted, and the B&F Strategy Team had consulted with APRA. It is noted that there are a wide variety of fact patterns that require further consideration.

Trying to get a better understanding of methodology attributing Risk weighted assets (RWA) to the Australian branch – more specifically, what is the decision-making process of whether an asset is booked in Australia vs another offshore branch.

Some of the factors that we are considering in terms of what should impact the allocation – APRA guidelines, location of where significant functions are performed, underlying risk being managed, location of the branch that has authority to enter transaction.

It is not expected that there will be major risks within the population identified – the discussion paper is a result of some guidance being required for the ATO to be satisfied when issuing high assurance ratings.

It is likely the ATO will consolidate thinking into a discussion paper over the next couple of months.

Rob Colquhoun noted that the tax and accounting should be aligned at a macro level but that tax will require more granular detail.

James Campbell noted that a vast majority of fact patterns, industry will agree with the approach being taken. For example, where there is a clear Australian operation with lending to an Australian client, and the asset being booked in Australia. But there are some exceptions where there is an Australian client but the product is booked overseas, such as some derivatives products.

James Campbell also noted that 815-C and withholding tax consequences are other matters related to RWA that should be considered.


Katherine Leung advised the ATO identified an issue where if taxation of financial arrangements (TOFA) gains were higher than total income per ITR disclosures, PAYG withholding instalment rate would be incorrectly calculated to zero, even if the taxpayer had tax payable in their most recent lodged ITR. TOFA gains in label 8T should not be greater than label 6S. Taxpayers should not be netting off and including net in the label. If filled in incorrectly, this causes a deferral of tax – important that it is filled in properly. It was expected that gross TOFA gains should be included in assessable income and therefore TOFA gains (label 8T) should never be greater than income (label 6S).

Kane Nicholson noted for many taxpayers, that using existing software, it was not possible to report the figures as suggested. Jeffrey Tan noted that taxpayers are unlikely to be looking at the PAYG instalment rate, and there was an instance where they reported the gross amount but that significantly inflated the total income and was advised by the ATO to amend it. Jeffrey noted that if it was a non-zero rate it should reflect that there is no issue.

James Campbell noted that it was unlikely that taxpayers were intentionally triggering nil PAYG instalment rates and that the ATO is presently dealing with the issue in good faith, however this could be a compliance issue in future.

Hybrid Mismatch

Katherine Leung thanked AFMA for providing the submission in relation to hybrid mismatches rules. We will look into working with the hybrid mismatch team to fine tune the international dealings schedule instructions in relation to issues raised by AFMA members.

Rob Colquhoun noted that there were a wide range of hybrid mismatch arrangements based on unique circumstances and jurisdictions and not a large subset of examples that could be provided that were indicative of issues faced by the industry as a whole.

Offshore Banking Unit Transition

The ATO currently has one-to-one engagement with major OBUs. If anyone needs further engagement, contact James Campbell directly.

Section 128F Query

James Campbell noted that this project was driven by the Medium and Emerging team from PG&I within the ATO, with the B&F Strategy Team providing some technical support.

TR 2005/5 Addendum

James Campbell announced that this matter was to be published on 17 May 2023.

Certificates of Tax Residency

James Campbell and Bill Neskovski noted that there were delays across various processing teams within the ATO and that it was anticipated more recruitment and resourcing would be diverted to these teams in the near future.


Attendees list




Bill Neskovski (Chair)


Adrian Mow


Andrew Nutman


Bruce Matheson


Danny Ong


James Campbell


Johanna Tang


Katherine Leung


Tim Smith

Australian Financial Market Association

Rob Colquhoun


Rob Pugliano


Tasos Mihail


Jeffrey Tan

JP Morgan

Alice Lam


Kane Nicholson


Derek Chan


Mark Thomas

Societe Generale

Anley Viengkhou


Jack Zheng