On 2 June 2014, the Acting Assistant Treasurer, Senator the Hon Mathias Cormann, referred an Inquiry into Tax Disputes (the Inquiry) to the House of Representatives Standing Committee on Tax and Revenue (the Committee). The Committee adopted the Inquiry and announced that it would consider, amongst other things, 'whether a separate agency should manage ATO litigation, whether the ATO should have a separate appeals area, or if current arrangements should continue.'434 On
11 June 2014, the Committee requested the IGT to undertake a review under his legislation on the large business435 and high wealth individual (HWI)436 themes of the Inquiry. The IGT has accepted the Committee's request.
The ATO's statistics indicate that there is a much higher level of disputation within the large business and HWI market segments than all other market segments. For example, between 1 July 2012 and 31 December 2012, the ATO reported that, with respect to large businesses, it conducted 230 compliance activities which resulted in liability adjustments. There were 130 objections which suggest that an objection was raised in 56% of the cases.437 Over the same period, the ATO conducted 226,200 such activities and received 16,480 objections in relation to all taxpayers (7.2%).438 Moreover, disputes within the large market and HWI market segments often involve significant amounts of revenue.439 For example, in 2012–13, totals of $997m and $247m in revenue were varied in settlements with large businesses and HWIs respectively.440
Since 2010, the IGT has undertaken a number of reviews examining the ATO's compliance approach to large businesses,441 HWIs442 as well as its use of Alternative Dispute Resolution (ADR).443 As a result of these reviews, the ATO has undertaken a range of improvement initiatives including committing to engage with taxpayers earlier to resolve disputes, making broader use of ADR and implementing an independent review function for some large businesses.444 Having regard to the high levels of disputation within these market segments, the potential for significant impacts on revenue and the ATO's improvement initiatives following earlier IGT reviews, the IGT considers that the Committee's Inquiry is timely and appropriate.
Terms of reference
The terms of reference for the Committee's Inquiry are reproduced below.
The Committee is to inquire into and report on disputes between taxpayers and the Australian Taxation Office (ATO), with particular regard to:
- Collecting revenues due
- fair treatment and respect of taxpayers
- efficiency, effectiveness and transparency, from the perspective of both taxpayers and the ATO, and
- how the ATO supports the outcomes of efficiency, effectiveness and transparency through the use and publication of performance information.
The Committee is to examine these issues through the following themes:
- small business
- large business
- high wealth individuals
- individuals generally
- the legal framework for disputes, including:
- the model litigant rules
- real time compliance initiatives, including annual compliance arrangements, pre-lodgement compliance reviews, and the reportable tax position schedule, and
- alternative dispute resolution, and
- the governance framework for disputes, including:
- the arrangements for and appropriate level of separation between the compliance, investigation, objection and litigation functions, and
- comparisons with tax administration bodies overseas.
The Committee may consider and report on these themes individually or group them together.
Pursuant to the Committee's request, the IGT will undertake a review on the large business and high wealth individual themes of the Inquiry which may also examine related legal and governance frameworks.
We envisage that your submission will set out your experiences and views on the ATO's management of tax disputes.
It is important to provide a detailed account of your experiences with the ATO's management of the tax dispute and its impact on you. In this respect, it would be useful to provide a timeline of events outlining your key interactions with the ATO including key correspondence.
In addition to your views on potential improvements, we are seeking examples of ATO approaches that have contributed to positive outcomes.
The following questions may assist you in your response.
Your dispute with the ATO
Q1. Please provide details of your dispute with the ATO, including a chronology of events, the details of the legal or factual matters, the type of taxes involved and disputed amount.
Q2. Did you, or the ATO, seek to resolve the dispute informally or by using alternative dispute resolution (ADR) processes? If so, please provide details including:
- who initiated the process;
- when was the process initiated;
- what the process involved;
- how long did the process take to finalise;
- whether the dispute was resolved; and
- the costs associated with this process.
Independent review process
Q3. If your annual turnover exceeds $250m, were you aware, or did the ATO inform you, of the independent review process for Statements of Audit Position?
Q4. Did you participate in the independent review process? If so, please provide your views on:
- the ATO's general approach to the independent review process;
- whether you and your adviser were provided with sufficient opportunity to address the independent reviewer;
- the outcome of the independent review process;
- whether the ATO audit team accepted the independent reviewer's findings;
- whether the independent review process resolved the dispute; and
- the time taken to complete the independent review process and the costs (including opportunity costs) you incurred (if any).
Q5. Please point out those aspects of the independent review process that you found beneficial as a dispute resolution mechanism as well as those which may need improvement. In doing so, you may wish to consider, for example, whether the independent review officer should be allowed to consider new facts and materials, whether taxpayers should be allowed to engage additional advisers to assist them in the process or whether such options should be reserved for the objection process? Please provide reasons for your views.
Q6. Is the timing of the independent review appropriate? For example, should it take place earlier in the audit process or later as part of the objection process? Please consider whether the present timing renders the objection process obsolete and whether this would be possible within the current legal framework. Alternatively if the independent review and the objection process were to coexist and provide taxpayers with two genuine review opportunities, would this cause unnecessary delay in resolving disputes?
Q7. Do you believe the ATO should extend the independent review process to all taxpayers? If so, what resources do you believe the ATO would need to do so effectively?
The objection process
Q8. If your dispute was not resolved by the above processes, did you lodge an objection? Please explain your reasons.
Q9. In relation to the ATO's management of your objection, please provide details including:
- when you lodged the objection and when the objection decision was issued;
- whether the objection was considered by a Compliance officer or by an officer in the Law Group of the ATO;
- whether you were afforded with sufficient opportunity to provide information and engage with the ATO officer during the objection process; and
- the outcome of the objection.
Q10. Were any dispute resolution processes, including ADR, considered or undertaken during the objection process? If so, please provide details as requested in Q2.
Q11. Do you consider that your objection was fully and objectively considered? Please provide reasons for your view.
Q12. If you participated in the independent review process before objecting, what were the positive aspects of participating in the independent review process before the objection? Was there any negative impact such as introducing an unnecessary step which resulted in avoidable delay in resolving the dispute? Are there any improvements the ATO could make?
Q13. Did you apply for review or appeal to the Administrative Appeals Tribunal (AAT) or Federal Court of Australia (Federal Court)?
Q14. If so, did you or the ATO consider any dispute resolution options other than proceeding the matter to hearing, including ADR or any Court-ordered processes, after the application was lodged with the AAT or Federal Court? Was the dispute resolution process effective?
Q15. What are your views on the ATO's engagement in such dispute resolution processes and do you have any ideas on how this could be improved?
Q16. Did you or your adviser approach the ATO to settle the dispute or did the ATO approach you? If so, please provide the following details:
- at what stage of the dispute did settlement discussions commence;
- who within the ATO did you approach or approached you regarding settlement;
- was the settlement offer based on legal advice;
- describe the response to the settlement offer; and
- did the dispute ultimately settle?
Q17. What were your general impressions of the ATO's settlement process, including the conduct of its officers during negotiations? What aspects of the process worked well? Are there any improvements the ATO could adopt to enhance the process?
Collecting disputed debts
Q18. During the course of your dispute, did the ATO seek to collect the disputed taxes or did you approach the ATO to discuss the matter? If so, please provide details.
Q19. Did the ATO make use of any administrative or legal mechanisms to collect the debts? For example, did the ATO offer you a 50/50 payment arrangement, issue a garnishee notice or commence debt litigation proceedings?
Q20. What are your views on the ATO's approach to managing and collecting disputed debts? Please identify those aspects of the ATO's approach which contribute to a positive outcome as well as your suggestions for improvement (if any).
Fair treatment and respect
Q21. Throughout your dispute with the ATO, do you consider that you were treated fairly and with respect? Please provide reasons for your answer.
Q22. Did you lodge a complaint in relation to your dispute? If so, please provide details of the complaint that you lodged, with whom it was lodged and the outcome.
Q23. Are there any other areas on which you would like to make submissions? For example, you may wish to consider whether the current ATO organisational arrangements for making objection or litigation decisions are appropriate or whether they could be made in separate areas within the ATO or in a separate Government Department. In considering your views, you may wish to cite international experiences or comparisons, as well as the potential improvements and trade-offs.
The closing date for submissions is 18 July 2014. Submissions can be sent by:
Post to: Inspector-General of Taxation
GPO Box 551
SYDNEY NSW 2001
Email to: [For enquiries regarding this review, please email firstname.lastname@example.org]
Submissions provided to the IGT are 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. Sections 23, 26 and 37 of the IGT Act safeguard the confidentiality and secrecy of such information provided to the IGT — for example, the IGT cannot disclose the information as a result of an FOI request, or as a result of a court order generally. Furthermore, if such information is the subject of client legal privilege (or legal professional privilege), disclosing that information to the IGT will not result in a waiver of that privilege.
434 Standing Committee on Tax and Revenue, Inquiry into tax disputes launched, Media Alert, 6 June 2014.
435 Australian Taxation Office (ATO), Large Business and Tax Compliance, May 2014. The large business segment includes 1,800 economic groups or entities encompassing some 35,000 business. Of those 1,800, approximately 1,100 have an annual turnover greater than $250m.
436 The ATO defines high wealth individuals as those controlling more than $30m or more in wealth.
437 ATO, Your Case Matters, 3rd edition, 19 April 2013, p 6.
438 The objection rates of 56% and 7.2% include instances of taxpayers objecting to their own self assessments.
439 Standing Committee on Tax and Revenue, Hansard, 28 February 2014, p 7.
440 Commissioner of Taxation, Annual Report 2012–13, p 58.
441 Inspector-General of Taxation (IGT), Report into the Australian Taxation Office's large business risk review and audit policies, procedures and practices, 7 September 2011
442 IGT, Review into the ATO's compliance approaches to small and medium enterprises with annual turnovers between $100 million and $250 million and high wealth individuals, 24 April 2012.
443 IGT, Review into the Australian Taxation Office's use of early and Alternative Dispute Resolution, 31 July 2012.
444 ATO, Independent review of Large Business and International Statement of Audit Position, 16 January 2014, .