5.1 Thus far, this IGT report has focused on structural reform and a governance framework for tax disputes and the appropriate level of independence and separation between compliance, investigation, objection and litigation functions. However, the terms of reference for the Committee's Inquiry has canvassed a broader spectrum of issues, some of which have been examined by previous IGT reviews whilst others are currently being examined or will form the basis of future IGT reviews. For completeness, these areas are briefly addressed below.
Collecting revenues due
5.2 The collection of revenues is a vital aspect of a revenue authority's work, as stated by the OECD:
Even the most sophisticated strategies for facilitating or enforcing compliance are worth little if the tax owed is not actually collected. Having appropriate strategies in place for debt management is particularly pressing in the present climate of financial crisis, where most revenue bodies face rising levels of tax debt with corresponding resource pressures and risks.338
5.3 In Australia, 89 per cent of taxes are paid with little intervention from the ATO, if at all.339 Of the remainder, 97 per cent are paid within 12 months of the due date following ATO engagement activities leaving only approximately 3 per cent which require further action.340 In relation to taxes which are not paid on time, the ATO reports that the majority arise in the small business market segment (62.4 per cent), with a smaller proportion being attributable to large businesses and HWIs.341
5.4 Submissions to this review indicate that the ATO's approach to debt collection in relation to large businesses and HWIs during disputes can vary. In some examples provided in submissions, the ATO had granted payment arrangements or not taken recovery action whilst the dispute was on foot.In other examples, however, the ATO had not exhibited similar flexible treatment, instead adopting approaches such as refusing offers to partially repay the debt while the dispute remains on foot,issuing garnishee notices with insufficient reasoning,restricting taxpayer movement with departure prohibition orders (DPO) or placing pressure on taxpayers to sell property to meet their debts.
5.5 Other submissions have highlighted concerns in respect of taxpayers being unaware or not being informed that they have tax debts outstanding, and they only become aware once the ATO has commenced debt recovery action.
5.6 The ATO's use of administrative tools such as garnishee notices and DPOs have been cited as causing particular concerns. In respect of garnishee notices, stakeholders have asserted that the use of these notices may potentially hamper the ability of taxpayers to fund their challenges to ATO assessments342 and may adversely impact the taxpayer's businesses. This may have far reaching consequences, especially where the taxpayer has employees and trade creditors who are in turn deprived of payments due.
5.7 The use of DPOs has previously been the subject of judicial consideration and investigations by the Commonwealth Ombudsman. It has attracted considerable media attention owing to some high profile matters. During the course of this review, further concerns were raised with the IGT in relation to the ATO's use of DPOs to restrict movement of a taxpayer who required urgent travel overseas for family commitments. Notwithstanding the taxpayer and his adviser's attempts to engage with the ATO to provide security for the debt owing (and under challenge) as well as assurance of his return to Australia, the ATO's delay in responding created considerable anxiety and distress.
5.8 Stakeholders have called for greater external control on the ATO's use of such administrative powers, particularly during the course of disputes. A number of suggestions have been proffered in this regard, including that the ATO should be restrained from issuing garnishee notices or DPOs where there is a challenge to the underlying debt (e.g. by way of objection or litigation) or that the ATO should be required to seek judicial approval before garnishees and DPOs are issuedas they are required to do when seeking to freeze taxpayer assets.343 Although the ATO currently requires senior ATO officers to approve the issue of any DPOs, a more robust approval process, such as a degree of judicial oversight before a DPO is issued, may be justified.
5.9 The concerns surrounding the ATO's approach to debt collection are wide-ranging and affect a broader spectrum of taxpayers beyond large business and HWIs. They have also persistently been the subject of review by the IGT and others.344
5.10 As previously noted, the IGT is currently undertaking a new review into the ATO's approach to debt collection.345 This review is warranted given that a substantial period of time has elapsed since the IGT's previous review into this area and the economic environment has fundamentally changed. Accordingly, the IGT will examine the debt collection issues raised in the context of the Inquiry through this more comprehensive review. The review will examine a range of issues including the ATO's management of collectable and disputed debt, debt assistance initiatives such as debt payment arrangements and more intensive recovery activities such as the use of garnishee notices, insolvency action, director penalty notices and DPOs.
5.11 It is also pertinent to note that the collection of revenues due necessarily impinges on issues relating to settlement and the suggestion that sometimes, the ATO has 'given away too much'. These issues were set out in detail in Chapters 3 and 4. As discussed, the IGT considers that the Appeals Group would be well-placed to provide independent advice and oversight on significant ATO settlements and report on these matters.
Efficiency, effectiveness and transparency
5.12 The efficient and effective management of tax disputes is important both for the revenue authority and for taxpayers, ensuring that disputes do not become entrenched, protracted and resource-intensive for all parties. Similarly, the transparent management of disputes is also an important feature to ensure that there is accountability. It also enables parties external to the dispute to objectively assess the appropriateness of outcomes. These features imbue and enhance confidence in the administration of the tax system.
5.13 In Chapter 3, the IGT has noted that notwithstanding the ATO's increased settlement of cases prior to litigation, the numbers of matters which have been filed in the AAT and the Federal Court continue to rise. Furthermore the vast majority of these cases are being settled without a hearing. Accordingly, there appears to be room for improvement in terms of early engagement and the timely use of ADR to increase the efficiency of dispute resolution and to minimise the instances of unnecessary litigation. For the reasons set out in Chapter 4, a centralised and independent dispute resolution and litigation function, i.e., the Appeals Group, should realise such improvements.
5.14 In relation to the transparency of its dispute resolution processes, the ATO has published some general information regarding the outcomes and achievements of its more recent dispute resolution efforts on its website. These relate to a range of activities including the IR process, settlements, its use of ADR and in-house facilitation.346
5.15 The IGT has also previously recommended that the ATO implement a more formalised system of receiving and collating feedback from participants in ADR processes. In line with that recommendation, the ATO engaged the Australian Centre for Justice Innovation (ACJI) at Monash University to undertake the research and evaluate, amongst other things, whether resources were used efficiently and whether effective and acceptable outcomes were achieved. On 2 December 2014, the ACJI published its report which found that the ATO's use of ADR was effective in about 70 per cent of matters in fully or partly resolving the dispute or enabling facts or issues to be clarified.347
5.16 The ATO has recently indicated that there are other avenues available for feedback on the effectiveness of its engagement and dispute resolution, including through consultation forums such as the National Tax Liaison Group and the Dispute Resolution Working Group.348
5.17 The IGT considers that the creation of the Appeals Group will provide greater opportunities to assess and evaluate the efficiency and effectiveness of its dispute resolution capability through the implementation of specific effectiveness criteria and reporting requirements.
Fair treatment and respect of taxpayers
5.18 The fair and respectful treatment of taxpayers is an important aspect of tax administration. It has been judicially recognised as being in the interest of both individual taxpayers and the revenue.349 The OECD has observed that taxpayers 'who are aware of their rights and expect, and in fact receive, a fair and efficient treatment are more willing to comply.'350
5.19 However, notwithstanding its importance, there is presently no specific right of fair treatment and respect of taxpayers in the Australian tax system. Research in this area has noted that, unlike jurisdictions such as the US, which have legal provisions promoting fair treatment, the Australian position is that fair treatment and respect is aspirational.351
5.20 In Australia, the administrative rights and responsibilities of taxpayers when interacting with the ATO are set out in a series of documents collectively referred to as the Taxpayers' Charter (the Charter) which was developed following a recommendation of the JCPA in 1993.352
5.21 The Charter states that the ATO will treat taxpayers fairly and with respect. Specifically:353
Treating you fairly and reasonably
- treat you with courtesy, consideration and respect
- behave with integrity and honesty
- act impartially
- respect and be sensitive to the diversity of the Australian community
- make fair and equitable decisions in accordance with the law
- resolve your concerns, problems or complaints fairly and as quickly as possible.
5.22 At a broader level, the ATO, as an Australian Public Service (APS) agency, is bound by the APS Code of Conduct and APS Values from which the requirements for respectful and fair treatment may be deduced.354
5.23 The Commissioner has also publicly committed the ATO to fairness and respect in its administration of the tax laws:
But a principle of our change is that we have to be fair and respectful in our dealings with taxpayers and not approach every single taxpayer with the view that we are seeking to extract the maximum amount of tax possible.355
5.24 The Commissioner's statement is reflective of those requirements set out in the Charter and which have been in place for over a decade. However, there are a range of stakeholder concerns regarding fair treatment that have been raised in this review and in previous IGT reviews.
5.25 Certain stakeholder submissions to this review also focused on taxpayer treatment in more serious tax cases, such as those involving potential fraud or evasion.There have also been media reports which have highlighted potential issues in taxpayer treatment in serious tax cases, such as those in 'Project Wickenby' investigations relating to offshore tax avoidance.356
5.26 Another issue which has emerged in relation to the Charter and other similar documents and statements from the ATO is that there are presently no avenues for redress beyond a complaint made to the ATO which is managed administratively.
5.27 The issue has been recognised by some academic commentators who have called for legislative change and enforceable remedies in relation to these rights and protections.357
5.28 In the most recent work program, the IGT noted:
Stakeholders have raised a range of concerns regarding the adequacy of the ATO's Taxpayers' Charter and related taxpayer protections. These concerns included access to enforceable remedies for defective ATO administration, commitment to procedural fairness and, more broadly, adherence to the model litigant obligations. Stakeholders point to international developments regarding a 'taxpayer bill of rights' with enforceable remedies. The Commonwealth Ombudsman has also noted that in many cases the aggrieved taxpayers do not receive the desired remedy with certain taxpayer cases garnering significant media attention. The IGT has previously acknowledged concerns with aspects of the ATO's Taxpayers' Charter, compensation schemes and their administration in a number of reviews and in the IGT Annual Report 2012–13.
The review will consider the above stakeholders concerns, including the nature of the Taxpayers' Charter, the existing avenues available to taxpayers seeking redress for defective ATO administration and further forms of redress that may be required.
5.29 The IGT envisages that that review will broadly consider the range of taxpayers' rights and protections in Australia including the need for enforceable remedies on these rights.
Use and publication of performance information
5.30 The use and publication of performance information is an important feature of transparent and accountable administration. As the Department of Finance has noted:
Managers require good-quality performance information and evaluation data to help measure whether they are achieving their business and policy goals. Performance information is also important for stakeholders to enable them to judge whether resources are being used efficiently and whether programmes and services are achieving intended results. Good-quality performance information improves transparency and accountability and, as a result, the confidence of the Parliament and the public in government operations.358
5.31 Within this context, 'performance' is not strictly confined to measures of financial outcomes and time-sensitive efficiency, though these are relevant. Performance may also describe taxpayer and community satisfaction in the ATO's services and approach as well as its conduct in other forums such as in the AAT or the Federal Court.
5.32 The publication of performance information provides an impetus for the ATO to ensure that it measures its performance and the publication of such information provides the ATO with key measures of its success. Moreover, through published performance information, the community at large is able to assess the ATO's approach and effectiveness.
Sources of ATO performance information
5.33 In its submission to the Committee, the ATO indicated that:359
We are committed to measuring our performance around the handling of disputes and being transparent about that performance. We include material in our annual report to parliament. We assess our performance through a number of lenses:
- service commitments;
- early resolution;
- aged cases;
- complaints; and
- legal expenditure.
5.34 In addition to the ATO's own measures, there are also external reports which shed light on this such as the number of complaints received and resolved by the Commonwealth Ombudsman,360 the performance audits of the Auditor-General361 and reports and findings of the IGT through his reviews into systemic tax administration issues.362
5.35 Each section within the ATO also has its own set of performance indicators and these may vary between different products and activities undertaken within that business line. For example, the former SME business line had a range of expected cycle times for completion of various compliance activities.363 These measures are generally not published externally except where they also serve as service standards, such as determining objections within 56 days following receipt of all relevant information.364
5.36 More recently, the ATO's Corporate Plan 2014 – 2018 has identified dispute resolution as an area of focus for the ATO. As a broad objective, the ATO states:365
We want to work collaboratively to reduce the time to resolve disputes, reduce the number of disputes and lower the costs both for taxpayers and us.
5.37 The Corporate Plan sets out six criteria on which the ATO proposes to measure its success in this area. Specifically, these criteria are:366
Earlier resolution of disputed cases
Average age of disputes
Number of disputed cases resolved
Client satisfaction with independence of review and the service provided
Proportion of disputes which result in litigation
Number of test case litigation finalised
5.38 The above criteria as with the performance indicators previously mentioned appear to be largely quantitative in nature and not directed at the qualitative and taxpayer experience aspects of such feedback. The exception is the feedback received in relation to the twenty or so taxpayers who have participated in the IR process.
5.39 The ATO also recently informed the Committee that it would be undertaking its annual review of performance indicators in line with the recently published OECD principles for performance evaluation. These principles direct focus on identifying the scope of evaluation, developing indicators and making use of these to foster improvement.367
5.40 The IGT also notes that a range of new reporting requirements are currently being introduced by the Government which will directly affect the way the ATO evaluates and publicly reports on its performance. These are explored further below.
Performance Framework under the Public Governance, Performance and Accountability Act 2013
5.41 The Public Governance, Performance and Accountability Act 2013 (PGPA Act) commenced operation on 1 July 2014 and provides a single piece of legislation which outlines Commonwealth entities' obligations in relation to planning, measuring, assessing and reporting of financial and non-financial performance.
5.42 It has been recognised that the 'current performance management arrangements are ad-hoc and fragmented in nature and lack coherence at a whole-of-system level.'368 To facilitate better reporting and support of the PGPA Act, the Department of Finance is currently undertaking consultation to develop a Commonwealth performance framework.
5.43 As the PGPA Act has only recently commenced operation and the framework is still developing, it is not possible to assess the extent of changes which may be applied. It is expected that the ATO's reporting will be augmented by the implementation of this Commonwealth Framework, which will also involve the Department of Finance undertaking a monitoring and evaluative role.369
Regulator Performance Framework
5.44 In its regulatory role, the ATO will also be subject to the Regulator Performance Framework370 issued by the Government which is largely based on the recommendations of the Productivity Commission.371
5.45 The new framework consists of six performance indicators, including:372
- regulators do not unnecessarily impede the efficient operation of regulated entities;
- communication with regulated entities is clear, targeted and effective;
- actions undertaken by regulators are proportionate to the regulatory risk being managed;
- compliance and monitoring approaches are streamlined and coordinated;
- regulators are open and transparent in their dealings with regulated entities; and
- regulators actively contribute to the continuous improvement of regulatory frameworks.
5.46 Regulators will be expected to self assess their performance against these performance indicators and the Government may require external reviews of regulators' performance against this framework.373
5.47 The Government anticipates that the implementation of this framework will result in improved regulator performance and should, amongst other things, enhance accountability and transparency.374
5.48 It is expected that regulators will align their internal policies and practices to the Framework by no later than 1 July 2015.375
5.49 The IGT is hopeful that the implementation of the Regulatory Performance Framework and the PGPA Act framework will provide a more consistent basis for the ATO to report its performance across the agency leading to greater transparency and public understanding of its approach.
Nature of ATO performance information
5.50 As noted earlier, the ATO's performance measures are, in large part, quantitative in nature.376 They may include observing changes in cycle times for completion of a particular type of case, numbers and trends in lodgments of objections and appeals, strike rates in projects seeking to detect instances of non-compliance or the amount of revenue raised in relation to particular compliance projects.
5.51 While this provides a good snapshot of aspects of the organisation's performance, it does not provide a holistic picture of ATO performance and does not accurately capture the impacts on taxpayers throughout the end-to-end process. For example, a decrease in audit cycle times may indicate more efficient completion of audit cases but may also lead to high levels of dispute because audit decisions were not as robust as they could be. Similarly, a reduction in audit cycle times may lead to extended or protracted objections owing to taxpayers having to engage in lengthier discussions and provide more evidence which should have been done at audit stage. In these situations, the overall experience for the taxpayer remains unchanged.
5.52 Similarly, in the tax dispute context, the majority of available performance information is outcome driven, such as success rates in litigation or completion rates for cases. It does not focus on whether the management of the disputes process itself was fair or if taxpayers felt they had been treated with respect and afforded appropriate procedural fairness. No inferences may be confidently drawn in this regard, even where the ATO's position is ultimately upheld to be correct as that only goes to the technical correctness of the ATO's decision and not the quality and fairness of the process. The issue is exacerbated by the ATO's present reporting systems not readily being able to capture whole-of-case performance information. As the IGT noted in Chapter 2, the absence of such reporting capability hampers the ATO's ability to effectively assess its performance against the taxpayer experience.
5.53 An illustrative example provided to the IGT concerned a risk review and audit of a taxpayer, his wife and their company which has run over the course of almost six years with multiple extensions of time for the ATO complete its audit, notwithstanding that an audit plan had been completed and approved by the Deputy Commissioner. The taxpayer noted that the ATO's conduct during the audit was aggressive, using repeated interviews, section 264 notices and threats of prosecution. Moreover, the taxpayer considered that the ATO's risk hypotheses were seemingly contradictory and further compounded by the ATO's attempts to apply Part IVA to their circumstances.
5.54 The taxpayer considers that the ATO's treatment of him over the past six years has caused him, his wife and his staff considerable stress and anxiety in addition to incurring over a million dollars of legal fees. The taxpayer considered that his treatment had been unfair and disrespectful and, even though complaints had been lodged at the highest levels of the ATO and with other agencies, the matter was not sufficiently addressed.
5.55 At a recent hearing with the Committee, the ATO was asked on its measures for fairness:377
Ms BUTLER: Thank you—I appreciate it. I appreciate you have only just released [the ATO Corporate Plan 2014 – 2018], but is there a measure in this plan for reporting against that goes to the perception of fairness outside of the dispute situation, prevention obviously being better than cure?
Mr Olesen: I would need to check. In our annual reports we routinely report on the community perception survey that we do. We have done that for quite some time. Whether there is an express measure there I cannot recall, but we do routinely put those results in our annual report, because naturally they are very important for us in understanding how the community perceives our professionalism, our courtesy and our fairness.
5.56 In a supplementary submission made to the Committee, the ATO expanded on its response, providing results from a number of perception surveys which contained questions seeking to elicit community views on ATO fairness and professionalism.378 The ATO's general community perceptions survey reported high ratings in relation to fairness with 79 per cent, 80 per cent and 81 per cent of taxpayers in 2011, 2012 and 2013 respectively agreeing or strongly agreeing that the ATO was fair and reasonable in its administration. However, a new survey conducted in November 2013 shows that only 53 per cent gave the ATO that rating. The ATO notes that owing to the transition from a 4 point rating scale to a six point rating scale, the November 2013 results are not directly comparable to previous years.379
5.57 The IGT notes that in respect of its Single Corporate Perceptions Survey, which consolidates other market segment-based surveys, 66 per cent of taxpayers agreed or strongly agreed that the ATO was fair and professional. The ATO again notes that as this survey was only introduced in May 2014 and uses a 6 point rating scale, it is not directly comparable to prior year results.380
5.58 The IGT notes that in respect of tax practitioners, perceptions of the ATO's fairness and professionalism have been generally lower than in other surveys. In 2011, 2012 and 2013, respectively, 49 per cent, 47 per cent and 58 per cent of tax agents agreed or strongly agreed that the ATO was fair and professional. Business Activity Statement agents were more favourable in their assessment, with 59 per cent and 66 per cent giving the ATO those ratings in 2012 and 2013.381
5.59 The ATO has also provided the IGT with some additional information regarding internal performance measures in relation to tax disputes. These largely comprise statistical reports of outcomes on objections and litigation cases, outcomes on IR matters and numbers of cases being considered for test case litigation funding.382
5.60 There is a need for the ATO to better understand its own performance from the perspective of the taxpayer. This is necessary to assess satisfaction and fairness as a continuum of all taxpayer interactions with the ATO and not stratified or divided by different business lines, sections or functions. At present, the IGT is not aware of any measures which assess a 'whole of case' satisfaction level from the taxpayer's perspective. There is merit in the ATO considering developing such a measure and publishing the outcomes and learnings.
5.61 The IGT also envisages that, following the creation of the Appeals Group, specific performance indicators would be developed to incentivise ATO officers to initiate and engage with taxpayers to resolve disputes at the earliest point in time. Moreover, such indicators should also be designed to assess how cases were resolved and whether the method of resolution was optimal in the circumstances. In doing so, the ATO should consult widely with the taxpayers and tax practitioners and their representatives on the most appropriate measures to evaluate its effectiveness.
Publication of ATO performance information
5.62 The ATO publishes details of its performance through a number of channels including its website, Annual Report and Corporate Plan. For example, in its 2012–13 Annual Report, the ATO set out some statistics on its compliance work on HWIs including the number of audits and reviews completed, revenue raised and collected and the quantity and quantum of settlements.383 Settlement statistics were also reported in relation to large businesses as well as the level of Goods and Services Tax adjustments in this market segment and the efficiency and time taken to complete private rulings.384
5.63 The ATO's Compliance Program publication, a forward looking document of the ATO's proposed focus areas in the coming financial year, also provided statistics and key details on its past year performance and achievements on each market segment.385 Since 2013, the Compliance Program has been rebadged Compliance in Focus, a web-based publication which provides similar information to the Compliance Program. The IGT notes that some past performance information is also provided though the level of detail and information appears to have decreased from previous compliance programs.386
5.64 The ATO's dispute resolution performance has also, in recent years, been reported in the Your Case Matters publication which outlines different aspects of the ATO's dispute resolution approach up to 31 December 2012.387 The ATO has not published further editions of this document and in discussions with the IGT has indicated that it would explore other channels through which to publish this information, such as the Annual Report or its website.388
5.65 The IGT's ADR Review identified concerns that the ATO's publication of its litigation work was inadequate, especially in relation to significant litigation matters and test cases.389 Following the IGT's recommendation, the ATO developed a test case litigation register which provides updates on matters which had been referred for test case funding and the progress of those matters.390
5.66 The IGT is of the view that further and more timely information could be published regarding the ATO's litigation work on significant matters. However, it should be noted that the ATO has indicated publicly that it is currently consulting with stakeholders on strategies to better communicate test cases and issues on which the ATO is seeking to test the law.391 The IGT considers that this is a positive first step and that it is likely to provide improved transparency of the ATO's approach to litigation.
The legal framework for disputes
5.67 The legal framework for the resolution of tax disputes in Australia comprises a number of different avenues. These include the objections and litigation processes which were discussed earlier in the report. There are also other legislative avenues such as judicial review through the Administrative Decisions (Judicial Review) Act 1975 and the Judiciary Act 1903 and the use of declaratory proceedings which the IGT previously recommended in his 2012 ADR Review.392 It should be noted that the Chief Justice of the Federal Court has more recently encouraged the use of declaratory proceedings and the current Commissioner has indicated that this warrants further dialogue with the legal profession.393
5.68 In addition to these, there are a number of other legislative and administrative mechanisms designed to ensure early and efficient dispute prevention, identification and resolution. These include the model litigant rules, the use of alternative dispute resolution and the use of real time compliance initiatives. Each of these are discussed below.
Model litigant rules
5.69 The obligation for the Commonwealth to act as a model litigant (commonly referred to as the model litigant rules or model litigant obligation) is contained in Appendix B to the Legal Services Directions 2005 (LSD 2005).394 It requires:
…the Commonwealth and its agencies, as parties to litigation, to act with complete propriety, fairly and in accordance with the highest professional standards. This obligation may require more than merely acting honestly and in accordance with the law and court rules. It also goes beyond the requirement for lawyers to act in accordance with their ethical obligations.395
5.70 The LSD 2005 and model litigant rules are administered by the Office of Legal Services Coordination (OLSC), a section of the Attorney-General's Department. The OLSC is also responsible for investigating alleged breaches of the LSD 2005 which may be brought to its attention by media reports, judicial comments and complaints made directly to it.396 In May 2013, the Compliance Framework for the LSD 2005 was amended such that the OLSC no longer investigates or resolves complaints from members of the public, but refers the complaint to the relevant agency for appropriate action.397
5.71 The ATO has reported that between 1 July 2007 and 31 December 2012, there have been 47 alleged breaches of the model litigant rules. Of these, 37 were self-reported by the ATO, 8 were raised by taxpayers and 2 were identified and investigated by the OLSC following media reports.398 Of these allegations the OLSC has found that there were 5 breaches, 3 of which were administrative in nature.399 Information provided to the IGT indicates that, in relation to one of the breaches, the ATO accepts that it breached the LSD 2005 by pursuing two related taxpayers in instances where Counsel's advice was that its prospects of success were poor.400
5.72 Submissions to the IGT in this review note that while the model litigant rules provide an aspirational template for the Commonwealth to act with the highest levels of propriety, it does not confer any enforceable rights. Indeed, the Judiciary Act 1903 makes it clear that only the Attorney-General can enforce the LSD 2005.401 However, some members of the community believe that avenues of redress exist.This mistaken belief has been borne out in attempts to enforce the rules through litigation which have inevitably failed due to the nature and design of the rules.402 Accordingly, stakeholders consider that there is a disconnect between the Government's intended purposes for the rules and the community's understanding and expectations of them.
5.73 The IGT has previously, and during this current review, received submissions which have called for greater enforceability of the model litigant rules.The issue of enforceability of the model litigant rules extends beyond the operations of the ATO. The Productivity Commission has recently considered the effectiveness of the model litigant rules as part of its Access to Justice Arrangements report.403 In doing so, the Commission reflected stakeholder concerns that variable compliance with the rules was a result of difficulties with enforcement and sanctions.404 The Commission has made a draft recommendation that:
Compliance should be monitored and enforced, including by establishing a formal avenue of complaint to government ombudsmen for parties who consider model litigant obligations have not been met.405
5.74 While the IGT considers that this is a matter which warrants careful consideration, such consideration needs to be undertaken in conjunction with other key government agencies and departments, including the OLSC and the Attorney-General's Department. The IGT proposes to explore these issues in more detail in his previously announced review into the Taxpayers' Charter and taxpayer protections.
Alternative dispute resolution
5.75 As set out earlier in this report, the IGT's 2012 ADR Review was a broad-based examination of the ATO's dispute resolution work throughout its end-to-end compliance process.406 Following completion of the review, the ATO embarked on a significant program of reform in its dispute resolution approaches, using the IGT's report as the foundation.
5.76 As part of that review the IGT considered the dispute resolution approaches of the US, New Zealand, Canada and the UK. For example, the IGT drew upon the UK's pilot to facilitate discussions between HMRC officers and taxpayers to resolve disputes earlier without recourse to the tribunals.407 The IGT made a recommendation for the ATO to pilot a similar program to engage ATO in-house facilitators to assist small business and individual taxpayers to resolve their disputes expeditiously and cost effectively.408 As a result, the ATO has reported that following a successful pilot, it has expanded the program to include a wider group of taxpayers and disputes.409
5.77 During the course of the review, the IGT was also conscious of domestic developments in ADR across the APS and was mindful to ensure that matters recommended reflected a whole-of-Government approach. To this end, the IGT engaged with and referred to the work of the Attorney-General's Department's Access to Justice Taskforce410 and the National Alternative Dispute Resolution Advisory Council.411
5.78 In total, the report made 21 recommendations to the ATO and one to the Government. The ATO agreed in full, in part or in principle with all but one of the recommendations.412 The recommendations were largely aimed at:413
- Ensuring the ATO and the taxpayer engage earlier to ascertain and agree on those matters that are agreed and those that remain in contention;
- Streamlining of information exchange between the parties to ensure that the matters in dispute are understood;
- Ensuring clear escalation channels to appropriate ATO personnel to engage in dispute resolution processes;
- Bringing early engagement and ADR to the forefront of ATO dispute resolution efforts and only litigating cases which turn on genuine and fundamental disputes as to law and where there is a public benefit in having the matters judicially determined;
- Enhancing the skills and understanding of both ATO staff and taxpayers of the different types of engagement available in ADR and the circumstances in which these may be appropriate through increased training and publication of information respectively; and
- Identifying opportunities for continuous improvement through implementing processes to enable feedback to be provided regarding the use of ADR in the tax dispute context.
5.79 The recommendation with which the ATO disagreed sought to address perceptions of a lack of independence in the ATO's objections function from its compliance function by recommending a pilot where objections for the most complex cases be moved from the Compliance Group to the LD&P Group. While the ATO disagreed with this recommendation at the time, it has since largely implemented it by moving objections for taxpayers with turnover of $100 million or more from the Compliance Group to the LD&P Group.414
5.80 The IGT recognises that since that review, the ATO has made significant progress in its dispute resolution work. The ATO has increased the number of initiatives and avenues through which taxpayers may engage with the ATO on tax disputes. However, as noted earlier, some of these initiatives are restricted to certain classes of taxpayers which have given rise to perceptions of arbitrariness and unfairness. Moreover, stakeholders have also raised concerns with the IGT that in some instances, engaging with relevant senior ATO officers may still be problematic, hampering effective early engagement and leading to unnecessary litigation, the vast majority of which are resolved without hearing.
5.81 The IGT considers that the Appeals Group, with responsibility for objections, pre-assessment reviews and dispute resolution including ADR, would be well-placed to ensure that taxpayers have a single port of call to engage with the ATO on dispute resolution. Moreover, with a single centralised area, the ATO would be able to better assess the nature of the dispute and identify the most appropriate means of resolution without arbitrary restrictions and delineations which may result in perceptions of inconsistent treatment.
Real time compliance initiatives
5.82 The self assessment system is generally predicated on the basis that taxpayers assess their own tax liabilities and the ATO assures itself of compliance after an assessment issues. Typically, such assurance may involve information gathering, site visits with relatively straight forward risk reviews escalating to audits in more serious or significant matters.
5.83 In more recent years, the ATO has increasingly sought compliance assurance and verification earlier in the process. Such processes are more contemporaneous or real time than traditional compliance assurance activities and, at present, are largely confined to large businesses. They may take the form of pre-lodgment compliance reviews, annual compliance arrangements and international dealings schedules.415 In relation to large multi-national companies, the ATO may also engage in negotiating APAs which seek to resolve transfer pricing issues before transactions are undertaken.416
5.84 The above pre-lodgement compliance activities have been examined in earlier IGT reviews into improving the self assessment system and the Transfer Pricing review.417 The IGT has made a number of recommendations as to how these compliance activities might be improved. Ultimately, they must balance creating efficiencies in the compliance assurance and verification processes whilst providing timely certainty for taxpayers and the ATO alike.
338 OECD, Working smarter in structuring the administration, in compliance, and through legislation (Forum on Tax Administration, January 2012) para .
339 ATO, 'Debt Strategy 2014 – 2018' (internal ATO document).
341 Above n 4, p 49.
342 Denlay v Commissioner of Taxation  FCA 307.
343 See for example: Federal Court Rules 2011 div 7.4.
344 IGT, Review into the Tax Office's Small Business Debt Collection Practices (2005); see for example: Australian National Audit Office (ANAO), The Engagement of External Debt Collection Agencies (2012); ANAO, Management of Debt Relief Arrangements (2013).
347 Australian Centre for Justice Innovation, Evaluating Alternative Dispute Resolution in Taxation Disputes (28 November 2014) p 39.
348 Above n 160, p 6.
349 Vestey v Inland Revenue Commissioners (No 2)  Ch 177.
350 OECD, Principles of Good Tax Administration (Practice Note GAP001, 2001) p 3.
351 John Bevacqua, 'From moral duty to rule of law – Lessons from the United States in treating taxpayers fairly' (Paper presented at the 25th Australasian Tax Teachers Association Conference, Auckland, New Zealand, 20-22 January 2013) p 20.
352 Above n 11, p 314.
353 ATO, Taxpayers' Charter - What you need to know (14 August 2013).
355 Above n 246; Above n 160, p 6.
356 Australian Broadcasting Corporation, 'Tax Office faces accusations of abuse of power' (9 April 2012) <http://www.abc.net.au/7.30/content/2012/s3473563.htm>.
357 See for example: Above n 351; Justin Dabner, 'Australian tax controversies and human rights', CCH Tax Week (19 November 2014).
358 Department of Finance, Enhanced Commonwealth Performance Framework (Discussion Paper, August 2014) p 1.
359 Above n 215, p 34.
360 Commonwealth Ombudsman, Annual Report 2012-13 (2013).
361 See for example: Above n 51, ANAO, Compliance Performance Methodology (2014); ANAO, Management of Complaints and Other Feedback (2014).
363 See for example: Above n 38, p 68.
365 ATO, Corporate Plan 2014 – 2018, p 40.
366 Above n 365.
367 OECD, The Governance of Regulators (2014) p 106.
368 Department of Finance, 'Brief for Joint Committee of Public Accounts and Audit (JCPAA) on a proposed approach to the performance framework under the Public Governance, Performance and Accountability Act 2013 (PGPA Act)' (Undated) <www.pmra.finance.gov.au> p 1.
369 Ibid, p 3.
370 Australian Government, Regulator Performance Framework (2014).
371 Productivity Commission, Regulator Audit Framework (2014).
372 Above n 371, pp 16-26.
373 Ibid, pp 8-9.
374 Ibid, p 10.
375 Ibid, pp 6-7.
376 See for example: ATO, 'Public Groups and High Wealth Individuals Line Plan 2013–14' (internal ATO document, 2013) p 13; ATO, 'Tax Compliance for Small-to-Medium Enterprises and Wealthy Individuals' (26 October 2012) <www.ato,.gov.au>; ATO, 'Large Business and Tax Compliance' (14 October 2014) <www.ato.gov.au>.
377 Above n 160, p 6.
378 ATO, Submission 10.1 to the House of Representatives Standing Committee on Tax and Revenue, Inquiry into Tax Disputes (16 July 2014) pp 3-4.
382 ATO communication to the IGT, 14 November 2014.
383 Commissioner of Taxation, Annual Report 2012-13 (2013) pp 44-45 and 58.
384 Ibid, pp 28, 50 and 58.
385 ATO, Compliance Program 2011–12 (2011) pp 42 – 48; ATO, Compliance Program 2012–13 (2012) pp 70-85.
387 ATO, Your Case Matters (1st ed, 2012); ATO, Your Case Matters (2nd ed, 2012); ATO, Your Case Matters (3rd ed, 2013).
388 ATO communication with the IGT, 30 July 2014.
389 Above n 42, pp 58-59.
392 Above n 42, pp 61-62.
393 Chris Jordan AO, 'Commissioner's Address to the Tax Bar Association' (speech delivered to the Tax Bar Association, Melbourne, 6 November 2014) <www.ato.gov.au>; Jennifer Batrouney QC, 'Declaratory relief in revenue matters' (5 November 2014) p 1.
394 Judiciary Act 1903 s 55ZF.
395 LVR (WA) Pty Ltd v Administrative Appeals Tribunal  FCAFC 90 at .
397 Attorney-General's Department, Legal Services Directions 2005 Compliance Framework (2013) p 6.
398 ATO, Your Case Matters (3rd edition, 2013) p 34.
399 Ibid, p 35.
400 ATO communication with the IGT, 18 July 2014.
401 Judiciary Act 1903 sub-ss 55ZG(2)-(3).
402 Caporale v Deputy Commissioner of Taxation  FCA 427.
403 Above n 217, pp 429 and 431.
404 Ibid, p 434.
405 Ibid, recommendation 12.3, p 442.
406 Above n 42.
408 Above n 42, recommendation 3.6, p 44.
412 Above n 42, pp 107-108.
413 Ibid, pp v-vi.
414 Above n 58.
415 Above n 37, p 21.
416 Above n 162, pp 80, 151-168.
417 IGT, Review into improving the self assessment system (2013); Above n 162.