3.1 The ATO identified 'large business' market segment represents a significant part of the Australian economy and plays a crucial role in the tax system. In 2008-09 large business represented 63 per cent ($37.8 billion) of income tax collections from companies and 53 per cent ($20.2 billion) of total net GST.1
3.2 Large business taxpayers operate under the self-assessment regime, which means that taxpayers have a responsibility to correctly determine their tax obligations, in the same manner as other taxpayers. This requires taxpayers to take their own action in meeting these obligations, including:
- forming a view on the correct legal treatment of matters required for their tax return;
- lodging a tax return on the basis that that they believe it correctly reflects the law as it applies to the relevant facts and assessing the appropriate amount of taxable income and tax payable;
- seeking advice where appropriate; and
- making full and true disclosures of all material facts when subject to ATO risk review or audit.
3.3 The ATO's role in the tax system, under the leadership and authority of an independent Commissioner, is to administer the tax laws as enacted by Parliament and as interpreted by the courts and tribunal without fear or favour.
3.4 The ATO has accepted the responsibility of providing taxpayers with guidance, advice and other support in assisting them to meet their tax obligations. The ATO is also responsible for the integrity of the tax system, not only in the sense of its wholeness and soundness, but also its fairness and honesty. This is re-affirmed in the ATO's Compliance Program with its two stated compliance roles:
- to maximise the number of taxpayers who choose to voluntarily comply by making it as easy as possible for them to understand and meet their obligations; and
- to have strategies to deter, detect and address non-compliance.
3.5 This requires the ATO to ensure that taxpayers are voluntarily complying with their tax obligations and paying or remitting to the ATO what is required under the law. As part of this role the ATO undertakes a variety of compliance activities, ranging from telephone calls and, questionnaires to risk reviews and audits.
3.6 There is general acknowledgement that there has been a significant improvement in ATO interactions with taxpayers and a higher degree of diligence and professionalism in the large market segment.
3.7 However, the management and handling of risk reviews and audits, including their efficient and effective progression and the accountability of decisions and actions, are areas that have an important bearing on the broader relationship between the ATO and taxpayers.
3.8 In response to the 2005 Burges Report, the ATO announced 13 initiatives to improve its risk review and audit processes and strengthen its relationships and understanding of large business. For details on this report and the ATO initiatives refer to Chapter 2.
3.9 The ATO noted that the key themes behind the process improvements was the need to actively engage with taxpayers, keep them informed of the progress of a risk review or audit and ensure that taxpayers understood the technical basis for the ATO's concerns about transactions and risks. This was to be a move away from a more closed approach to dealing with large market taxpayers of previous years to a more cooperative and transparent relationship. The ATO indicated that these principles and guidelines would be followed by case officers and the implementation of the initiatives would be embedded into its quality assurance processes and performance agreements.
3.10 The IGT found that the ATO's large business risk review and audit policies, procedures and practices have undergone major changes over the last five years and a number of the initiatives have had a positive impact on the finalisation of the majority of risk reviews and audits within the specified timeframes.
3.11 For example, the IGT found that audit teams convene internal workshops throughout a risk review and audit as a way to bring together subject experts and technical specialists. This has allowed for the more timely identification of potential issues and information needs. Also, the ATO now places greater emphasis on case management of risk reviews and audits to ensure cases progress in a timely manner, (primarily through the use of risk review and audit plans, monthly call-overs, audit call-overs and workshops).
3.12 The IGT believes that many ATO risk review and audit policies and principles put in place over the last several years (and as encapsulated in the Large Business Tax Compliance booklet) are appropriate and aimed at making the review and audit processes more efficient, cooperative and less intrusive. There has also been a corresponding improvement in ATO attitude expressed by taxpayers, especially at the senior management level.
3.13 However, a number of the concerns raised in the 2005 Burges Report continue to surface within the range of submissions and consultations received by the IGT in this review, especially relating to issues of communication, engagement and transparency in the risk review and audit processes.
3.14 In addition, the substantial number of submissions received by the IGT during this review suggests that there is a genuine opportunity to improve the relationship between the ATO and large business. A range of taxpayers and their advisers observed a misapplication of (or lack of adherence to) ATO policies and procedures, leading to undue delays, unnecessary cost and resource demands and a heightened level of frustration on the part of corporate taxpayers and their advisers.
3.15 These concerns were raised by taxpayers from a cross-section of the key large business taxpayer segment and not just in the case of more complex or controversial issues or ATO taxpayer profiles that may have suggested taxpayers were higher risk.
3.16 The difficulty and uncertainty that this may create is an unwelcome feature of an already complex tax system that undermines taxpayer and ultimately community confidence in the ATO's administration of the tax system where it occurs.
3.17 Importantly, the inefficient or uncertain application of risk review and audit processes gives rise to significant unnecessary direct and indirect compliance costs for both taxpayers and the ATO. Such costs are a dead weight on the Australian economy.
3.18 The ATO also canvassed with the IGT some challenges presented by the modern large business environment. Briefly, the main challenges relate to globalisation and the increasing importance of a smaller number of much larger taxpayers (or a concentration risk). These taxpayer groups tend to also have increasing international or global offshore business activities in an increasingly complex environment. The ATO also cited complexity of transaction arrangements and dealings as a challenge in this environment. The result is a concentration of tax revenue supply consequences for the ATO as administrator and the Government more broadly.
3.19 The IGT appreciates the significance of this development for the ATO. There is an important tension in ensuring that the law is applied appropriately in the collection of tax revenue and the expectation that business, while needing to comply with their obligations, are able to function without undue compliance cost or interference. Such an approach is critical in fostering and maintaining a taxpayer culture of voluntary compliance and also a positive business environment.
3.20 It is important that principles set out in the Large Business and Tax Compliance (LBTC) booklet and Large Business and International (LB&I) Compliance Manual are adhered to in improving the relationship between the ATO and large businesses so as to reduce the occurrence of negative perceptions around the ATO's risk review and audit approaches, particularly in the more complex or difficult audit cases. This is also relevant in an environment where the ATO is looking to place far greater emphasis on its Risk Differentiation Framework (RDF) by treating large business taxpayers differently according to their risk profile.
3.21 The IGT notes that there are also external factors that may influence the behaviour of the ATO and taxpayers. For example, both large business and the ATO have indicated that the Federal Court Practice Note TAX 1, which sets out revised arrangements for the management of tax cases that go on to litigation in the Federal Court, has had a considerable impact on the conduct of large business risk reviews and audits.
3.22 Given the requirement to narrow the issues at the early stages of litigation and the limitations on both the ATO and taxpayers obtaining further information or documentation, the ATO now seeks to ensure that it is 'litigation-ready' at the audit stage. The ATO states that to resolve issues, it needs to be in the same factual position as a taxpayer's decision-makers, which requires the ATO to get to the 'full facts quickly', along with the relevant supporting evidence.
3.23 A range of taxpayers suggested that the ATO's attempts to be in the same factual position as the taxpayer's decision-makers has led to blanket requests for information even where it is irrelevant or immaterial to the issues subject to audit.
3.24 The ATO management have suggested that their intention for a given matter is to ensure they have full facts quickly and that 'blanket requests' are not supported under instructions to staff2.
3.25 The issue of information gathering and related requests is an extremely important one for taxpayers, their advisers and the ATO. It is addressed further in Chapter 7.
ATO expectations of large business taxpayers and tax practitioners
3.26 The ATO's new strategic statement sets out its aspiration to actively engender willing participation in the tax system through a range of strategies. These include collaboration to generate greater community involvement (for example, the Large Business Advisory Group and other industry forums and working groups across the Large Market); supporting voluntary compliance through public rulings, private rulings and education products; and protecting the integrity of the systems through targeted and appropriate compliance work and differentiated approaches recognising that non-compliance can have a range of causes.
3.27 The ATO has taken an approach of directly engaging with senior management (CEO and CFO) and board members of large market companies to ensure that a sound framework is in place to manage tax risks and comply with tax obligations. This includes ensuring there is:
- a well-resourced in-house tax governance capability to manage and mitigate tax risk and a capacity to regularly audit tax governance systems;
- appropriate review and sign-off procedures for material transactions and reporting requirements which ensure that significant tax risks are elevated to the board;
- a system to identify, assess, monitor and approve material tax issues; and
- an understanding of the ATO's risk rating assessment of their business (more recently).
3.28 The ATO wants an enhanced relationship with large business taxpayers characterised by high levels of mutual transparency and trust. This means that even if at times the law appears indeterminate and the ATO and taxpayer hold different views then both parties will seek to have the matter clarified upfront or resolved as quickly as possible.
3.29 The ATO wants taxpayers to share potential tax risks in a real-time environment and where a matter proceeds to a risk review or audit to then get the full facts quickly, along with the relevant supporting evidence. It wants taxpayers to assist the ATO in ensuring that the ATO meets its planned timeframes by providing information in a timely way and ensuring that appropriate staff are available for interview.
3.30 The ATO acknowledge that this requires a general sense of trust, but its role as an administrator means that it will still need to verify some matters to provide system assurance and integrity.
3.31 The ATO acknowledges that building an environment of mutual trust is not easy and involves a degree of cultural change by all parties.
Large business taxpayer expectations of the ATO
3.32 Large business taxpayers provided the IGT with clear expectations that they had of the ATO and the tax system. They indicated that high on the list was a relationship based on mutual trust with an appreciation of the practical and commercial realities of transactions, the current complex environment in corporate tax and the resources taxpayers are expending to comply in a self-assessment tax system.
3.33 Taxpayers note that the compliance expectations gap between the ATO and large business taxpayers has narrowed considerably, as evidenced by the increase in voluntary disclosures, but consider that the ATO has not provided sufficient recognition, accommodation or acknowledgement of large business in this regard. There is a general sense amongst large business that the closing of this gap can be largely attributed to the efforts of taxpayers.
3.34 Taxpayers made strong representation to the IGT that over the last 10 years large businesses have made significant improvements to their tax risk management practices. They also indicated that tax is rarely the driver of large businesses' commercial decisions. Large business taxpayers believe that company boards and management now play a far more active role in managing tax risk and expect the ATO's risk review and audit approaches to evolve to acknowledge this and support tax managers and advisers.
3.35 For example, taxpayers that exhibit a highly cooperative approach, with a demonstrated commitment to tax compliance and sound governance systems wanted a more cooperative, transparent and understanding relationship. In particular these taxpayers felt that notwithstanding that the ATO's current RDF places them in a higher risk quadrant due to their size and potential consequence on revenue collection, the compliance focus should be more appropriately measured and directed given the cost and effort they made toward such cooperative compliance.
3.36 Taxpayers also made strong representation to the IGT that they wanted greater recognition that they operate in a self-assessment tax system environment — another concern high on their list. It was acknowledged by taxpayers that there will be some tension in such an environment and that this may even be a positive providing it does not lead to unnecessary uncertainty and increased compliance costs.
3.37 In this context, reference was made by taxpayers to the historical full assessment system that existed prior to the introduction of self-assessment. They felt this process was clear in its approach and final in outcome. A number of taxpayers and advisers familiar with this system indicated that they believe the current approach to the self-assessment system is now a hybrid with the worst of both worlds for taxpayers, where all the primary cost of process, interpretive decision making and liability is placed upon them until amendment periods expire.
3.38 Taxpayers also no longer have the option of obtaining final closure by requesting that the Commissioner provide a 'full' assessment. Private rulings were introduced with self-assessment as an attempt to bridge this taxpayer assurance gap to some extent. However, taxpayers expressed the view that lingering uncertainty always remains, as it is simply not possible to obtain private rulings on every issue or to appreciate every legal interpretation that the ATO may wish to review or challenge, given the very complex legal system and administrative requirements placed upon them.
3.39 A significant number of taxpayers also suggested that whether they regularly interact with the ATO (such as seeking private rulings in particular) should not of itself be a factor in determining a taxpayer's risk rating (please refer to Chapter 4 for further discussion of this risk rating context).
3.40 A range of taxpayers suggested that while some in the ATO have been actively seeking to build a real-time relationship through more cooperative arrangements, there still remain a number of blockers. A not uncommon problem cited by taxpayers was the inability to resolve so called 'legacy' or 'special' issues and the overriding impact that these have on relationships. Taxpayers more universally felt that there were certain strong dysfunctional influences or cultural issues which also arose from time-to-time that made for unnecessarily strained relationships.
3.41 Large businesses want risk reviews and audits that are well planned and delivered by appropriately trained and adequately supported staff in a manner that is consistent with the spirit of the principles in the LBTC booklet with particular emphasis on engagement, dialogue, timeliness, transparency and a real appreciation of compliance cost minimisation.
Potential improvements in the ATO's large business audit and risk review policies, procedures and practices
3.42 In light of the above discussion, the IGT has identified three broad areas for improvement:
- greater certainty and transparency in the risk review and audit processes and procedures;
- more consistent and proportionate application of the risk review and audit principles and practices as set out in the LBTC booklet and the LB&I Compliance Manual; and
- greater engagement and dialogue and aspiring to a greater level of trust between taxpayers and the ATO so as to minimise compliance costs.
3.43 The IGT's recommendations seek to improve key aspects of the ATO's large business risk review and audit policies, procedures and practices as set out in Appendix 2.
3.44 It is critical to the ATO large business taxpayer relationship that the principles and guidelines set out in the LBTC booklet and the ATO's Compliance Manual are consistently followed and that this requirement is embedded into the LB&I quality assurance processes and performance management.
3.45 The ATO has made significant efforts to introduce a number of quality assurance processes such as the Integrated Quality Framework, monthly case reviews, workshops and the case call-over process during audits.
3.46 The IGT acknowledges the importance of the revised LBTC booklet that was released during the course of this review. The large market IGT consultations generally supported and agreed with most of the principles embodied in the booklet.
3.47 A key issue was the living out of the principles and their application in the details. ATO management also see this as an important challenge both for themselves and taxpayers. In this regard a number of the IGT recommendations could be grouped under a single heading of improved assurance; that is, to ensure that the ATO's processes are strengthened and improved to provide greater certainty that staff not only operate in accordance with the processes outlined in the LBTC booklet but do so in a way that 'lives out' the LBTC booklet's underlying values and principles.
3.48 The IGT believes that the level of user familiarity with and acceptance of the Siebel case management system (in its current form) impacts on ATO Case Officers, Team Leaders and Technical Leaders in performing their work efficiently and effectively. The IGT observed that some teams were more skilled than others in using Siebel to support ATO processes. Nevertheless, the ATO advises that it has provided LB&I staff with training on the use of Siebel, and also a dedicated support team to assist staff in using the system effectively.
3.49 The ATO acknowledged that Siebel is not always easy to use due to the size and complexity of some large cases and the associated evidentiary and documentation requirements, so it has initiated action during the course of this review to address the problem. In particular, the ATO has undertaken an improvement project that should enhance search functionality and other features. LB&I management also took action to roll out a document management system (Ringtail) that compliments the Siebel case management system. This is initially for use by complex audit teams, but will eventually be provided to all staff to improve information-gathering, access and management.
List of recommendations
Outlined in this section is a complete list of the IGT recommendations from the other chapters of the report for summary reference.
Given the importance of the relationship between the ATO's risk classification of a taxpayer and its consequence, the ATO should continue to develop a more well-defined, transparent and consistent process in discussing and determining a taxpayer's ATO income tax risk rating at a given point in time under the ATO's RDF. This should include the ATO:
- making a risk classification for taxpayers in specific risk quadrants (at a minimum key and higher risk quadrant taxpayers but may be expanded depending upon taxpayer experience and needs);
- communicating the risk classification to the taxpayer disclosing all the relevant facts, metrics, weightings and reasoning underpinning this determination in writing;
- providing these taxpayers with an opportunity to meet face-to-face to discuss the determination;
- providing these taxpayers with a direct opportunity to reply in writing to this risk classification;
- appropriately reviewing and considering this taxpayer response; and
- allowing the taxpayer to escalate the matter to the Deputy Commissioner LB&I, if they are still dissatisfied with the rating.
To promote greater consistency and proportionate ATO delivery of a risk review and audit in accordance with the principles set out in the latest LBTC booklet, the LB&I Compliance Manual and supporting LB&I work practices should be revised to reflect more clearly the different risk profiles of taxpayers and support the more differentiated approach. This should include details on the expected process, level and type of engagement and mutual transparency as it relates to higher, key, medium and lower risk taxpayers.
The ATO should enhance its quality assurance processes (including monthly reviews) to include specific criteria or questions that test whether the principles and processes set out in the LBTC booklet (as revised) and LB&I Compliance Manual are fairly, consistently and professionally followed in a manner that is proportionate to the taxpayer's risk profile.
To improve transparency and promote greater understanding, the ATO should publicly release the LB&I Compliance Manual so as to provide better guidance and detail to taxpayers and advisers on the risk review and audit processes. This would include more detailed ATO guidance on the:
- scope and purpose of risk reviews and audits;
- thinking, reasoning and judgements behind important aspects of the risk review and audit processes;
- inputs to the risk review and audit processes such as the nature and detail of documentation to be requested at each stage;
- details on the roles, responsibilities and expectations of the various tax officers that may be involved in a risk review or audit;
- ATO and taxpayer expectations regarding the conduct of a risk review and audit; and
- type and level of expected engagement.
The ATO should streamline its various post-lodgement risk review and audit products into three specific processes:
- Preliminary risk review — this stage would involve no contact with the taxpayer and be primarily focused on the identification of potential compliance risks through internal ATO risk profiling and ratio analysis, media profiling, tax profiling history and examination of ownership structures.
- Risk review — involves a specific or a broad investigation of various risk areas identified in the preliminary risk review. As more information is obtained and should new risks be identified, the scope of a client risk review may be broadened, although this would be accompanied by updating and communicating of the ATO's revised risk hypothesis to the taxpayer.
- Audit — involves the detailed testing and refining of each specific risk hypothesis arising from the risk review or in the course of the audit.
The ATO should supplement its commitment to open dialogue in the LBTC booklet by providing additional guidance to LB&I staff and taxpayers on how it will develop, refine and communicate the risk hypothesis during a risk review and audit.
This should include a commitment to share the risk hypothesis with taxpayers in writing and discuss the risk hypothesis at certain stages in the course of a risk review and audit.
The implementation of this recommendation should consider whether the taxpayer should be notified and or consulted:
- where a risk hypothesis has been materially refined or changed (or a new risk hypothesis is identified) at appropriate management action points (e.g. after an ATO internal workshop);
- where a taxpayer provides additional or new information that results in a change in the ATO's risk hypothesis (either due to the risk hypothesis being refined or a new risk being identified);
- at the preliminary audit interview; and
- prior to issuing draft finalisation letters.
The ATO should enhance its assurance processes (including the Integrated Quality Framework) to ensure audit teams develop, refine and communicate a risk hypothesis in accordance with the expectations and requirements of the LBTC booklet and Compliance Manual.
This should include Team Leaders (and where appropriate Technical and Case Leaders):
- ensuring that the risk hypothesis has been correctly understood, tested and refined throughout the risk review or audit;
- examining and refining the risk hypothesis as part of the LB&I monthly review process;
- attending initial workshops to ensure that the risk hypothesis is expressed as a clear statement to be tested, and that it is understood by the audit team; and
- signing off that the risk hypothesis meets the requirements of the LBTC booklet and Compliance Manual, at key stages of the risk review or audit.
To provide greater leadership, transparency and accountability involving higher consequence taxpayers, the ATO should allocate a tax officer of executive level or higher as Team Leader with sufficient authority, technical expertise and leadership qualities to ensure there is a strong project management focus and that due process is followed in the conduct of any risk review and audit.
The Team Leader role should have the following responsibilities and expectations:
- end-to-end accountability for a risk review and audit including ensuring that key stages of a risk review or audit (such as technical decision-making and information gathering) are well-coordinated, timely and effective. This will necessarily involve being responsible for the technical components of the audit to ensure that critical technical decisions and the resolution of escalated issues, blockers and irritants are managed effectively;
- effective oversight of Case Officers and active management of other ATO officers involved in the process, to ensure the consistent and proportionate delivery of a risk review and audit in keeping with the ATO LBTC booklet requirements and the ATO's RDF; and
- ensuring that there is proper dialogue and engagement with the taxpayer by actively participating in key workshops and meetings.
The Team Leader should also work closely with their Senior Executive Officer to ensure the latter is regularly appraised of case progress and emerging risks for the case plan, so they can develop and implement strategies to mitigate those risks.
The Senior Executive Officer will also:
- act as the key escalation point for taxpayer concerns with the conduct, progress or direction of a risk review or audit; and
- consider and decide whether alternative dispute resolution is appropriate and ensure that genuine steps are taken to resolve potential disputes.
The ATO should provide greater guidance on the Team Leader's role and its responsibilities and expectations in the conduct of a risk review or audit, to better support consistent and proportionate delivery of the processes in conformity with the requirements of the LBTC booklet.
The ATO should revise its monthly case management review practices to capture a more diverse range of activities so as to ensure that all aspects of a case are adhering to established work practices and the expectations set out in the LBTC booklet. This should include revising the case review template to develop more targeted questions addressing audit teams regarding:
- frequency, mode and content of communication with the taxpayer during the month;
- risk hypothesis discussions with the taxpayer, including communication of material changes to the existing hypothesis or any new risk hypothesis raised during that month; and
- extent of engagement with the taxpayer to:
- explain information requirements;
- identify relevant information; and
- develop a plan for information delivery to the ATO.
The ATO should provide further details on its informal and formal information gathering processes, including its guidance on the Section 264 notice issuance and legal professional privilege and accountants' concession claims, by publishing the ATO's 'Information Gathering in the Large Market' document on its website.
The ATO should incorporate appropriate checks and tests into existing assurance processes for informal information requests.
The ATO should:
- provide the taxpayer with an information request;
- give the taxpayer the opportunity to discuss the information request's scope, appropriateness and relevance with the ATO;
- work with the taxpayer to identify acceptable substitute documents, where the documents requested are not readily available; and
- make known to the taxpayer the reason for making the request, including a reference to the relevant risk hypothesis where appropriate (this may not be appropriate for certain third party information requests).
To improve taxpayers' understanding and to provide transparency in the evidence-gathering process, the ATO should provide more guidance on this process in the LB&I Compliance Manual.
Where the ATO adopts a formal information-gathering approach, the assurance processes need to ensure expectations set out in the LBTC booklet and Compliance Manual are properly met.
The ATO improve legal support to audit teams in preparing information requests and providing advice on the evidentiary needs of an audit.
The ATO should in consultation with the Large Business Market consider whether an ATO publication be developed, that is more expansive than the LBTC booklet and yet narrower and more targeted in focus than the ATO's Compliance Manual, and is directed at 'Audit and Risk Review' issues with a taxpayer-specific audience.
To improve taxpayer certainty, after completion of the risk review the ATO should make the decision as to whether it will proceed to audit promptly. If the decision is made to proceed to audit, then the audit should be commenced as soon as possible. The ATO should also nominate an appropriate contact officer who will maintain regular contact with the taxpayer, to keep them informed of the progress of their case.
Agreeing facts assists in maximising understanding of issues and minimising dispute-related costs and better directs evidentiary needs, therefore, the ATO should implement a process that is designed to:
- establish the facts and issues at the early stages of the audit process, by providing taxpayers with a draft Statement of Facts before conducting significant detailed technical legal analysis;
- provide the taxpayer with an opportunity to clarify and correct the draft Statement of Facts by way of explanation or provision of additional information;
- revise this statement as is considered appropriate; and
- communicate the Statement of Facts (as revised) to the taxpayer, noting particularly where there may be a disagreement as to facts or findings of fact.
To improve audit case management the ATO should set clearer benchmarks for key events within the two year audit timeframe.
These benchmarks should include the following:
- the ATO provide the taxpayer with a draft Statement of Facts (within 9 months from audit commencement date);
- the ATO to provide an opportunity for an ATO-taxpayer workshop to discuss the draft Statement of Facts and taxpayer response, that is also attended by relevant technical specialists and key decision-makers (within 3 months after the step above);
- the taxpayer to respond and clearly set out the material facts agreed, material facts in dispute along with appropriate supporting evidence (within 3 months after the step above);
- the ATO to issue a draft position paper (within 3 months after the step above); and
- the ATO to provide an opportunity for an ATO-taxpayer workshop to discuss the draft position paper, which should be attended by technical specialists and key decision-makers (within 2 months after the step above).
The ATO should review the escalation processes embodied in publicly available guidance (including the LBTC booklet) through a process of consultation with the Large Market, to specifically consider improvements that may be made in enhancing stakeholder understanding and access for addressing concerns in audit and risk reviews.
If the ATO wishes to expand the scope of an audit, to encompass issues that were not listed in the original audit notification letter, then it should only do so after subjecting the issues to an appropriate approval process such as business case approval or risk review. This is designed to ensure that the audit is warranted and that overall compliance costs are minimised.
An ATO framework should be developed that provides a formal process for determining whether an ATO extension of time request made upon a taxpayer is appropriate in their particular circumstances. Such a framework should ensure that a request is not made where the need for the extension has arisen from undue delay on the ATO's part.
The ATO should develop an 'Aged Case Report' showing all audits that have not been finalised within two years and providing reasons, and supply this report to the Deputy Commissioner LB&I on at least a monthly basis. The Deputy Commissioner LB&I should review this report and determine any action required to expedite these audits.
The ATO should enhance the IQF process to ensure that the Facts and Evidence Worksheets are completed effectively and progressively throughout the audit process, in accordance with policy and to provide a continuous and accurate repository of operational work activities.
The ATO should develop and publish enhanced written guidance on the purpose, content and drafting of position papers in an appropriate publicly available publication.
The ATO should enhance its quality assurance processes to ensure position papers issued by the ATO clearly set out and address the following:
- issues subject to audit;
- material facts relevant to each issue that are agreed (including appropriate references to supporting evidence);
- material facts upon which the taxpayer or the ATO rely that are in contention (or expected to be in contention);
- the legal position or view the ATO has adopted and the reasons why (including appropriate legal and factual analysis); and
- the taxpayer's legal position or views and their contentions as to the ATO's legal position.
Where a taxpayer does not agree with the content of the ATO position paper (whether on fact or law) a senior technical specialist should review the taxpayer's response, form a view and sign-off on the final position paper. The senior technical specialist should have sufficient technical expertise and should not have been directly involved in the audit.
To improve transparency and taxpayer understanding of the ATO's interest and penalty consideration and determination processes, the ATO should improve the quality and timeliness of its communication and engagement with taxpayers.
The ATO should enhance the voluntary disclosure process by ensuring that it clearly communicates to the taxpayer, at the time of the disclosure in question or promptly afterwards, whether it accepts that the disclosure is voluntary.
1 Large Business and Tax Compliance, p 7.
2 Large Business and Tax Compliance, p 27.