We are publishing our insights report for the public and multinational business advice and guidance program (the Program).
- delivers high quality advice for complex transactions undertaken by public and multinational business taxpayers
- provides certainty about the tax outcomes for all transactions where a ruling, advice or other guidance is provided
- identifies issues early and engages closely with stakeholders, both internal and external, through the early engagement process
- connects our advice and guidance specialists with businesses planning significant investment in Australia through the New Investment Engagement Service (NIES).
This report includes insights drawn from the work completed through the Program over the 2019–20 to 2022–23 financial years.
This report outlines:
- insights on how taxpayers and their advisers can most effectively engage with us when applying for rulings or otherwise seeking advice and guidance
- our key observations and findings about the nature of the advice sought by public groups and international business taxpayers and their advisers.
We recognise the important role the Program plays in providing public and international business taxpayers and their investors with tax certainty. We are committed to providing a tailored service that best meets the needs of businesses whilst operating within our statutory framework and resource base.
The insights from this report will be used by us as part of our commitment to continuous improvement of the Program. We will also use the insights to inform how we can better educate and assist taxpayers to obtain tax certainty through the most effective and efficient use of both the Program and the ATO’s public advice and guidance.
The key insights from the Program are:
- it continues to play a key role in providing tax certainty to hundreds of large businesses and the entities that invest in them
- the nature and amount of advice requested reflects market activity as well as changes to the law
- engagement through the early engagement program on complex transactions is more likely to result in positive outcomes for applicants
- Top 100 taxpayers use the Program for rulings for the entities that invest in them as well as their own tax affairs – this reflects the level of engagement they already have with the ATO as well as the need or desire to provide certainty to their investors
- other public groups and international businesses, (for example Top 1,000 taxpayers), access the Program for a mix of tax certainty, predominantly for their own affairs as well as that of the entities that invest in them
- most applications to the Program are made via advisers – this reflects the transactional nature of many of the arrangements on which advice is requested, and the likelihood for advisers to be engaged by taxpayers as part of managing those transactions.
We provide advice and guidance in a range of forms to help taxpayers understand how the law applies to their circumstances. This reduces uncertainty when they self-assess their obligations or entitlements. Seeking confirmation of our interpretative position may form part of a taxpayer’s tax control framework, for example to identify and manage tax risk.
Advice is our opinion on the application of the law that we administer. Our opinion is legally binding if it is provided in the form of a ruling. Where the taxpayer acts in accordance with the ruling, they are protected from adverse consequences, even if our opinion is incorrect.
The Program is responsible for providing:
- legally binding private and class rulings for public and multinational business taxpayers
- advice on whether we will exercise a discretion.
Private rulings generally are about tax provisions that impact a specific entity’s income or withholding tax liability.
Class rulings provide certainty to participants in a scheme covered by the class ruling, such as shareholders of a company or unitholders in a trust. Class rulings avoid the need for individual participants to seek separate private rulings.
The Program may also provide other types of written guidance or administratively binding advice about the broad operation of the law in some circumstances. Guidance provided in these circumstances is outlined in PS LA 2008/3 Provision of advice and guidance by the ATO.
Taxpayers that are contemplating a complex transaction with a view to obtaining a private or class ruling around the time they implement the transaction, can also seek early engagement before lodging a formal ruling application. Early engagement on complex transactions that start as early as possible in the scheme implementation process ensures there is a clear understanding of the proposed scheme before a formal ruling application is made.
The early engagement approach enables taxpayers to informally engage with us to:
- discuss an arrangement
- identify key issues and concerns
- discuss the most appropriate form of advice required.
While taxpayers may decide through the early engagement process that a formal ruling is not required, any advice they receive through the early engagement process is not binding and does not provide the same level of protection as a private or class ruling.
New Investment Engagement Service (NIES)
On 1 July 2021, we introduced the NIES for businesses planning significant new investments in Australia.
Before undertaking significant commercial transactions and investments, investors can engage with the NIES to understand:
- potential tax risks arising from their proposed investment structures
- steps they can take to mitigate risks (if relevant).
Due to the short timeframes and early stage of the transaction, the NIES report is not administratively or legally binding on the ATO. However, businesses can use the service to obtain practical confidence about the tax risk of their proposed transaction.
The NIES can also assist businesses better navigate the Foreign Investment Review Board process or requests for rulings by minimising duplicate information requests.
We have had a range of preliminary conversations with investors about their transaction options and how NIES interacts with other ATO services. Most guidance provided through the NIES has been general in nature, relating to the eligibility criteria for tax concessions.
Since its launch, there have been 22 initial NIES engagements, 3 of which were followed by written guidance, setting out our views on the proposed transaction in a tailored report. These tailored reports provided guidance on taxation issues covering capital gains tax (CGT), hybrid mismatch rules, related party financing, R&D tax incentive and temporary full expensing.
Action Differentiation Framework
The Program provides advice to all taxpayers within the Action Differentiation Framework (ADF). We use the ADF to differentiate between the size, complexity and behaviour of public and multinational businesses.
This report provides insights into who engages with the Program based on their ADF population. However, the way we engage with each taxpayer in the Program is tailored or differentiated based on the specific transaction or issue on which advice or guidance is sought rather than the ADF population.
The Program also covers taxpayers that are not yet identified or categorised under the ADF but are a public or multinational business or APRA-regulated super fund. Those taxpayers may not be categorised under the ADF due to their limited interaction with us at the time they first use the Program.
This report provides aggregated data on the 2019–20 to 2022–23 financial years for cases completed within the Program.
This report does not include requests received in this period that were not completed before 30 June 2023.
Many requests for binding advice or guidance require more than one ruling to be issued, particularly when there are multiple parties to a transaction each requiring different rulings on the same scheme, or there are separate issues that need to be addressed in independent products.
This report primarily reports upon the number of ruling and guidance products completed each year, rather than the number of underlying transactions or schemes considered. Further, it is inherently difficult capturing aggregated qualitative information from the receipts and completions due to the varying degrees of complexity for each request.
Not all early engagement, ruling or guidance requests received in a financial year will be completed in that financial year. As such, there is a fluctuating variance between receipts and completions year to year.
Discussion of report findings should consider broader macroeconomic conditions and external influences, such as legislative changes and the impacts of COVID-19. Changes in demand drivers for advice and guidance impact the type, nature and complexity of advice and guidance requested by businesses.
Figure 2: Private rulings, class rulings and guidance products completed by product type 1 July 2019 – 30 June 2023Footnote2
For example, legislative changes in 2019–20 relating to sovereign immunity and withholding tax exemptions prompted a significant increase in advice requests. The number of private rulings issued peaked in 2020–21, increasing by more than 40% after requests from sovereign entities and foreign super funds seeking confirmation of their eligibility for tax concessions doubled, before normalising in 2021–22.
During 2021–22, we observed strong demand for advice and guidance from public groups and international businesses. Broadly, the nature and number of requests completed in 2021–22 reflected increased levels of merger and acquisition activity occurring in the market. In contrast, merger and acquisition activity dropped in 2022–23, leading to a reduction in requests for advice, and a decrease in the number of rulings issued during the financial year.
The effects of the evolving nature of the drivers of demand for the Program’s services is reflected in the changing mix of cases over time and a noticeable increase in complexity of engagements.Figure 3: Proportion of products completed 1 July 2019 – 30 June 2023Footnote2
In 2022–23 we saw a significant reduction in requests for private rulings relating to topics driven by a noticeable decrease in mergers and acquisition activity in the market. This has been reflected in a small drop in private ruling completions for the 2022–23 financial year overall. Reduction of the number of private rulings issued in future years may result because of reduced requests received in 2022–23.
By contrast, the number of class rulings issued increased steadily over 2020–21 and 2021–22, driven by rising demand for rulings for demergers. Class rulings relating to capital management requests also increased in 2020–21 and remained stable in 2021–22 before falling in 2022–23, partially neutralised by an increase in requests for class rulings relating to employee share schemes.
Performance against service commitments
The Program is governed by the ATO’s service commitments, which set out the level of service when dealing with us. As a part of these commitments, the Program is committed to meet the following targets in 80% of cases:
- Respond to enquiries within timeframes – we will complete rulings within 28 days of receiving all required information.
- Keep clients informed of status or delays – if we find that a request raises particularly complex matters that will take more than 28 calendar days to resolve after receiving all the necessary information, we will aim to contact the applicant within 14 calendar days to negotiate a due date.
Keep me informed
ADF population observations
Public and multinational businesses are assigned to an ADF population based on their total business income. These populations are:
- Top 100 taxpayers – consists of public and multinational businesses and large regulated super funds that have substantial economic activity related to Australia. These are the very largest businesses in Australia.
- Top 1,000 taxpayers – consists of public and multinational businesses and large regulated super funds with turnover above $250 million and not in the Top 100. Top 1,000 taxpayers include a diverse range of entities and groups in terms of their ownership, business models, industries, and size.
- Medium taxpayers – consists of public and multinational businesses and large regulated super funds with an annual turnover of more than $10 million up to $250 million.
Emerging taxpayers – consists of public and multinational businesses and large regulated super funds with an annual turnover of less than $10 million.
The Program is accessed by taxpayers across the entire ADF, including those that have not yet been rated.Figure 5: Private rulings, class rulings, guidance products and early engagements completed by taxpayer population 1 July 2019 – 30 June 2023
These populations have different needs and interact with us in different ways, and so the distribution of our work can change from year to year. Some requests will require more than one ruling to be issued from a single application and some taxpayers have engaged with us multiple times on different transactions over the past four years.Figure 6: Private rulings, class rulings, guidance products and early engagements completed distributed by taxpayer population 1 July 2019 – 30 June 2023
After an increase in the number of requests completed for Top 100 and Top 1000 taxpayers from 2019–20 to 2021–22, completions for these populations decreased in 2022–23 in both absolute numbers and as a proportion of our overall case mix.
In 2022–23 we observed a 41% decrease in requests completed for Top 100 taxpayers and a 19% decrease in requests completed for Top 1,000 taxpayers compared to the 2021–22 financial year. Part of this is a return to trend after the COVID-19 pandemic drove higher levels of mergers, acquisitions and restructuring activity.
We also observed an 33% increase in requests completed for taxpayers outside the ADF from 2021–22 to 2022–23. However, this is still well down on previous years and masks a continued decline in the advice provided to taxpayers outside the ADF, from 37% of cases completed in 2019–20 to 14% in 2022–21. This decrease is likely a function of both an overall increase in the number of taxpayers in the ADF population and a cyclical reduction in the number of requests for advice on the foreign super fund withholding tax exemption, which may reverse in future years as many of those taxpayers engage with us again to obtain continued certainty over their circumstances.
The number of advice requests completed for Medium and Emerging taxpayers remained relatively steady from 2021–22 to 2022–23.
Top 100 taxpayers continue to be the population most likely seek class rulings, accounting for the same number of class rulings as Top 1000 taxpayers despite having one tenth of the population. They are also the population most likely to make use of our early engagement program. Top 1,000 taxpayers have been the largest users of the Program overall, accounting for approximately 26% of completed cases over the past 4 years.
Advisers play a key role in the Program. Most public groups and international business taxpayers seek rulings through an adviser. The involvement of advisers reflects:
- the transactional nature of many of the arrangements
- that it's common for large and complex taxpayers to engage advisers to help with such arrangements.
Note, it is not necessary for a taxpayer to have an adviser to seek advice through the Program.Figure 7: Private rulings, class rulings, guidance products and early engagements completed by adviser and taxpayer 1 July 2019 – 30 June 2023
Taxpayers who access the Program are represented by a wide variety of advisers from across the professional services market. Approximately half of the taxpayers who access the program were represented by one of four firms:
- Ernst & Young
These 4 firms are referred to in this report as ‘Big 4’ firms and are the largest users of both our rulings and early engagement products. All other adviser firms are categorised as ‘other firms’ for the purposes of this report.Figure 8: Private rulings, class rulings, guidance products and early engagements (products) completed by adviser type 1 July 2019 – 30 June 2023
In the 2022–23 financial year, 86% of all work completed in the Program was initiated from a request involving an adviser, with 47% of that work coming from a Big 4 firm. The number of requests lodged directly by taxpayers has remained consistent at 15% with the 2021–22 year.
Advisers are engaged by taxpayers across the entire ADF population, although usage patterns differ across groups.Figure 9: Top 100 and Top 1,000 private rulings, class rulings, guidance products and early engagements completed by population and adviser or taxpayer 1 July 2019 – 30 June 2023
Top 100 taxpayers are 5 times more likely to approach us for rulings or guidance products without an adviser than Top 1,000 taxpayers.
The Program receives requests for advice across a range of complex transactions during the year.
Over the past 4 years we have been able to:
- identify common ruling requests across taxpayers
- understand the most common topics and changes in transaction types.
Many of the requests for advice are for similar transactions, with taxpayers looking for advice applicable to their specific circumstances.
We regularly review data on the advice requested by taxpayers to identify issues where public advice and guidance might reduce or streamline one-to-one engagement with us.
In the 2022–23 financial year, the third highest topic upon which advice was provided was capital management. As a result of the consistently high number of requests, we published a consultation paper canvassing the need to publish more public advice and guidance on certain capital management transactions with the intention of finding ways to assist taxpayers self-assess, reduce the need to apply for class or private rulings, or improve efficiencies where rulings are required. This builds on 2 new tax determinations on employee share schemes published in 2021–22 financial year, which were developed following our analysis of recurrent themes in ruling requests relating to that topic.Figure 10: Top 5 topics of completed engagements 1 July 2019 – 30 June 2023
The topics on which advice is sought have remained relatively consistent over the past 4 years.
Top 5 topics for advice requests:
- capital gains tax (CGT)Footnote5
- employee share schemes
- capital management transactionsFootnote6
- withholding tax exemptions
- international tax issues.
Approximately 80% of all advice requests completed in the financial years 2019–20 to 2022–23 related to the 10 topics referred to in Figure 10.
Advice requests completed for capital management transactions decreased in 2022–23 by 32% after increasing by 10% in 2021–22.
In the 2022–23 financial year, we saw a significant increase in advice requests completed for employee share scheme rulings when compared to the previous year, increasing by 80% from 2021–22.
Advice on withholding tax exemptions for foreign super funds and sovereign immunity remain one of the top 5 topics on which advice is sought. However, the total number of rulings on these issues have continued to fall from their high in 2020–21, now being 61% lower than that peak which followed the introduction of new legislation. We anticipate that rulings in relation to these topics will increase again in the 2023–24 financial year as many of those taxpayers are expected to engage with us again to obtain continued certainty over their circumstances.
OutcomesFigure 12: Outcomes of class and private ruling requests 1 July 2019 – 30 June 2023
The percentage of class and private rulings which have favourable outcomes has remained around 80% for the past 4 years, with only 1-3% resulting in an unfavourable outcome in that period. The low number is evidence of the effectiveness of our early engagement process.
Most cases where we refuse to rule occur when the applicant does not provide the requested information. We are unable to provide a ruling if we have not been provided with enough information.
Requests for rulings which result in no further action being required have remained stable as a percentage of total ruling requests in each of the past 4 years. Circumstances described as ‘no further action’ include instances where a ruling was not required because we provided written guidance, or the request for a ruling was withdrawn.
A request for a ruling may be withdrawn for numerous reasons, but most were withdrawn because circumstances changed so the transaction did not go ahead.
Where we provide an unfavourable decision or an application is withdrawn after the Advice and Guidance team identifies concerns with the applicant’s interpretation or application of the law, we may continue to review the relevant issue – for example, as part of the applicant’s Justified Trust review.
Effective engagement with the Program
The early engagement process is an important part of our overall Program. Taking part in the early engagement process:
- helps us gain a clear understanding of the issues prior to a formal ruling application being lodged
- is usually recommended for more complex or time critical transactions.
Engaging early on complex transactions ensures there is a clear understanding between the ATO, taxpayers and advisers. Concerns can be identified early in the process.
Our early engagement team uses their networks and business experience to support collaborative and constructive dialogue with the applicant or adviser about the advice or guidance they are seeking. We also expect that where we identify a difference in view on the tax outcomes of a proposed transaction during early engagement, this may prompt a change in the transaction.
Over the past few years, the early engagement team have worked closely with taxpayers to ensure that their business needs are met. To facilitate this and ensure the most effective and efficient outcome for their ruling, taxpayers are encouraged to do the following.
We aim to provide a correct ruling outcome in a reasonable timeframe. Our work is demand driven with unexpected peaks with the volume of rulings we receive.
If you know a ruling is required by a certain date or event, such as a shareholder meeting or dividend announcement, contact the early engagement team as soon as possible so that we understand your timetables.
It's imperative you provide as much information as possible when it becomes available to ensure we can accurately identify the facts. This may include draft transaction and disclosure documents. Providing this information when it's available means less time will be spent going back-and-forth with our staff and will improve the timeliness of the ruling.
Providing accurate information is important. If there is a material difference in the facts identified in a ruling and the facts of the transaction actually implemented, the ruling will not bind the ATO.
When we request more information to progress your ruling, it's important to provide that information as soon as possible. This ensures your ruling can be completed within agreed timeframes.
Early engagement observations
The number of early engagements completed remained stable between 2019–20 to 2021–22. In 2023, there was a 27% reduction in the number of early engagements which is attributable to the overall reduction in requests for advice. Reduction in requests for advice relating to capital management and capital gains tax transactions is related to a reduction in merger and acquisition activity generally.Figure 14: Early engagement outcomes by percentage of products completed 1 July 2019 – 30 June 2023
While the total number of engagements has reduced from 2021–22 to 2022–23, the percentage of early engagements that then progressed through to a class or private ruling has increased steadily over the past 4 years.Figure 15: Class and private ruling request outcomes after early engagement 1 July 2019 – 30 June 2023 Figure 16: Class and private ruling request outcomes without early engagement 1 July 2019 – 30 June 2023
We encourage taxpayers to engage with us and seek advice for complex transactions. In the past 4 years, class or private ruling requests that resulted in a favourable ruling (where we agree with the applicant’s view of the law) and followed early engagement, were 14 percentage points higher than ruling requests that hadn't been preceded by early engagement. Evidence clearly demonstrates the benefit of engaging with our early engagement process.Figure 17: Proportion of rulings completed following an early engagement by taxpayer population 1 July 2019 – 30 June 2023
Top 100 and Top 1,000 taxpayers are also the largest users of the early engagement process given the taxpayers and their advisors familiarity with the process.
This may also reflect our recommendation that early engagement be used for complex transactions.Insights and key observations from our advice and guidance program for public and multinational businesses.
- Footnote 1
- Figures and observations relating to the early engagement program are discussed in the dedicated early engagement section below.
- Footnote 2
- Not all charts in this report will add up to 100% due to rounding.
- Footnote 3
- No service commitments apply for early engagement or guidance products
- Footnote 4
- The previous report referred to the ‘Big 5’ firms. This has been changed to the ‘Big 4’ firms following the acquisition of Greenwoods & Herbert Smith Freehills’ tax advisory practice by PricewaterhouseCoopers on 1 July 2022.
- Footnote 5
- CGT topics include rulings relating to demergers, CGT rollovers, Division 855, CGT cost base, Division 149, Division 615, capital losses, earnouts and other similar issues.
- Footnote 6
- Capital management topics include rulings relating to returns of capital, off-market share buy-backs, capital raising transactions, the payment of special dividends, the issuance of capital notes and other similar issues.