NTLG Minutes - 4 March 2015 meeting

QC: New1 Content revised: Yes Abstract revised: No

Abstract:

Abstract text

Meeting details

Venue:	Australian Taxation Office, Melbourne - Canavan Conference Room L9.713, 747 Collins Street, Melbourne CBD
Date:	4 March 2015
Start:	9:30am	Finish:	3:30pm
Acting Chair:	Andrew Mills, Second Commissioner, Law Design and Practice Group

Attendees

Australian Taxation office (ATO)	¦ Neil Olesen, Second Commissioner, Compliance Group ¦ Andrew England, First Assistant Commissioner, Integrated Tax Design ¦ Jeremy Hirschhorn, Chief Tax Counsel, Tax Counsel Network ¦ Peter Coakley, Assistant Commissioner, ATO Corporate ¦ Jorge del Busto, Senior Executive Advisor, Office of the Chief Tax Counsel ¦ Melissa Fairhall, Acting Secretariat
Treasury	¦ Rob Heferen, Executive Director, Revenue Group ¦ Luise McCulloch, General Manager, Corporate International Tax Division
Association of Taxation and Management Accountants	¦ Keith Clissold
Chartered Accountants Australia and New Zealand	¦ Michael Croker ¦ Tony Stolarek ¦ Andrew White
Corporate Tax Association	¦ Michelle de Niese
CPA Australia	¦ Mark Morris ¦ Andrew O'Bryan ¦ Alexis Kokkinos
Institute of Public Accountants	¦ Lance Cunningham ¦ Tony Greco
Law Council of Australia	¦ Mark Friezer ¦ Adrian Varasso
National Tax and Accountants Association	¦ Rodney Wilson
Taxpayers Australia	¦ Andy Nguyen
The Tax Institute	¦ Stephen Healey ¦ Robert Jeremenko ¦ Tim Neilson ¦ Stephanie Caredes (Professional Association Bodies Agenda submissions co-ordinator)

Apologies

ATO	¦ Chris Jordan, Commissioner of Taxation
Chartered Accountants Australia and New Zealand	¦ Grant Wardell-Johnson

Additional guest attendees

ATO

¦ Michael O'Neill, Acting Deputy Commissioner, Public Groups International (Agenda item 1.4) ¦ Will Day, Acting Deputy Commissioner, Private Groups and High Wealth Individuals (Aggressive Tax Planning) via phone (Agenda item 2.3) ¦ Bruce Collins, Assistant Deputy Commissioner, Technical Excellence Services, Private Groups and High Wealth Individuals (Agenda item 2.3) ¦ Debbie Hastings, First Assistant Commissioner, Review and Dispute Resolution (Agenda item 2.4) ¦ Diane Burn, Assistant Commissioner, Review and Dispute Resolution (Agenda item 2.4)

Minutes

Meeting open - attendance and apologies

Chair’s opening remarks including confirmation of agenda, attendance and apologies.

The Chair opened the meeting and welcomed Luise McCulloch from Treasury, Alexis Kokkinos from CPA Australia, Tim Neilson from The Tax Institute and Andrew White from Chartered Accountants Australia and New Zealand. He also welcomed Andy Nguyen, who attended as an interim representative from Taxpayers Australia.

Apologies were noted for the Commissioner (Chris Jordan) and for Grant Wardell-Johnson from Chartered Accountants Australia and New Zealand. The Chair noted that Will Day and Bruce Collins will attend by phone for agenda item 2.3 and Melissa Fairhall will act as Secretariat for the meeting.

Ratification of draft minutes of 3 December 2014 NTLG meeting – Future publication of meeting minutes

Members agreed to ratify the minutes of the 3 December 2014 NTLG meeting and noted that, for future minutes, the focus should be on the substance of the matters discussed or agreed, with no need to identify individual contributors. It was noted that the draft minutes of the recently held CSG meeting already reflected this approach.

Members also agreed that minutes will be accepted out of session, enabling their earlier publishing and sharing of information with the wider community.

Members noted that it was important not to lose access to the corporate memory held in previous NTLG minutes. It was noted that this was a design issue of how to make the information available in the ATO website most useful to the community in the most efficient way. This issue will be addressed in partnership with members as part of the review of public advice and guidance.

Open NTLG action items

Members agreed that the following action item will remain as ongoing:

NTLG 0312/4

Rethinking Compliance

It was noted that the new product Building Confidence, released on 2 March 2015, replaced the Compliance Program. It is a contemporary product which will be updated regularly under its ‘what’s new’ section. Members welcomed the new product, which will have a better and most useful presence throughout the year, including at tax time.

Members agreed to close the following action items, noting that they were already completed or will be completed through the scheduled discussion at the current meeting:

NTLG 1906/3	‘Outstanding’ tax measures
NTLG 1906/12	Test case litigation program
NTLG 189/2	‘Safe harbours’ project
NTLG 189/4	Preserving corporate knowledge
NTLG 0312/1	Treasury’s tax measures work program
NTLG 0312/2	Increasing responsiveness of tax system to changes in environmental factors
NTLG 0312/3	Review of ATO advice and guidance
NTLG 0312/5	Post implementation review of ATO’s consultation arrangements
NTLG 0312/6	Review of NTLG’s operation and composition
NTLG 0312/7	Confidentiality in consultation

SEGMENT 1 - ISSUES OF SIGNIFICANCE IN THE TAX LAW INTERPRETATION, POLICY AND LAW DESIGN SPACE

Item 1.1: Changes in environmental factors 'On and Over the Horizon'

Stephen Healey noted that changes in the external environment may have tax consequences and hence the importance for the NTLG to keep this topic as a standing agenda item.

Several examples were noted, such as the digital disruption created by new technology and its potential to erode the tax base, prompting questions such as what constitutes a permanent establishment in a digital economy context.

Disruptive innovation is another example, where new markets are created, displacing existing ones and giving rise to new types of income streams. Uber and Airbnb were noted in this context, prompting questions on the need for an education role on the tax consequences for service providers and also on appropriate administration and collection mechanisms.

Crowd sourcing, including in the area of professional advice, and crowd funding were also mentioned as the type of new topics that need to be looked at, with the latter prompting questions on the nature of the interest held.

The reliance by software providers on cloud storage of data was also mentioned as an example of disruptive innovation, prompting questions on policies related to the retention of documents.

The GST Advisory Group had started some discussions on the impact of the new business models. The ATO continues to work on these issues and acknowledges the potential for engagement and consultations with the community. The starting point is gaining a better understanding from the operators in these new markets and for the ATO to make clear where the law stands. The ATO is very open to outline what its current thinking on these issues is.

Members noted that as globalization continues, the tax system would have to adapt. There was recognition that the tax system needs to remain agile. These new developments raise tax issues but also competition related issues. There are no easy answers as to what should be the role of the income tax system in this context versus the role of transaction taxes.

ATO digital disruption post-meeting update Last year we worked with the tax profession to understand what are the key drivers for change in their environment.  One of the categories was about the impact of ‘digital disruption’.  We continue to closely monitor and understand instances of “digital disruption” and what it means for our clients, for tax professionals and the operation of the taxation and superannuation systems. As we see risks arise we will be communicating our activities to the community through the Building Confidence strategy which launched on 2 March.

Item 1.2: Update on key events March to June 2015

Members noted the updated provided.

A member suggested clarifying the timelines for the Electronic Lodgment Services to Standard Business Reporting (ELS2SBR) implementation by 1 July 2015 for tax practitioners.

It was noted that Michael Cranston was planning to give NTLG members an out of session ‘in-confidence’ briefing, via conference call, on the ATO’s upcoming privately owned and wealthy group initiatives between 19 and 23 March, most likely on Friday 20 March.

Update: To ensure that members are available due to the 20 March date coinciding with The Tax Institute’s National Convention (18-20 March) this briefing will now be scheduled for early April.

Item 1.3: The Tax White Paper process / other updates from Treasury

Rob Heferen noted that there were a number of reviews and inquiries that were of interest to the tax community.

The Financial System Inquiry report had raised some issues related to the generosity of the superannuation rules. The report from the Competition Review is due for delivery to Government in March 2015. The 2015 Intergenerational Report is due for release on 5 March. The discussion paper related to the Tax White Paper is expected soon.

The discussion paper is a description of the tax system, assuming current settings remain going forward. It will sit side by side with a separate paper on Federation issues. Its preparation has been assisted by advice on how best to engage with different segments of the population. There will be scope for comments to be provided through online facilities.

The paper will discuss changes in the environment and would set the scene for the subsequent paper on options for tax reform, expected in the second half of 2015. The White Paper, inclusive of tax reform recommendations will be released before the next election.

On other updates, the Secretary to the Treasury, John Fraser, is keen on the Department to enhance its understanding of business issues. Treasury offices will be opened in Sydney and Melbourne and more staff will be engaged from the private sector. The Secretary has outlined his views on the economy in a recent speech given at the Committee for Economic Development of Australia.

Progress on the announced but un-enacted measures continues, although budget measures will take precedence together with the recently announced changes to the employee share schemes legislation. The plan remains to have them enacted this year.

Progress on the proposal for the Commissioner’s Statutory Remedial Power is being considered at the Minister’s office. NTLG members agreed to continue to convey the message on how this measure contributes to a better working of the tax system.

Members noted that in implementing previously announced measures, care needed to be taken in ensuring that measures were in line with the announcements and that protection for taxpayers was provided against adverse consequences of measures that are introduced with a retrospective date of effect.

The ATO noted that it was open to discuss how it will implement its role regarding the enforcement of the proposed reforms to strengthen Australia's foreign investment framework, as outlined in the discussion paper released by the Government. It was noted that the discussion paper contemplates the sharing of information by agencies. Guidance is envisaged for foreign investors on how to invest in real estate in Australia.

ATO “stocktake” of foreign-owned agricultural land post-meeting update The Government announced foreign investment framework proposals on 11 February 2015 and 25 February 2015. These proposals included the reduction in the screening threshold for foreign purchases of agricultural land from $252 million to $15 million (from 1 March 2015) and that the ATO will establish a foreign ownership register of agricultural land (from 1 July 2015) and residential property (from 1 July 2016). The ATO will also develop a capability to conduct compliance and enforcement activities in relation to foreign investment in agricultural land and residential property. The ATO is working closely with Treasury on the proposed measure.

A member noted that in the public debate about superannuation, Division 293, which was introduced in 2012-13 to reduce the tax concession on superannuation contributions for individuals with annual incomes greater than $300,000 was rarely mentioned. Members considered it was important to take this into account in order to have a complete and accurate picture, which would contribute to dispel misconceptions regarding the fairness of the tax system.

It was also noted that the ATO statistics, presented as 100 people on the ATO website, needed to be updated, as they reflected statistics from the 2008-09 income year. The ATO noted that it has currently a project on hand on how to present statistics.

ATO 100 People post-meeting update The ATO plans to review the 100 People statistics later this year. That said, we expect that the changes will be to data rather than to the diagrams, as last published in May 2011 here: https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-statistics/Taxation-statistics--100-people/ As discussed, this is because when we reduce millions of taxpayers down to 100 people, the changes are not big enough to show up.

Treasury noted that it was carefully monitoring international developments on the arm’s length debt test in the thin capitalisation rules and the worldwide gearing test and indicated they were very aware of business concerns about these developments.

Item 1.4: Base Erosion and Profit Shifting (BEPS) / Corporate Tax Avoidance

Michael O’Neill, from the ATO, provided an update to members on the progress of the BEPS related initiatives, including those related to addressing behaviour by multinational companies that plan their activities between international and domestic rules that result in stateless income. BEPS also aims at increasing transparency of the operations of multinational companies and preventing treaty abuse.

It was noted that Australia’s adherence to the initiative of country by country reporting was under examination and that further public discussion and awareness of its implications was needed.

It was also noted that the Government may consider acting sooner on some measures in this space rather than waiting for finalization by the OECD of the BEPS related initiatives.

NTLG members suggested more work should be done in communicating to the public the initiatives being progressed by Treasury and the ATO in this space, drawing on the plain language used in attendance at the recent Senate Estimates hearings.

Item 1.5: The Senate Inquiry into Corporate Tax Avoidance

Neil Olesen noted that the ATO is scheduled to give evidence to the Inquiry on 9 April 2015. Feedback is being sought from the Secretariat on likely issues to be raised, so that adequate preparation can be made. The expectation is that a few corporate representatives will be called first, then the ATO and ASIC, allowing to follow up on issues previously discussed with corporates.

The ATO will commence consultations on public reporting in March, including on assurance processes and the information that should be published.

Members noted their expectation that corporate representatives will be well prepared for their appearances. It was also noted that the ATO’s submission to the Inquiry was well prepared, highlighting the robustness of the Australian tax system.

Members suggested reinstating an international tax group to facilitate further consultations on BEPS and other related topics that nowadays have more prominence. It was noted that this issue will be discussed as part of the post-implementation review of consultation arrangements.

SEGMENT 2 - STRATEGIC INITIATIVES TO IMPROVE THE TAX SYSTEM AND ITS ADMINISTRATION

Item 2.1: ATO Consultation Arrangements

Draft terms of reference for the post-implementation review of the ATO’s consultation arrangements (action item NTLG 0312/5)

Peter Coakley noted that the intention is to run the review between March and June 2015, working with a range of people, identifying shortcomings and opportunities for improvement. The detailed report prepared by Russell Miller in May 2013 provided background on the intent of the new consultation framework.

Members noted that internationally there were different models for consultation, from the Canadian one-on-one agreements to New Zealand’s more direct approach of picking up the phone, facilitated by the relatively small size of their market. It was noted that overall the ATO has a good model.

A key activity for the CSG should be a detailed scan of the issues that are being consulted through the Consultation Hub, via a page by page turner. The aim is to assess whether a clear outcome has been set, the right people are being involved, there is a defined timeline for achieving the outcomes and progress is being achieved in a timely fashion. It was noted that early and ongoing consultation is key to its effectiveness and it should be assessed whether this is applied consistently.

Members acknowledged that the ATO is consulting more often, in a candid environment which facilitates open dialogues happening. The ‘safe harbours’ project and the external compliance assurance process (ECAP) were mentioned as good examples of effective consultation.

That said, there are improvements being discussed which go to the efficiency and effectiveness of consultations and the awareness of how key stakeholders can contribute to meaningful consultation outcomes.

Review of NTLG’s operation and membership (action item NTLG 0312/6)

The Chair noted that the NTLG is a much better forum now, but still is not fulfilling its potential. It is a relatively large forum and there is a need to reduce its size to make it most effective. This also applied to the ATO having self-awareness on the number of officers that were required to attend the full meeting.

Also, with the NTLG turning into a more strategic forum, there was a need for members to assess where it was best to put their talents and where members could have the most influence. Some members may find that other groups, such as ATPAG, may provide a more relevant or pointed forum for discussion of the issues that are of most interest to them. In this respect, members commented that ATPAG has become a very effective group under the leadership of Erin Holland.

Update on ‘best practice’ guide for the use of confidentiality in consultation on tax matters (action item NTLG 0312/7)

Members agreed to the proposed Consultation Guide dealing with the confidentiality in consultations but requested that as part of the Guide a reference be added noting that at the end of the confidential consultations there will be an explicit consideration of what material would no longer be considered confidential and could be made publicly available.

Facilitating public access to previous minutes and information that is no longer classified as confidential will be considered as part of a review of the legal database that the ATO is undertaking.

With respect to the Confidentiality Agreement form, members suggested that it would be desirable if Treasury could adopt a similar approach, noting as an example that in the case of the July 2014 consultations on earn outs a more comprehensive form had been used.

Item 2.2: The Reinventing the ATO program

Neil Olesen noted that NTLG members had already made useful contributions to shaping the Reinventing the ATO blueprint, which will be launched at The Tax Institute’s National Convention on 19 March, together with a micro website with videos and innovative features.

The blueprint contains a concrete program of change over the next 12 months. The thinking is not static; it will keep refreshing over time. The program of work is shaping the ATO’s governance arrangements, which may lead to changes on internal structures.

Members noted that other tax administrations, such as New Zealand and the UK, are also going through internal transformation or renovation.

It was noted that the ATO’s initiative on Single Touch Payroll is consistent with the work of the Digital Transformation Office within the Department of Communications and that consultation on the initiative is aimed at designing a sensible transition timeline.

Item 2.3: Review of ATO Guidance and Advice

Preliminary update on potential recommendations / output from the review of public advice and guidance

Jeremy Hirschhorn noted that following the first round of consultations run last year, participants had been invited in February to participate in a follow up round. Consulters were provided with a summary of the key messages received and questions on potential recommendations and were invited to provide their feedback in writing or orally to the project team.

Some key areas arising from the work to date and being considered include:

¦ Whether in order to develop a coherent strategy in relation to public guidance there is a need for a centralised responsibility

¦ Whether there are too many different types of advice, and does this make it confusing as to what level of reliance can be placed on different guidance

¦ The introduction of concepts of conditionality and mutuality in the advice being provided

¦ In this regard, there is significant interaction with the review of private advice, and whether in many areas the ATO can provide public indications of the private rulings it will provide (which could extend to automated tools etc.), with taxpayers then choosing to obtain that private ruling (and providing appropriate information / assertions to support that ruling)

¦ Introducing processes to “upgrade” advice (for example private rulings) to guidance on which greater reliance can be placed.

Update from The Tax Institute on NTLG member project to ‘clean up the existing suite of rulings and other products’ providing public advice and guidance

Tim Neilson noted that the aim was to triage the 40 tax rulings that had been identified in the first instance, whether they remain fit for purpose, could be withdrawn or needed an update and the priority for these actions. Some rulings had been grouped by topic. Other pieces of guidance had also been included as a result of the preliminary consultations run by The Tax Institute (TTI).

It was agreed as a next step for NTLG members to canvass their respective organisations on whether the circulated list by TTI needs amendments or additions and to provide their feedback on priorities for suggested improvements. TTI will circulate the instructions on the criteria to triage the rulings with feedback from members being requested to be provided to TTI by Wednesday 25 March 2015.

In a second stage, a small working group will collate the priorities for the rulings to be updated and those to be withdrawn.

It was noted that this is a rolling project, whose aim is to make sure that rulings are useful in providing current and priority guidance to taxpayers.

Action item: NTLG 1503/1 Due date: Wednesday, 25 March 2015 Responsibility: NTLG members

Clean up the existing suite of rulings and other products NTLG members to canvass their respective organisations on whether the circulated list by The Tax Institute needs amendments or additions and to provide their feedback to The Tax Institute on priorities for suggested improvements.

Preliminary discussion reviewing private advice approaches

Will Day noted that reviewing private advice approaches was part of the reinvention of the ATO. It included maximising automation opportunities to provide tailored and contemporary advice. The review will explore new ways of consulting, including the possibility of releasing a discussion paper, the use of workshops or webinars and further discussions at forums such as the NTLG.

In terms of the process to obtain private guidance and advice, the review will explore enhanced opportunities for early engagement and looking at the level of confidence sought in guidance, acknowledging that there is often a trade-off between timeliness and certainty. Importantly, the review is considering how best to provide online automated channels to deliver tailored advice which would be binding, depending on the information provided in the online application.

It was confirmed that the ATO would seek to extend pre-lodgment discussions prior to private ruling applications to a broader group of taxpayers than just larger businesses.

Will Day also reported that a new process for consultation, using prominent retired senior practitioners, on proposed taxpayer alerts was now being implemented, following suggestions from the NTLG and that early indications were that such feedback was very useful in better shaping such alerts.

Although not directly relevant to this agenda item, Jeremy Hirschhorn took the opportunity to note two particular emerging areas of concern where private advice / guidance has been sought and/or provided from the ATO.

Firstly, there has been a series of requests for advice in relation to the taxation treatment of payments to retiring partners and, in particular, whether these payments are capital receipts and potentially subject to CGT concessions.   Some rulings have been issued over time.  On review, at least some of these rulings may have been provided on the basis of incomplete information and/or are inconsistent with the positions taken by the partnership and continuing partners (which have often treated those payments as allocations of partnership income).

Secondly, there has been a series of requests for advice in relation to alienation of partnership income, potentially seeking to access Everett assignment mechanisms in addition to other structures such as service trusts, potentially “double dipping” on alienation safe harbour type guidance provided by the ATO.

In each of these areas, all current and future requests for guidance will be escalated for enhanced factual investigation and senior TCN attention.

These issues will be raised in more detail through other consultation forums.

Item 2.4: Revising the Test Case Litigation program (action item NTLG 1906/12)

Debbie Hastings (ATO) noted that feedback from NTLG members had assisted in the design of the blueprint, including on limiting the gap as much as possible, providing for more timely payments and a transparent registry with a feedback mechanism.

The lack of knowledge of the program was one of the problems that needed to be addressed, as well as the need for simplified funding criteria. The objective was to have a contemporary service that allowed the early identification of cases to be tested and also to facilitate participation providing ease of access to the program.

Diane Burn (ATO) advised that ease of access was being facilitated through the website, providing an online application form, a guide with examples where there was a public benefit from testing, a streamlined decision making process and a more timely review.

There are established criteria and guiding principles which have been reviewed to reflect the program’s purpose of seeking law clarification; this includes removing the principle of financial capacity to pay. The new criterion and expectations will assist both parties and the ATO will be working towards being more proactive at identifying issues to be tested, consulting with externals and then working out the cases to be tested.

Members noted that this initiative ties well with the advance dispute resolution program, as it aims to identify areas or contentious issues where there is a need to clarify the law.

Item 2.5: Red-tape Reduction

Update on NTLG ‘safe harbours’ project

Michele de Niese provided an update of progress on this project. At a meeting of the Safe Harbours Steering Group on 3 March 2015, the terms of reference for the six safe harbour working groups were finalised. The newly established safe harbour working groups are in the areas of transfer pricing, FBT and remuneration, GST, Excise, SMEs and tax and accounting. External members have been nominated for the working groups and all members are willing to participate and contribute to the intended outcomes.

Jeremy Hirschhorn noted that a set timeline has been established for the safe harbour working groups, so that they progress from consideration of ideas to implementation ready solutions in six to nine months. In accordance with this, the first round of concrete outcomes should be ready for reporting to the NTLG between September and December this year. At the end of the year, working groups will be reviewed to ensure that they are continuing to identify and develop safe harbours. If not, the membership and/or existence of the particular working group will be reviewed.

Update on ATO deregulation activities

Members noted the updated provided.

Update on implementation of ATO’s recommendations from the Board of Taxation’s report Review of Tax Impediments Facing Small Business

Members noted their understanding that consultation was considered for the development of online tools in respect to the employee versus contractor distinction and on the determination of personal services income. Members offered to assist in road testing these initiatives and any other similar initiatives. As noted in the paper, members were advised to contact Mike Ingersoll to register their interest in assisting.

Members were also advised to follow up with Steve Vesperman to provide feedback on the implementation of the recommendation regarding the provision of a hotline for assistance regarding applications for ABNs.

MEETING CLOSE

Other business

In response to a member enquiry as to whom to address queries regarding the risk ratings for audit activity, it was noted that they should be addressed to Bruce Collins.

There being no further business, the Chair closed the meeting at 3:30pm.

The next NTLG meeting is scheduled for Thursday, 18 June 2015 in Sydney.

Disclaimer

NTLG agendas, minutes and related papers are not binding on the Australian Taxation Office (ATO) or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change. These minutes have been formally endorsed by the members.