Terms of reference & submission guidelines
2 November 2015
The self-assessment system relies on taxpayers having trust and confidence in the fairness of the tax system. As the Organisation for Economic Cooperation and Development (OECD) has observed, taxpayers 'who are aware of their rights and expect, and in fact receive, a fair and efficient treatment are more willing to comply.'1
In Australia, the Taxpayers' Charter (Charter) sets out what taxpayers can expect when interacting with the Australian Taxation Office (ATO). The Charter does so by stating taxpayers' rights and obligations as well as actions they may take if they are not satisfied.2 As a direct response to a recommendation made by the Joint Committee of Public Accounts, the Charter was introduced in 1997 to redress 'the balance of authority between the ATO and the taxpayer'3, given the ATO's considerable powers and resources particularly when compared to those of small and medium enterprises and individual taxpayers.
During consultation on the Inspector-General of Taxation's (IGT) current work program and in previous reviews, stakeholders have expressed general support for the Charter. However, they have also raised concerns with the ATO's adherence to it and its effectiveness. Specifically, stakeholders have noted that there are limited avenues for enforcement of the Charter principles, diminishing their effectiveness in affording protection to taxpayers. Stakeholders have, therefore, called for the Charter to be reviewed and updated to reflect the changes to tax administration and community expectations.
Whilst it is important to appropriately protect taxpayers' rights in their interactions with the ATO and provide avenues for redress, the ATO's ability to discharge its administrative duties efficiently and effectively needs to also be considered. For example, the impact of potentially vexatious litigation, aimed at inappropriately delaying or unreasonably obstructing the ATO in the conduct of its duties, should be minimised.
In support of calls for reform, stakeholders have identified current international developments which indicate an emerging trend towards a formalisation of taxpayer protections. For example, the United States of America's (USA) Internal Revenue Service (IRS) has adopted a Taxpayer Bill of Rights, which sets out various rights including 'the right to a fair and just tax system'.4 The United Kingdom's HM Revenue & Customs' taxpayers' charter, Your Charter, while modelled on the Australian Charter, has been given statutory force by way of a legislative provision which requires its regular review.5 Other jurisdictions such has Chile6 have taken similar actions and comparable developments are also taking place in the European Union7. By contrast, in Canada, developing case law suggests an expansion of the tort of negligence to impose a duty of care on the Canada Revenue Agency and its officers to taxpayers in the conduct of compliance activities.8
It should be noted that some of the principles that have been enshrined into law in the above jurisdictions, already have statutory force in Australia. These include the rights to external review of assessments, access to ATO-held documents and reasons for its decisions.9
In addition to the statutory protections presently existing in Australia, taxpayers have a number of different administrative avenues to report and have potential breaches investigated and addressed. In the first instance, complaints may be made directly to the ATO for internal review processes and the ATO may take action to address any breach by, for example, re-assigning the case to another officer or having more senior officers review actions of their staff. The ATO also has a range of dispute resolution strategies available to resolve issues as early as possible and assist in encouraging voluntary compliance.
Other courses of action open to taxpayers include lodging complaints with the IGT who can investigate and seek to ensure that they have been afforded procedural fairness in relation to the handling of their matter by the ATO. Ultimately, action may also be taken in courts where the common law rights of taxpayers have been breached.10
Taxpayers may also seek compensation from the ATO for losses on grounds of legal liability. Applications for the payment of compensation on moral grounds may be made primarily through the Scheme for Compensation for Detriment caused by Defective Administration (CDDA Scheme), a scheme applying to all Government departments including the ATO.11
Stakeholders have expressed concern with the adequacy of the CDDA Scheme as a means of protecting taxpayers and providing redress. Specifically, stakeholders have expressed concern with the lack of transparency and independence as the ATO itself is the decision-maker with respect to both the occurrence of defective administration and any amount of compensation applicable. Furthermore, there are limited rights of internal review and limited rights to seek external review of such decisions.12 The ATO reported figures show that the number of successful compensation claims has decreased, namely from 162 in 2011–12 to 79 in 2013–14, while the total amount of compensation paid has increased, from $773,857 in 2011–12 to $841,754 in 2013–14.13
Whilst there is strong support for a robust and transparent mechanism through which taxpayers may be compensated for losses flowing from breaches of their rights or protections by the ATO, such mechanisms need to consider the potential litigious environment that may be created, resulting in delays and related costs as well as the impact on Government revenue. In this respect, the USA experience may be instructive where the number of taxpayer cases to recover damages caused by IRS officer actions14 has declined from an initial spike when legislation providing such a right was introduced.15
Stakeholders have also raised concern with the ATO's adherence to the model litigant rules set out in the Legal Services Directions 2005 as well as the self-regulating and self-reporting nature of those obligations.16 Stakeholders question whether alleged breaches of the rules by the ATO are being addressed particularly where self-represented taxpayers are involved. The IGT notes that the model litigant rules also extend beyond the operation of the ATO and apply to all Commonwealth agencies. The Productivity Commission has more recently examined issues affecting the adequacy and enforceability of these rules.17
An emerging issue which the IGT may also examine in this review relates to the potential increase in cross-border information exchanges and sharing of intelligence between revenue authorities, particularly in light of recent OECD and multilateral measures to address base erosion and profit shifting. There are concerns with the accuracy and security of such information, the extent to which taxpayers should be kept informed as well as an appropriate appeals framework. Privacy is a particular issue with taxpayers wanting assurances that their confidential information is protected given the large amount of data that may be shared and the associated cyber security risks.
The IGT will conduct this review pursuant to subsection 8(1) of the Inspector-General of Taxation Act 2003 (IGT Act). The review will consider the Charter and other taxpayers' protections and determine whether they are adequate or improvements are required. The following terms of reference and guidelines are provided to assist with the preparation of submissions to the review.
Terms of Reference
The IGT will identify the opportunities to improve taxpayer protections and avenues for redress, with a focus on:
The framework for taxpayer protections
- The adequacy and clarity of the Taxpayers' Charter in protecting taxpayers' rights and in setting out their obligations.
- The ATO's guidance and support to its staff in complying with the Taxpayers' Charter as well as guidance to the community as to their rights and obligations under the Charter.
- The effectiveness of the ATO's systems and processes to identify, investigate, address and report allegations of breaches of the Taxpayers' Charter.
- The requirement for further taxpayer protections and the need to guard against effective administration being impeded due to factors such as inappropriate litigation, delay and costs.
Compensation and other avenues for redress
- The adequacy of existing avenues for compensation in providing redress for loss or damage, including opportunity costs, as a result of inappropriate ATO actions.
- The ATO's processes for making compensation decisions, including the consistency of decisions made and the effectiveness of any internal review mechanisms.
- The available external review mechanisms for compensation decisions.
- Guidance material for both ATO officers and the public in relation to availability and application processes for compensation.
Model litigant rules
- The effectiveness of the ATO's systems and processes to identify, investigate, address and report allegations of breaches of the model litigant rules.
- The effectiveness of any external channels to enforce or review ATO duties and obligations under the model litigant rules.
- The ATO's guidance and support to its staff, and external service providers acting for the Commissioner, in complying with the model litigant rules and information to assist the public to understand the nature and purpose of these rules.
Cross-border information exchanges
- The basis and extent to which the ATO presently engages in cross-border information exchanges and its impact on Australian taxpayers.
- Whether there should be clearly defined rights and remedies for taxpayers with respect to information exchanges—particularly the extent to which they should be kept informed and afforded opportunities to review and correct any inaccuracies.
- The effectiveness of the ATO's systems and processes to maintain the confidentiality of information exchanges.
The IGT may also examine other relevant concerns raised or potential improvements identified during the course of this review.
We envisage that your submission will set out your experiences and views on the rights and protections afforded to taxpayers and related avenues for redress.
It is important to provide a detailed account of your experiences having regard to the terms of reference. A timeline of events outlining your key experiences with the ATO would also be helpful. In addition to your views on potential improvements, we are seeking examples of ATO approaches that have contributed to positive outcomes.
The following questions are designed to assist you in your submission.
Q1. If you have had experience with the ATO in pursuing your rights under the Taxpayers' Charter, existing compensation schemes or the model litigant rules, provide a detailed account of your experience, including:
- a timeline of key events, including a description of the actions taken by the ATO and any impact the actions had on you;
- how you sought to avail yourself of the protections and how the ATO assisted you;
- if you expressed concerns to the ATO, how did you voice these concerns for example, did you lodge a complaint;
- the ATO's response to any concerns you expressed and any follow up action taken by the ATO;
- your views on whether the ATO's response and action were appropriate and commensurate with the circumstances;
- if you also took action in the Administrative Appeals Tribunal or the courts, whether such action obtained a satisfactory resolution; and
- if you also raised a complaint with the Commonwealth Ombudsman or IGT, did this action assist you in obtaining a resolution?
Q2. If your information has been requested from, or shared with, foreign revenue authorities, provide an account of your experience, including whether you were advised before the information was shared, afforded an opportunity to correct any inaccuracies and assured that your confidentiality would be respected?
The framework for taxpayer protections
Q3. Do you believe that the current Taxpayers' Charter sufficiently sets out your rights and obligations when dealing with the ATO? If not, what improvements should be made? Provide reasons for your views.
Q4. Do you believe the right balance has been struck between such protections and the ATO's ability to effectively administer the taxation law? Explain your views.
Q5. Do you believe that the rights contained in the Taxpayers' Charter are effectively enforced? If so, provide examples. If not, what further enforceability mechanisms should be available and what impacts would these changes have?
Q6. What is your understanding of the existing avenues of redress afforded for breaches of the Taxpayers' Charter? Do you believe that the existing mechanisms are adequate? If so, provide examples. If not, how could they be improved?
Q7. Do you believe the ATO has appropriate guidance to assist its officers to comply with the Taxpayers' Charter? Explain your views.
Q8. Do you believe that current ATO systems adequately identify, investigate, address and report allegations of breaches of the Taxpayers' Charter? If not, how could they be improved? Explain your reasons.
Compensation and other avenues for redress
Q9. What is your understanding of the operation of existing compensation schemes, including the CDDA Scheme, in relation to the ATO? Do you believe that the ATO's processes for managing compensation scheme applications adequately provide redress for loss or damage? If so, provide reasons. If not, how can the ATO's management of compensation scheme applications be improved? Should a more specific scheme for taxation and superannuation administrative compensation be considered?
Q10. Could the ATO's application of the current guidance on compensation schemes be improved to provide greater assistance to ATO officers and the public alike? If so, what aspects could be improved and how?
Q11. Should the ATO's compensation decisions be subject to internal or external review? If not, why not? If so, explain your views including who would be best placed to undertake such review.
Q12. Provide comments on the adequacy of other existing avenues for redress.
Model litigant rules
Q13. Do you believe the ATO's current systems adequately identify, investigate, address and report alleged breaches of the model litigant rules? Provide reasons for your views.
Q14. Do you believe there is room to improve the identification, investigation, reporting and addressing of alleged breaches of the rules by the ATO? If so, what aspects could be improved and what benefit would they provide?
Q15. Which agency or body, whether the ATO or otherwise, is best placed to monitor and enforce the ATO's compliance with the rules? Provide your reasons.
Cross-border information exchanges
Q16. Provide comments on the transparency of the ATO's processes for cross-border information exchanges.
Q17. Do you believe the rights of taxpayers to confidentiality and due process are sufficiently protected by the ATO in the case of cross-border information exchanges? Explain your views.
Q18. In what circumstances should the ATO allow taxpayers to review and correct information or otherwise challenge an exchange of information request? Are there circumstances where this would not be appropriate? Explain your views.
Q19. Are there any other areas on which you would like to make a submission? For example, you may wish to cite international experiences or comparisons which you believe would lead to improvements.
The closing date for submissions is 18 December 2015. Submissions can be sent by:
Inspector-General of Taxation
GPO Box 551
SYDNEY NSW 2001
Email to: email@example.com
Submissions provided to the IGT are maintained in strict confidence (unless you specify otherwise). This means that the identity of the taxpayer, the identity of the adviser and any information contained in such submissions will not be made available to any other person, including the ATO. Section 37 of the IGT Act safeguards the confidentiality and secrecy of such information provided to the IGT — for example, the IGT cannot disclose the information as a result of a Freedom of Information (FOI) request, or as a result of a court order generally. Furthermore, if such information is the subject of client legal privilege (also referred to as legal professional privilege), disclosing that information to the IGT will not result in a waiver of that privilege.
1 Organisation for Economic Cooperation and Development, Principles of Good Tax Administration (Practice Note GAP001, 2001) p 3.
3 Joint Committee of Public Accounts, Parliament of Australia, Report No. 326 An Assessment of Tax, A Report on an Inquiry into the Australian Taxation Office (1993) p 308.
6 Article 8 bis of the Chilean Tax Code.
7 European Commission, 'A European Taxpayer's Code' (Consultation paper, TAXUD.D.2.002 (2013) 276169, 2013).
9 Part IVC of the Taxation Administration Act 1953; s 11 of the Freedom of Information Act 1982; s 28 of the Administrative Appeals Tribunal Act 1975 and s 13 of the Administrative Decisions (Judicial Review) Act 1977.
10 Donoghue v Commissioner of Taxation  FCA 235.
12 CDDA Scheme decisions may be subject to judicial review under section 75 of the Constitution or section 39B of the Judiciary Act 1903.
13 Commissioner of Taxation, Annual Report 2013-14 (2014) p 124; Commissioner of Taxation, Annual Report 2011-12 (2012) p 172.
14 § 7433 of the Internal Revenue Code of 1986 (IRC) allows taxpayers to seek civil damages for certain unauthorised collection actions. However, it is subject to a number of restrictions including penalties for frivolous claims.
15 In 2007, § 7433 of the IRC appeared as one of the top ten 'most litigated issues' but had fallen out of the top ten in 2014. See National Taxpayer Advocate, 2014 Annual Report to Congress (2014); National Taxpayer Advocate, 2007 Annual Report to Congress (2007).
16 Inspector-General of Taxation, The Management of Tax Disputes (January 2015) pp 109-110.
17 Productivity Commission, Access to Justice Arrangements (2014) pp 429–442.