||Aim of recommendation
||ATO to continue to promote and use APA Program as a tool for cooperative compliance with taxpayers
- Continue to promote and use APA program.
- Focus on areas for improvement outlined in Section 5 — Facts and recommendations of the Australian Taxation Office Review of Advance Pricing Arrangement Program report (report) to ensure sustainability of the APA Program and continuing support by all stakeholders.
||Ensure full implementation of enhanced transfer pricing management system introduced mid 2007
- Ensure full implementation of the enhanced transfer pricing management system on a timely basis.
- To facilitate full implementation, ensure the new system is understood, embraced and supported by all divisions/personnel involved. This can be facilitated by the TPOG.
- Monitor implementation of enhanced transfer pricing management system.
- Adapt and improve new system to account for further recommendations outlined in the report.
- Communicate changes with external stakeholders to foster the relationship of increased transparency as well as evidencing to the wider stakeholder community that the ATO is focussed on developing and improving the APA Program.
||Continue promoting the stated purpose and benefits as published in the ATO's APA Program 2004-05 update. Update and ensure they are 'experienced' by all stakeholders
- Retain the present stated purpose and benefits.
- Continue to promote the stated purpose and benefits.
- Focus on areas of key importance to stakeholders identified in the surveys to ensure continued ATO and external stakeholder support.
- Consider other recommendations outlined in the report to ensure these purposes and benefits are "experienced" by all stakeholders and that disadvantages are reduced (in particular a reduction in time and cost of completing an APA).
||Further promotion/relaunch of specific guidance to taxpayer community surrounding admission criteria and acceptance into the APA Program
- Promote/relaunch detailed public guidance addressing the types of APAs that will be accepted into the program and the ATO's position on rollovers.
- Consider including in the public guidance case study examples on the types of APAs that will be accepted and the treatment of rollovers.
- As outlined in Section 5, recommendation 12, use a 'co-design' approach with external stakeholders (e.g. NTLG) to agree with the type of APAs that should be accepted.
- On application for an APA by a taxpayer, the ATO and taxpayer should jointly consider whether any other compliance products (such as a priority binding ruling) may be appropriate for certain aspects of an APA. The application of other compliance products to aspects of APAs should be further discussed with external stakeholders as part of the co-design approach as per Recommendation 12.
- On each APA application/negotiation, keep taxpayers well informed of the ATO's priorities and decisions and manage expectations in relation to rollovers.
||Consistency and certainty in ATO's APA five step process
A) Certainty and consistency in the application of the five step process:
- ATO to formally adhere to 5 step process and ensure processes follow intended order (per APA process maps set out in Appendix D of report). Use key signposts visible to the taxpayer at each step.
- ATO to issue formal confirmation early in the pre-lodgement phase that the taxpayer is 'accepted' into the APA negotiation process and stating commitment by the ATO to work with the taxpayer to agree an APA. Provide formal acceptance in writing.
- ATO to regularly communicate with the taxpayer regarding status of negotiations and application.
- For complex APAs, agree "small gains" with the taxpayer (e.g. TP methodology) and then move on to the next step. This will assist in developing mutual trust and cooperation.
B) Recognition of Dual Purpose of APAs:
- There needs to be common understanding by all divisions within the ATO that an APA is a voluntary process for the taxpayer and that the dual purposes of help and compliance are not mutually exclusive and, in fact, need to be delivered as one. A 'service experience' should be experienced by both the ATO and the taxpayer for all APAs. To facilitate this, it is recommended that:
- All personnel in the Segments involved in APAs are members of the TP Network; and
- Members of the Segments and the TPP work together on individual APAs to ensure a greater understanding by all of the service approach to this voluntary product.
C) Establishment of review process / clear exit protocols:
- Establishment of a circuit breaker/ review mechanism to be used if the negotiation reaches a stand still. To be effective, any circuit breaker/review mechanism would need to be independent of the APA program. In the course of consultation with LB&I Deputy Commissioner, Paul Duffus, the suggestion was made that the Chief Tax Counsel may be the appropriate mechanism in such cases, for example to obtain confirmation that the ATO corporate view was being expressed. It is recommended that such a mechanism is discussed further with external stakeholders as part of the co-design approach as per Recommendation 12.
- Establish clear exit criteria/ protocols for abandoning the APA. If the ATO withdraws from an APA negotiation clear reasons and justification should be provided.
- Establish an independent internal review/ appeals process which can be requested by the taxpayer if the ATO decides to withdraw from APA negotiations.
||Definition, clarification of relevance, certainty and timeliness of the sharing of information
- ATO to openly share output from its external advisors at the earliest opportunity so as to provide taxpayers with greater clarity regarding the ATO's thought processes and demonstrate the ATO's commitment to a cooperative approach.
- ATO to distinguish between information required for the APA to be agreed and information that can be tested as a critical assumption as part of the annual compliance report review process.
- Taxpayer and ATO to agree timing of regular project management discussions to monitor progress of APA (including progress on reviewing of information) against the agreed project plan.
- Increase use of email, video links and computer files to improve the speed and ease of information sharing.
||Consistent and appropriate APA teams with decision makers determined at the outset
Overall ownership and coordination:
- Oversight of the APA program and administration of all APAs to be owned and managed by a Dedicated Team (e.g. TPOG).
- Dedicated Team (e.g. TPOG) to monitor progress on all APAs and escalate any significant blockers/delays to a senior committee (e.g. TPSC).
- In the initial planning/ discussion/ mobilisation, Dedicated Team to determine/ review the allocation of the APA team and ensure that the most "appropriate" person leads each APA. The most "appropriate" person/ team must be selected from the TP Network (from the enhanced TP management system) and have sufficient technical transfer pricing capabilities to run the APA.
- It is recommended that the competency requirements to qualify as the most "appropriate" person to lead an APA should be discussed further and agreed as part of the co-design approach set out in Recommendation 12.
- Consider determining makeup of ATO APA team using a combination of personnel with different "TP Accreditations" as discussed in Recommendation 11.
- Unilateral APAs should not automatically be led by the Segments — the decision should be made based on capabilities required to lead an APA including transfer pricing experience, expertise and objectivity.
- Where possible, the ATO APA team should not change over the life of the APA.
- APA program to be adequately resourced in line with the enhanced transfer pricing management system detailed in Section 4 of this report.
- Consider adopting a process for creating APA teams similar to the Priority Binding Rulings process.
- In the case of an APA which has been initiated as a result of an audit, the Dedicated Team to determine the most appropriate ATO APA team taking into account transfer pricing experience, expertise and objectivity to ensure a genuine APA process and not continuation of an audit under another name.
- Dedicated Team to agree on/ review the selected APA decision makers up front. Those decision makers should not change throughout the life of the APA.
- All transfer pricing related decisions in an APA must be made by a person with sufficient technical transfer pricing knowledge and experience, including the transfer pricing decision makers as part of the Stage and Gate review process as outlined in Recommendation 10.
- Currently, members of the TPP are organisationally recognised as having this knowledge, as are some officers in LB&I segments, but there is also recognition that the APA program requires a broader and self-sustaining base of expertise recognised within and outside the ATO. Going forward, once the proposed training/ accreditation as part of the TP Network is fully implemented, it is recommend that all key transfer pricing decisions should be made by a specialist within the TP Network.
- Decision makers should be involved in all significant meetings/ stages of the APA process.
- The selection of transfer pricing decision makers should be further discussed and agreed with external stakeholders as part of the co-design process outlined in Recommendation 12.
||Scope of APA should be agreed upfront including the timing and role of Deputy Commissioner, LB&I (Case Leadership)
Once the ATO has an initial understanding of the taxpayers APA request, agree the scope and threshold of the APA upfront with the taxpayer, including:
- What issues are going to be covered within the scope of the APA (including other non transfer pricing specific collateral issues).
- The order and timing in which issues will be addressed.
- The information required to deal with identified issues.
- For bilateral/ multilateral APAs, the mechanism to deal with changes in scope of an APA as a result of discussions with overseas tax authorities.
- The scope and involvement of CCL . Specific parameters/ guidelines should be set to identify what issues CCL can become involved in as part of the APA process.
- The timing of any CCL involvement. CCL must commit to be involved at specific identified stages of the APA process only to ensure progression of the application.
- A clear exit strategy for any CCL involvement.
- At the end of each step of the APA process, the Stage and Gate review panel should be involved in the determination of scope and work plan for the next step of the APA. Please refer to Section 5, Recommendation 10, for further details.
- If the scope changes (i.e. new issues arise) firstly consider whether the issue should be dealt with as part of the APA. If the issue is inherent within the APA, determine when this issue should be dealt with, who will be involved and how.
- Where possible, do not delay the APA when dealing with collateral issues. Where appropriate, use parallel processing (i.e. continue progression of the APA whilst dealing with a collateral issue at the same time).
||Establish a detailed project plan with the taxpayer that is adhered to and amended where necessary
Once the initial scope and thresholds of the APA are agreed, a detailed project plan should be agreed between the taxpayer and the ATO including:
- Decision makers;
- Key steps;
- Key milestones;
- Timeframes for each phase (including pre-lodgement);
- Maximum time thresholds that then result in escalation or exit from APA;
- Protocols for escalation or exit from an APA;
- Timing and involvement of LB&I Complex Case Leadership;
- What information is required by when;
- Timing for responses to information requests;
- Timing of project management discussions to formally monitor progress of APA against project plan.
At the end of each step of the APA process, the Stage and Gate Review team should be involved in the determination of scope and work plan for the next step of the APA. Please refer to Section 5, Recommendation 10, for further details.
This project plan should be committed to by both parties and amended where necessary. It is important to note, that in developing and implementing the project plan a balance of flexibility and consistency is required, given that all parameters will not be known at the outset of the process. As part of the project plan, protocols should be established to deal with unforeseen issues. For example:
- Review issue.
- Agree approach including who will be involved and timing for addressing the issue.
- Amend project plan using parallel processing where possible.
In addition to the project plan:
- The ATO needs to 'own and run' all steps of the APA with assistance from the taxpayer, including pre-lodgement.
- Pre-lodgement should not be the sole responsibility of the taxpayer.
- The ATO should also measure and publish the length of their APAs to include pre-lodgement to ensure accountability.
||Use a Stage and Gate process to progress through an APA
Use a Stage and Gate review process to progress through an APA.
At the end of each step within the APA process, an interim stage and gate review panel should:
a) Review and agree on what has been undertaken and achieved during the previous step; and
b) Agree a detailed scope and work plan for the next step.
- The capability of the members of the review panel must match the nature of the issues being reviewed and is likely to include all key decisions makers (refer to Recommendation 7).
- In particular, all transfer pricing issues must be reviewed and scoped by an individual with sufficient transfer pricing knowledge. Currently, members of the TPP are organisationally recognised as having this knowledge, as are some officers in LB&I segments, but there is also recognition that the APA program requires a broader and self-sustaining base of expertise recognised within and outside the ATO. Going forward, once the proposed training as part of the TP Network is fully implemented, it is recommended that all key transfer pricing decisions should be made by a specialist within the TP Network.
- Once the stage and gate review panel has reviewed the previous step, the "door closes". I.e. Issues raised during that step cannot be revisited during a future step of the APA process except within a process agreed upfront with the taxpayer as part of the project plan. For bilateral/ multilateral APAs, any issues that arise during negotiation with overseas tax authorities need to be discussed with the taxpayer. To the extent possible, joint agreement should be reached as to how such issues should be dealt with.
- Any changes to scope arising as a result of the stage and gate review should be agreed with taxpayer and amended in the project plan.
||Further training, education and practical experience of ATO personnel on technical transfer pricing issues
Our overarching recommendation is to take a committed approach to increasing investment in, and the structure of, the training and development of ATO personnel. This can be achieved through the following:
- Fully implement, grow and monitor the TP Network.
- For those personnel lacking transfer pricing expertise, ensure they have a regular transfer pricing case load.
- Members of the Segments and the TPP to work together on individual APAs.
- Underpinning everything, is building skills and commitment to a consistent service culture across the entire APA program given the voluntary nature of the APA product.
- Invest significantly in transfer pricing technical training to keep ATO specialist staff abreast of current and developing transfer pricing issues.
- Consider the use of a "TP Accreditation" system whereby ATO personnel are given a TP rating/ level (e.g. TP1 — TP5) based on specific knowledge and experience criteria. ATO personnel can progress through the levels with more training and experience. This could assist in determining the appropriate make-up of ATO APA teams (as per Section 5, Recommendation 7).
- Determination of the appropriate levels of TP technical skills and experience for each "TP Accreditation" rating should be discussed and agreed as part of the co-design process with external stakeholders outlined in Recommendation 12. Examples of the appropriate level of TP accreditation required for specific APAs should also be discussed and agreed.
- Appoint a TP people development champion/ leader.
- Consider development of a 'transfer pricing' subject(s) delivered by ATAX, UNSW or another tax specialist university program (i.e. a joint profession/ government initiative for a technical TP course/individual subjects).
- Utilise highly skilled transfer pricing specialists to train and coach other personnel. To accelerate this process, the ATO might consider moving existing transfer pricing specialists to a full time development role.
- Develop a central repository of APA experience and technical knowledge to facilitate knowledge sharing that can be accessed by all relevant ATO personnel. If appropriate, consideration could be given to allowing external stakeholders access to the repository (or certain parts of). At the completion of every APA, a sanitised case study should be prepared and lodged on the central repository.
- Identify future transfer pricing leaders and focus career development of these individuals to facilitate adequate succession planning. In particular, a focus on building resources, capabilities and experience at a Competent Authority level.
||Use a 'co-design' approach with appropriate ATO and external stakeholders to refine/ remodel the ATO APA Program to implement the recommendations outlined in this report
- Publish our report and consult with appropriate external stakeholders (e.g. National Tax Liaison Group members) for feedback.
- Appoint a senior ATO executive responsible for championing the implementation of the recommendations outlined in this report.
- Use a 'co-design' approach with appropriate external (taxpayers, tax advisors and industry groups) and ATO stakeholders (including the TPP, Economist Practice and the Segments within the ATO) to refine/ remodel specific aspects of the APA program to implement the recommendations outlined in this report.
Specific details that should be agreed as part of this approach include:
- Communication to taxpayers of when the submission is formally accepted into the APA process;
- The use of other compliance products (such as Priority Binding Rulings) to address certain aspects of an APA, and if so, which situations would be appropriate.
- Who the most "appropriate" person to lead an APA within the ATO should be.
- The selection of ATO transfer pricing decision makers.
- Appropriate timeframes (including maximum timeframes) for each phase of the five step process;
- Information required from taxpayers during the APA to progress;
- Specific parameters of what LB&I Complex Case Leadership can and should review as part of the APA process;
- Exit options from APA negotiation process including circuit breaker/ review mechanisms (i.e. escalation and mediation mechanisms) and the suitability of the Chief Tax Counsel for this role;
- Appropriate levels of TP technical skills and experience required for different "TP Accreditations" ratings together with the level of TP accreditation required for specific types of APAs;
- Agree a process for simplified or standardised APAs outlined in Section 5, Recommendation 13; and
- Specific aspects of the Balanced Score Card outlined in Section 5, Recommendation 14 (e.g. appropriate external feedback to which should be received following an APA).
||Simplified or standardised APA options
- Publish safe harbours or benchmarks on an industry basis for use by SMEs.
- Use of in-principle signoffs (e.g. on methodology, profile of tested party, agreement on transactions covered) for taxpayers not wishing to embark on a full APA in order to provide a more cost effective way to gain greater tax certainty.
- Streamlined APA negotiation process for SMEs and rollovers (e.g. tighter time frames).
||Implement a 'balanced score card' approach to evaluate performance of APA Program and individual APAs, including a combination of qualitative and quantitative factors
Implementation of a balanced score card approach to measure both individual APAs and the APA program in general.
- The balanced score card should measure a range of qualitative and quantitative factors which when considered in totality provide an overall assessment.
- ATO personnel involved in APAs need to be held accountable to all aspects of the balanced score card.
The balanced score card on the next page outlines a suggested framework to measure the performance of the APA program in general.
- The framework highlights the fact that the overall goals of ATO compliance and legal and policy obligations are dependent upon transparent relationships with all APA stakeholders (ATO and external) together with clear best practice processes and governance. Without experienced and technically capable ATO personnel to underpin these transparent relationships and best practice processes, ATO compliance and legal and policy objectives cannot be achieved.
- The balanced score card framework outlined on the next page would be appropriate to review the APA Program in general. It could also be cascaded and adapted to apply to individual APAs.
- Broad areas have been outlined which should be benchmarked as part of the balanced score card however, there are no detailed specific targets and performance measures as this is outside the scope of our review.