The Inspector-General of Taxation (IGT) undertook this follow up review to examine the Australian Taxation Office's (ATO) implementation of agreed recommendations contained in the earlier IGT Review into delayed or changed Australian Taxation Office views on significant issues (the so-called 'U-turns' review).
The 'U-turns' review made four recommendations to the ATO aimed at developing an administrative practice for managing 'U-turn' issues, applying this practice in compliance activities and improving community engagement to identify the main tax risks to be addressed (recommendations 2, 3, 4 and 5). The review also made one recommendation to the then Government that if concerns persist, it may wish to consider potential law changes to provide greater certainty for taxpayers in relation to changed ATO views (recommendation 1).
Following consideration of ATO materials and processes, the IGT concluded that the ATO had implemented three recommendations (namely, recommendations 2, 3 and 5) and partly implemented the other (recommendation 4).
Recommendation 4 concerned the application of the ATO's administrative process for managing 'U-turns' during ATO compliance activities as set out in Practice Statement PSLA 2011/27. Stakeholders had raised concern during this follow up review that 'U-turn' issues continued to persist in audits as ATO officers were not complying with the practice statement.
In addition, the ATO's management of 'U-turns' during audits was the subject of Federal Court litigation in Macquarie Bank Limited v Commissioner of Taxation. The Court's judgment, which was delivered during the course of this follow up review, raised some doubt regarding the ATO's administrative approach in this area as well as the taxpayer's ability to rely upon ATO practice statements more generally.
The IGT's examination of issues raised by stakeholders, and the Federal Court case, identified a number of areas for improvement. As a result, the IGT has made two new recommendations aimed at:
- ensuring ATO officers applied the administrative approach in PSLA 2011/27 throughout the compliance process and during settlement negotiations;
- enhancing ATO officers' research and communication with taxpayers when considering 'U-turn' issues;
- implementing escalation processes for independent and objective reviews of 'U-turn' disputes; and
- publishing information regarding 'U-turn' matters.
The report also outlines support for an extension of the administrative approach set out in PSLA 2011/27 to apply in appropriate single taxpayer cases.
There is a residual concern that legislative change may still be needed to address 'U-turn' matters. However, the IGT is of the view that a legislative solution should only be pursued if issues continue to arise after the above two recommendations have been implemented.