2.1 Following concerns raised by taxpayers and their representatives, the Inspector-General undertook case studies into the Tax Office's management of three major, complex issues — Service Entities, Living Away From Home Allowances and Research and Development Syndicates. These issues shared similar features of scale and complexity, and all have taken an exceedingly long time to progress.
2.2 The Inspector-General's reports on these case studies show that the Tax Office can have difficulty grappling with the interplay between complex interpretational issues, and complex internal and legal administrative frameworks, in equally complex and dynamic commercial settings. The case studies have also highlighted the challenges for top management in ensuring that espoused values are maintained throughout a large, complex and culturally evolving organisation.
2.3 The case studies go back over a considerable number of years. The Inspector-General notes that the Tax Office has introduced significant improvements to its approaches over those years, and continues to do so. Over the last decade, major investments in services and infrastructure have enabled the Tax Office generally to deliver highly effective administration and support to taxpayers in a complex system, especially in high volume areas. The Inspector-General has, in formal reports and elsewhere, noted that the Tax Office is a world-class tax administration.
2.4 In responses to the case study reports, the Tax Office referred to measures aimed at improving timely consideration and resolution of complex issues, for example, case management leadership, aged case management, the Priority Technical Issues (PTI)2 process and alternative processes to the statutory dispute resolution Part IVC process. Appendix 2 to this report has been prepared by the Tax Office to present a current picture of its approaches.
2.5 Nevertheless, the case studies showed that despite the introduced measures prolonged delays were still experienced, indicating further changes are needed. In a complex system it is not surprising that tax administration is tested most in the management of major, complex issues. If these matters are not handled effectively, concerns arise that larger numbers of individual cases of lower profile may also be experiencing difficulty. All the case studies still have residual matters on hand and the Tax Office has noted that improvements can still be made.
2.6 Following consideration of the case study reports, the Inspector-General and the Tax Office have agreed that there is scope for improvement in the following inter-related areas which are expanded upon in this report:
- timeliness — reducing the risk and consequences of delayed resolution;
- compliance and risk management strategies — balancing efficiency and differentiation;
- Tax Office values and obligations in a self-assessment system; and
- communication and transparency.
2.7 This report outlines the changes that the Tax Office has agreed to implement to further improve on its approaches to managing and resolving complex issues in the context of improvements already made over recent years. The report also cross-references to changes agreed recently as part of other Inspector-General reviews, (notably the review of the potential revenue bias in private binding rulings (PBRs) involving large complex matters — see Appendix 3) that are relevant to the case studies.
2.8 As well as improved management, the agreed improvements should increase community confidence in Tax Office approaches to major issues. The Inspector-General believes that improvements in these areas collectively have the potential for moving Australia further towards a values-driven tax administration that is appropriate to a complex and sophisticated, self-assessment based tax system.
2 Practice Statement 2003/10 —'The Management of Priority Technical Issues'.