A4.1 Set out below are the Tax Office responses to the recommendations from the Inspector-General's 2008 Review of the Potential Revenue Bias in Private Binding Rulings Involving Large Complex Matters.
Informing taxpayers when it sees a need for external input, including from the Treasury, on interpretive matters that relate to their PBR applications and the reasons why.
Agree in part.
The Tax Office agrees to inform taxpayers when it sees a need for external input including from Treasury. In general, this is already happening as a consequence of the improvements to communication that we have put in place since the focus years of the Report. However, where the external input is from Treasury, it would not be appropriate to disclose the reasons why as we consider such communications to be confidential.
Informing taxpayers of the outcomes of external input, including from the Treasury, and internal deliberations on matters that affect them, especially where an unfavourable ruling is likely.
Agree in part.
We will keep applicants informed about the progress of rulings, including when it becomes necessary to obtain advice from external or other internal sources, however it would not be appropriate to disclose the nature or outcomes of discussions with Treasury as we consider such communications to be confidential.
Where an understanding of purpose is a factor in the decision in large business unfavourable PBRs, including a statement of the underlying purpose of the legislative provisions on which the interpretation is based and the source for that purpose (for example, how the legally permissible extrinsic materials have been relied upon to ascertain that purpose and in concluding its view).
More widely adopting the key principles of the Priority PBR process in relation to large business PBRs:
- Centralised point of reference (process owner) responsible for marshalling resources and taking remedial action to ensure cases are not delayed;
- Alignment of taxpayer and Tax Office priorities;
- Front end engagement of all expertise to avoid sequential processing; and
- Taxpayers and Tax Office working together to clarify the ruling.
Increasing transparency, improving communication and more clearly demonstrating objectivity in relation to PBR technical decision making by:
- before an adverse decision is made, communicating to the applicant the basis for the likely Tax Office view (including external opinions where relevant), an explanation of why the Tax Office's view is to be preferred over the applicant's, indicating the relevance of information provided by the applicant, and providing the applicant an adequate opportunity to comment;
- vetting requests for additional information and (if requested) providing reasons why the information is relevant and identifying the specific aspect of the technical issue that turns on the requested information;
- if requested by the applicant, providing applicants with written reasons for delay if the PBR has not issued after 3 months, including contact details for the relevant LBI segment leader, CoE Manager and Deputy Chief Tax Counsel;
- where necessary, engaging recognised independent external subject specialists to supplement Tax Office capability to respond to large, complex PBRs; and
- where requested by the PBR applicant, ensuring that the Case Manager provides the applicant with a free and quick flow of direct contact with those technical decision makers (whether in TCN, CoE or LBI) that determined, or are determining, the technical issues relating to the application.
Agree. However there may be circumstances where it may not be appropriate to provide applicants with copies of external opinions (for example, where the Tax Office is claiming Legal Professional Privilege).
Ensuring that tax officials involved in interpretive matters are aware of the accepted principles of the purposive approach to statutory interpretation (including the accepted materials to ascertain that purpose) and that they should not rely on advice of what policy developers or legislative drafters intended.
Clarifying, preferably in its interagency protocol, the Tax Office's and Treasury's expectations of the purpose and nature of their interactions on technical matters that relate to already enacted law. This clarification should include:
- that PBRs should not be delayed because the technical issues relating to those PBRs are the subject of discussions with Treasury; and
- that in relation to interpretive matters, the Tax Office may invite comments on the purpose or object of the legislative provisions in question, while recognising that any Treasury comments are not determinative.
Agree in part.
The Tax Office and Treasury are working together to clarify our interactions in respect of interpretation of the enacted law. A revised protocol will be published when it is complete.
We agree that no PBRs should be delayed because of discussions with Treasury on technical issues; however there may be rare cases where the implications of an interpretation are of such significance that they require consideration of a policy response.
Ensuring that the Tax Office follows the formal protocol processes in every case where it sees a need for dialogue with Treasury on potential implications of its view of the law. This would include providing a comprehensive administrative impact statement (including details on how it will administer the law if there is no law change).
We already have a formal process for providing advice of this type to Treasury, which includes a standard minute that requires a statement of the impacts on taxpayers as well as our administration, revenue effects, if any, and how we will administer the law if there is no law change. This formal process is mandated in the Tax Office by a practice statement, PS CM 2003/14, that was reviewed and reissued in 2007. We will ensure conformance with this process.
Issuing PBRs irrespective of whether the matter involves consideration of a technical issue that is the subject of a developing or contemplated public ruling.
Reporting achievements against performance standards and elapsed timeframes of PBRs in Tax Office annual reports.
Agree in part.
While we do report achievements against performance standards, the question of elapsed time is not so clear. A private binding ruling requires a joint effort by the Tax Office and the taxpayer. Accordingly, the elapsed time from the date of application to the date of issue of the ruling is not a good measure of the Tax Office's performance as some delays can be caused by the taxpayer.
Where we adopt the principles of the Priority PBR process we engage with the taxpayer when the arrangement is being developed. Much of the work in these cases is done before the ruling is lodged and the time elapsed from the date of lodgement is largely an irrelevant measure.