Most tax and superannuation disputes are capable of being resolved, however the ATO has statutory responsibilities as the administrator of the tax and superannuation laws. This means the ATO can not negotiate liability on a commercial basis - we must settle on a principle basis (that is, what is the tax liability). This is explained in the ATO's Code of settlement practice. This requires balancing the obligation to collect taxes with the obligation to administer the tax and superannuation system in an efficient and effective way.
For example, settlement may be appropriate if the cost of litigating is out of proportion to the possible benefit, including the prospects of success and the likely award of costs. On the other hand, it would be inappropriate to settle where the outcome would be contrary to policy reflected in the law or would involve inconsistent treatment for taxpayers. We publish information on cases settled each year in our Annual Report.
There has been an ongoing and steady reduction in the number of settlements from 1201 in 2007-08 to 304 in 2010-11 and 256 in 2011-12. The majority of settlements are in the micro enterprise and individuals market segments, accounting for 85% of all settlements (micro enterprises 50%, individuals 35%). See table 2.1B and figure 2.5.
Settlements in 2011-12 reduced tax liabilities by $439 million, down from $747 million in 2010-11. See table 2.1B, figures 2.3 and 2.4. In 2011-12, there were 193 settlements not related to mass-marketed schemes (75%) compared to 63 related to those schemes (25%). This continues to reverse the common pattern of the last decade (with significant numbers of scheme-related settlements) and is more in keeping with the balance of settlement activity and numbers of settlements prior to the late 1990s.
In 2011-12, 13 cases resulted in variances of greater than $10 million. These 13 cases accounted for $303.6 million, or 69% of the total recorded variance. The variance reported includes primary tax, penalties, notional tax on losses and interest variants, settled credits and tax offset variance.
Figure 2.3 Variance across settlement components
Figure 2.4 Registered settlements
Note: The ATO's pre-settlement position is the amount the ATO imposed or would have imposed but for the settlement. It is the amount of tax liability, including appropriate remission of penalties and the general interest charge (GIC), that we would raise if a settlement was not reached.
Figure 2.5 Settlements by market segment
Legend: NFP & GOV - Not for profit and Government, IND - Individuals, MIC - Micro enterprises, SME - Small-to-medium enterprises, LARGE - Large businesses, HWI - High wealth individuals.