This Appendix outlines the Tax Office's current approaches to the management of major, complex issues with specific attention being given to the management and resolution of priority technical issues (PTIs).
As mentioned in Chapter 1 of this report, tax professionals and certain sectors of the Community have expressed concerns that the Tax Office takes too long to come to grips with and satisfactorily resolve major, complex issues.
Resolving major, complex issues in a timely manner presents an important challenge for the Tax Office. We aspire to do so as part of our commitment to instil community confidence and encourage high levels of voluntary compliance with Australia's tax and superannuation laws. Success in achieving this commitment depends on taxpayers knowing and, more importantly, understanding and complying with their legal obligations.
The Tax Office has been proactive in dealing with stakeholder concerns and has instituted specific initiatives to improve the active management of our major risks and resolution of important technical issues to improve timeliness.
Whilst we recognise that there are always different approaches through which we can improve the way we do our work (for example, identifying and implementing best practices; recognising and adapting to changing technology and work environments), the initiatives discussed below together with the changes agreed as outlined in Chapter 4 of this report provide a platform for a robust and sustainable management framework for the identification and timely resolution of major, complex issues.
Current risk framework and controls for resolving complex issues
Our risk management processes
In recognition of the importance of having senior officers leading and dealing with complex and difficult issues, the Tax Office has created case leadership roles for several Band 1 and Band 2 Senior Executive Service (SES) officers. Their roles include:
- involvement at the planning stage of client risk reviews and audits, to identify issues early and establish appropriate project plans;
- involvement with the Tax Office's complex and most difficult requests for advice, to help identify technical issues early; and
- working with business line (BSL) case management teams to help identify and resolve 'blockers' and to ensure the work is being actively managed. In addition, their roles encompass identifying best practice for managing complex and difficult issues that can be implemented more broadly within the Tax Office.
Managing compliance risks is a major focus for each BSL and dealt with through Risk Management Committees or similar committees. These committees agree on the strategic risks for their respective markets and develop and review the implementation of the risk mitigation strategies relating to major risk areas.
Part of developing an effective risk mitigation strategy is the need to manage the compliance risk whilst a Tax Office view on the technical issue is being developed. Depending on the issue and the nature of the risk, issuing a Taxpayer Alert might be one way in which the Tax Office communicates, in a timely way, areas of major risk. Other Tax Office initiatives include ensuring:
- there are dedicated risk and strategy teams to oversee the development and management of end-to-end treatment strategies;
- networks operate within and across BSLs to support staff in their compliance work; and
- regular governance sessions occur within BSL industry and subject segments to increase awareness of taxpayer imperatives.
Several BSLs have developed networks that aim to support, both at a technical and practical level, compliance and advice teams. Examples of these networks include the Tax Technical Network in Micro Enterprises and Individuals (ME&I), an advice network, an administration and access network (all of Tax Office), a Mergers and Acquisitions network, a Part IVA network and a transfer pricing network in Large Business & International (LB&I).
These internal Tax Office networks are also complemented by the existence of numerous consultative forums such as the National Tax Liaison Group and its subcommittees, the Small Business Advisory Group and the recently established Large Business Advisory Group.
Managing and resolving Priority Technical Issues
Our current risk management framework often results in issues whereby the underlying compliance/revenue risk identified involves a technical or interpretative issue which requires resolution. Resolution is mainly achieved through concluding a Tax Office view of the application of a relevant provision(s) in the tax or superannuation laws. The resolution of a PTI can involve one or more strategies including the issue of a public ruling or a law administration practice statement (LAPS), through litigation or through advice to Treasury.
The PTI management procedures for tax officers in both the Compliance area that 'owns' the compliance risk and the Law area which has responsibility for resolving the underling technical issue are outlined in Law Administration Practice Statement PS LA 2003/10 Management of 'Priority Technical Issues'. The procedures, which include the allocation of a priority 1, 2 or 3 to each PTI, are designed to ensure that processes for identification and resolution of PTIs are aligned with the Tax Office Risk Management Policy and corporate strategies and processes to address risks.
PTIs can also arise from audits and private ruling requests and, in these situations, the Tax Office view is usually communicated to a taxpayer in an audit position paper or a private ruling. In relation to public rulings, LAPS and other publications, a Tax Office view is taken to have been formed when a draft ruling, LAPS or publication issues or if no draft is to issue, the final product.6
It is quite common for a PTI to have several strategies in play. For example, a LAPS or a public ruling could be used to mitigate an underlying compliance risk. Also, it may take some time after a PTI has been identified and registered for the Tax Office to conclude which strategy is the most appropriate to resolve the underlying technical issue.
PTI improvement initiatives
The Tax Office's PTI Committee (PTIC) was mentioned in Chapter 4 as one source for 'top down' intervention, as required, to improve the timeliness of resolution of PTIs.
Over the past 18 months, PTIC has focused on those PTIs, which are over six months old and where a Tax Office view of the relevant provision has not yet been established. PTIC's governance has been complemented by the improvements outlined in Chapter 4 of this report and other improvement initiatives such as:
- regular PTI callovers both within and across BSLs in addition to the PTIC processes mentioned above
- improved integration and management by PTI owners and BSL SES risk owners of their respective areas in Compliance and Law
- introducing efficiencies and dedicated senior officers (at the SES Band 1 and Band 2 levels) into the public rulings development process
- improving and streamlining public ruling panel processes to make efficient use of panel time and expedite the finalisation of rulings. This includes pre-panel discussions between internal panel members and the ruling team and allowing external members additional time to consider panel papers and provide initial comments prior to the meeting, and
- having a suite of project plan templates to assist tax officers in developing the different resolution strategies/treatments for PTIs.
These initiatives have resulted in a significant reduction in both the number of PTIs on hand and those PTIs which are over six months old and without an ATO view.
Over the two years to 30 June 2008, the number of PTIs in this category has reduced from 70 to 26 issues. During that time, the PTI stock has reduced from 273 at 30 June 2006 to 202 issues at 30 June 2008 and over 300 PTIs have been finalised.
6 Where litigation or advice to Treasury/Government is involved, timeframes for fully resolving the issue depend on processes that are sometimes outside the Tax Office's control. Also, PTIs involving litigation as a resolution strategy have a concluded Tax Office view as the basis from which the litigation will proceed.