Stakeholder concerns

5.1 The key concern raised by stakeholders in this review related to individual ATO officers' capability in an increasingly complex and dynamic global business environment. Stakeholders submitted that the lack of capability is a fundamental cause of the significant delays and substantial unproductive compliance costs for taxpayers. This is particularly so where the decision maker does not possess the requisite experience and capability.

5.2 Stakeholders supported the ATO's training and development of its officers. However, they believe that such activities have not resulted in the relevant officers acquiring a number of key skills.

5.3 First, stakeholders commented that ATO officers are unable to practically apply transfer pricing to taxpayers' organisations within particular industries. ATO officers were said to have limited understanding of broader economic influences, particular industries or the commercial drivers for particular businesses. ATO officers appear not to undertake sufficient research, do not closely consider the information provided by taxpayers and are slow to understand the arrangements they are investigating. Their decisions were believed to be based on imprecise and high level analysis. These issues adversely impact the functional analysis required in transfer pricing and are exacerbated in more complex matters.

5.4 Stakeholders also commented that ATO officers do not know when enough information has been gathered to form a view. ATO officers were said to continuously make untargeted and onerous information requests which lacked an identifiable objective and make no reference to taxpayers' businesses or specific related party transactions. Stakeholders further commented that with transfer pricing, no one piece of information will answer questions as it is a process of analysis. However, experience will guide officers in knowing when they have enough information.

5.5 Lastly, stakeholders commented that ATO officers do not clearly communicate their risk hypothesis, the relevance of information requested, technical concerns or the views of ATO specialists, such as economists. ATO officers were said to rarely communicate, so taxpayers and their advisers have no touchstone of relevance prior to a position paper being issued.

5.6 Understanding the causes for stakeholders concerns relating to ATO officer capability is difficult as no one particular activity or ATO process can be said to directly impact on capability levels. In examining the detail of these concerns, the IGT has observed the following key underlying causes:

  • attracting and retaining staff; and
  • identifying the required capability of transfer pricing 'specialists' and focusing training and development to promote that capability.

5.7 These underlying causes are discussed below, together with relevant ATO information and the IGT's observations.

Attracting and retaining staff

5.8 Stakeholders have identified the diminution of ATO officers' overall 'capability' over the last 7 to 10 years as a key cause underlying many of their concerns with the ATO's management of transfer pricing matters. Stakeholders have commented that, previously, many ATO officers were highly experienced, industry aware and technically proficient. Now, stakeholders consider that few of those officers remain in the relevant roles.

ATO materials and information

5.9 As mentioned in earlier chapters, over the years the Large Business and International (LB&I) business line has lost many of its skilled transfer pricing experts (including economists, where the attrition rate is particularly high) due to retirement and movement into the private sector and other areas of the ATO. This is due to the skill set required for transfer pricing being highly transportable to other aspects of taxation, such as Part IVA and other international tax risks. Current transfer pricing experts are also approaching retirement.539 A critical area appears to be the Competent Authority Representatives (CARs), as there are only three.

5.10 The LB&I business line acknowledges the many difficulties it faces including:

  • a high percentage of officers performing 'front line' activities that are new to the business line;
  • the loss of 'specialist' officers within the business line who have no clear successors;
  • difficulty in recruiting expertise in a competitive labour market;
  • the complexity of transfer pricing work which requires a lengthy lead time to meet the expected market capability;
  • limitations in the 'intermediate' to 'advanced' skilling program; and
  • significant demands both on team leaders and capability development programs to support the ongoing learning requirements of new officers and difficulties in keeping officers' knowledge up-to-date.540

5.11 Accordingly, the LB&I business line has developed a Transfer Pricing Capability Strategy (TPCS) for the ATO.541 This strategy focusses on building a highly skilled workforce through:

  • recruiting and retaining skilled staff with transfer pricing and commercial knowledge;
  • building a cross business line 'core' of professional expertise;
  • mentoring of junior officers by transfer pricing specialists;
  • succession planning to transfer the skills and knowledge of key officers;
  • the Transfer Pricing Network (TPN) building transfer pricing capability;
  • career paths within the ATO for those with a transfer pricing focus in order to make specialisation worthwhile;
  • performance management by including transfer pricing learning objectives in personal development agreements with officers; and
  • the use of capability survey results to design and plan capability strategies.542

5.12 One of the key strategies above is the TPN. It seeks to build the transfer pricing capability of its members through a range of activities such as monthly phone hook-ups, audit forums and video workshops.543 The TPN's members provide feedback to others of any new learnings and share best practice. Specialist members also mentor more junior officers.544

5.13 Previously the LB&I business line had 'industry segments', such as financial services and insurance and energy and resources, which facilitated the development of industry knowledge and capability of its officers. However, these industry segments were dissolved with the new site strategy. Instead, the LB&I business line has implemented 'communities of practice' to support industry knowledge and capability. The ATO advises that these 'communities' are similar to the compliance technical networks that previously existed but are less formal.545 The ATO currently has two 'communities of practice', being 'banking and finance' and 'energy and resources'.

5.14 The ATO has advised that in 2011 it redesigned its transfer pricing 'E-Wiki'. The ATO intends to use this 'E-Wiki' which is accessible by all ATO officers, and the delivery of a profit shifting bulletin to TPN members issued every two months, to communicate updates on the latest developments in transfer pricing.

5.15 The ATO also aims to target recruitment of skilled staff with transfer pricing and commercial knowledge from outside the ATO. The ATO's recruitment statistics for the entire LB&I business line (and not just transfer pricing) show that:

  • in 2008-09, 31 per cent (96) of new officers were recruited externally, and of those, 72 per cent were from the ATO's graduate program; and
  • in 2009-10, 21 per cent (101) of new LB&I officers were recruited externally—the proportion of ATO graduates is not shown for this year.546

5.16 Overall, the ATO aims to measure the success of the TPCS via:

  • its ability to retain and recruit quality people within budget;
  • an increase in capability due to support from case leaders, good processes, training programs and use of 'specialists'; and
  • internal feedback from officers.547

5.17 It should be noted, however, that during the latter half of 2012, the LB&I business line offered staff voluntary redundancies. Within the leadership team of the Internationals unit, it was discussed that if the focus of the Internationals unit was shifted to building capability, then there may be a need to retain some of their senior officers for that purpose.548 Concerns were also raised within the leadership team on the timing and reduction of senior level officers and the impact of under-resourcing and capacity to undertake work. The leadership team acknowledged that under-resourcing may lead to a reduction in case outcomes.549

IGT observations

5.18 The IGT believes that improving overall ATO officer capability will resolve many of the issues observed in this review. However, there are lead times required in developing capability and there is a need to maintain that capability once developed.

5.19 The ATO is seeking to build its capability via a number of means including the targeted recruitment of practitioners with transfer pricing and commercial knowledge. It is not clear as to how many transfer pricing specialists have been recruited. However, the ATO's recruitment statistics for the LB&I business line suggest that the majority of the staff recruited externally were from the graduate program.

5.20 The ATO faced similar difficulties when recruiting people for its Transfer Pricing Strategic Compliance Initiative (TPSCI) Project. The ATO considered that it could attract a significant number of experienced staff due to market conditions at the time. However, when the ATO's recruitment activities for the TPSCI commenced, the market improved and the ATO did not attract the level of capability it expected.

5.21 Generally, the quantum of salary is a key driver for attracting experienced staff. The Australian private sector may offer considerably higher salaries than the ATO can provide. Transfer pricing specialists can seek even higher remuneration if prepared to go overseas.

5.22 Accordingly, it is not unexpected that the ATO may have difficulties in attracting experienced staff, unless economic conditions are unfavourable for private sector recruitment. However, the ATO can provide other aspects that potential recruits may find attractive. As a result, the ATO should promote other features of working for the public sector, such as quality and variety of work, development opportunities, public and community interest, ability to work in a number of locations around the country as well as a work-life balance.

5.23 Notwithstanding recruitment of external expertise, reliance on these new recruits, of its own, will not address the underlying cause for the position that the ATO currently faces.

5.24 The loss of valuable 'specialist' knowledge is a fundamental reason why the ATO is currently facing difficulties with efficiently and effectively managing its transfer pricing program. This knowledge was individually gained and held by a number of key officers and had been developed over a number of years of practical application and experience. Many of these officers drew on specific information gained from prior activities to quickly narrow and resolve issues.

5.25 A failure to implement a robust system to capture and more broadly disseminate any gained knowledge will result in further decrease in capability in the future. It is inevitable that officers will move to other areas of the ATO or leave the ATO altogether to pursue other opportunities or retire.

5.26 The IGT notes that the PWC Legal 2008 APA Review made recommendations to improve knowledge sharing and succession planning including a central online repository of transfer pricing experience and identifying future transfer pricing leaders and planning for their career development amongst others.550 The Fyusion Report in 2012 also made similar comments.551

5.27 The ATO's TPCS is attempting to address the loss of knowledge through capturing and disseminating information via a number of means including the TPN and on-the-job training with more experienced officers. Whilst this is commendable, over-reliance on informal discussions in networks or 'communities of practice' and mentoring activities lacks a systematic approach for ensuring efficient and effective dissemination and retention of knowledge and experience. Furthermore, the current informal approach is too dependent on the individual officers to impart their knowledge and experience without providing them with a direct motivation for doing so.

5.28 The ATO has shown that it can capture and disseminate insights and knowledge with its training for the oil and gas and life insurance industries. This training has captured observations of other officers and disseminated that knowledge to new officers on industry participants' financial arrangements, operations and interactions with other regulatory bodies. The ATO's E-Wiki is also an effective means to capture and access specialist knowledge.

5.29 Although these are positive examples, it is noted that the oil and gas training has not been held for over a year and the E-Wiki requires resourcing to ensure that the information is relevant and up-to-date by officers continually contributing their insights.

5.30 The IGT is of the view that the ATO needs a systematic strategy to capture and disseminate knowledge and experience gained from transfer pricing matters. Such strategy should encompass a range of subject matters and channels. Any resulting systems should be appropriately resourced with officers being required to input any learnings or findings into the system at the conclusion of all transfer pricing matters. Similarly, officers should be required to use the system to help them progress cases.

5.31 As a crucial first step, the ATO should identify the key officers with specialist industry and transfer pricing knowledge who are at risk of leaving the ATO. The ATO should then ensure that their knowledge is captured, particularly with the demise of the ATO's industry networks.

5.32 Once capability is developed, it must be maintained. Given the considerable resources and time invested in developing officers to a level that they can independently operate, a career path should be established to encourage staff to stay.

5.33 At present it is not clear how an officer conducting generalist work may progress to specialising in transfer pricing. The IGT believes that officers with the ability and interest in transfer pricing should be identified and fast-tracked by exposing them to a range of transfer pricing matters including exposure to more complex cases and CAR negotiations.

Recommendation 5.1

The IGT recommends that the ATO:

  1. systematically capture and disseminate knowledge and experience gained from transfer pricing matters with relevant officers being required to input any learnings or findings at the conclusion of cases and/or to use it to progress cases;
  2. continue to recruit transfer pricing specialists externally emphasising aspects of the role such as quality and variety of work, development opportunities, public and community interest, ability to work in a number of locations around the country as well as work-life balance; and
  3. establish a career pathway for generalist officers to progress through to specialising in transfer pricing.

ATO response

Agree

With respect to part 2, we note that Government requirements for external recruitment may, at times, limit our ability to recruit external specialists.

Capability, training and development

5.34 Stakeholders are concerned with how the ATO assesses the capability of its staff. They observe some inexperienced junior ATO officers have the job title of 'Transfer Pricing Specialist'552 and the ATO appears to use the terms 'experts' and 'specialists' interchangeably.

5.35 As a corollary, stakeholders are concerned that the ATO may not be sufficiently targeting its training activities to develop the abilities of its officers that are needed to effectively address transfer pricing issues.

5.36 Most stakeholders, and some senior ATO officers agree, that 'capable' transfer pricing officers should have strong 'technical' and 'soft' skills, which include the ability to:

  • identify the facts and conditions that affect price and attribution so as to understand business and commercial drivers in the context of the relevant industry and broader economic influences that impact on the transfer pricing functional analysis and on taxpayers' profitability;
  • quickly analyse and synthesise large amounts of commercial data and determine the amount of information needed to understand these business and commercial drivers;
  • make a judgment on how an independent business owner would have determined prices;
  • apply knowledge of transfer pricing, both the technical aspects, such as Taxation Rulings and domestic law, and the broader OECD models and guidance that overlay transfer pricing matters; and
  • willingly communicate their concerns and reasoning including the underlying technical aspects.

5.37 Stakeholders and some ATO officers agree that 'expert' transfer pricing officers have the above capabilities in addition to the following:

  • experience and confidence across a range of industries and transfer pricing methodologies and the processes for risk reviews, audits, APAs and Mutual Agreement Procedures (MAPs);
  • experience and understanding of the interaction between transfer pricing provisions and other areas of the tax law, such as permanent establishments, capital gains and thin capitalisation;
  • appreciate taxpayers' worldwide commercial arrangements, the drivers for commercial arrangements and profits in the industry, how taxpayers' individual characteristics influence these arrangements and their profits and what information is needed to test taxpayers' assertions and identify the appropriate entity to test;553
  • ability to understand economic arguments and issues, make complex issues simple in a cogent way and explain important facts and conditions affecting prices;554
  • in circumstances, where more than one conclusion is possible and an arm's length price can only be inferred from large body of evidence, appreciate the strengths and weaknesses of competing arguments and adapt their position and reasoning to persuade taxpayers, their advisers, overseas revenue authorities and the courts to their view of the facts;555 and
  • perceived as an expert in their field by peers in revenue authorities and the private sector.

5.38 Stakeholders supported the ATO's training and development of its officers. However, they were concerned that these activities were not equipping ATO officers with key skills, such as conducting functional analyses accurately and, in particular, steps one and two of the four-step process outlined in Taxation Ruling TR 98/11.

ATO concerns with capability

5.39 The LB&I Executive,556 leadership team in the Internationals unit,557 case callovers558 and other quality assurance processes559 have all identified concerns with ATO officers' transfer pricing capability. Indeed the leadership team of the Internationals unit acknowledged that the ATO's aspirations are not fully met, including a breakdown in outputs of cases560 with capability being an impediment to achieving sustainable decisions561 and raising concerns with the validity of risk assessments and audits.562 The concerns identified include:

  • inappropriate questions asked in transfer pricing questionnaires, processes not being followed, not asking taxpayers which transfer pricing methodologies were used, lack of clear direction and mentoring of junior officers, not consulting experts, not communicating change in the ATO's risk hypotheses and overall concerns about the validity of the risk assessments and audits;563
  • some case teams relying on specialists to apply the ATO view in cases, indicating a lack of capability of the team, a lack of empowerment or issues with approval or escalation processes;564
  • some case teams not understanding the facts or the source material — for example, how the transaction documents could be used to create legal structure and cash flow charts for arrangements;565 and
  • in some cases, a lack of awareness of the commercial, corporate, accounting and legal aspects that evidence a transaction.566

Levels of capability

5.40 The ATO defines the following levels of officers' transfer pricing abilities:

  • new to job officers have a general awareness of transfer pricing issues;
  • foundation level officers recognise and understand:
    • transfer pricing conceptually;
    • the arm's length principle;
    • transfer pricing issues;
    • transfer pricing compliance products, such as APAs, Transfer Pricing Record Reviews (TPR Reviews), audits and MAPs;
    • have some knowledge of case law, Taxation Rulings and tax treaties; and
    • the interaction with other aspects of income tax;
  • intermediate level officers can understand, apply and articulate:
    • a transfer pricing issue under review in workshops, transfer pricing callovers and tax technical forums;
    • how tax treaties can affect structures;
    • exchange of information;
    • the interaction between transfer pricing, source and residency;
  • advanced level officers can take a lead role in:
    • Transfer Pricing Review Panel (TPRP) meetings on specific cases, industries or issues;
    • MAPs and their preparation; and
    • preparation of position papers for transfer pricing issues;
  • expert level officers advise, lead and mentor:
    • on all aspects of transfer pricing legislation including, case law, exchange of information, making determinations on a proper basis and liaising with Treasury on law changes;
    • on transfer pricing cases, MAPs, and chairing TPRPs across all topics, issues and industries; and
    • by being an effective member of a Competent Authority team or Joint International Tax Shelter Information Centre.567

5.41 The LB&I Executive in March 2009 considered how team capability or 'better practices' may be achieved and referred the matter to the LB&I Compliance Assurance and Governance (CAG) unit for action. As part of its review, the LB&I CAG unit interviewed eight 'higher performing' large business teams across six sites. The aim of the exercise was to identify better practices and approaches that could have application more widely across LB&I. The LB&I, 'Better Teams Better Practices Information and Checklist' (Better Teams Report) summarises the key attributes of high performing teams as:

  • having a clear set of deliverables with standards of quality;
  • setting dates to achieve deliverables; and
  • working together to regularly review and adjust work commitments as necessary.

5.42 Attached to the Better Teams Report is a checklist for teams to consider incorporating into their team plans and individual officers' performance agreements. This checklist is reproduced in Appendix 6.

5.43 The ATO assesses the transfer pricing capability of ATO officers through a number of means, including LB&I capability assessments which the SME business line have recently adopted. Officers are assessed on a graduated scale according to their knowledge of transfer pricing, ability to apply that knowledge to case work and ability to lead others in the conduct of case work as either 'limited', 'low', 'medium', 'high' or 'expert'.

LB&I capability assessments

5.44 In 2010, the LB&I business line started measuring its officers' capability through voluntary capability assessments during officers' performance reviews. These assessments asked officers to self-assess their current level of proficiency against a number of capabilities, including transfer pricing. A copy of the assessment questions for 2013 is reproduced in Appendix 7. The assessments had been tailored to officers' position levels and job profiles, including an option for staff directly involved in transfer pricing work.568

5.45 The capability assessments are used to:

  • match each capability assessed to learning products and provide evidence to support demand for learning product delivery;
  • assist ATO site leadership in matching work to staff capability;
  • provide evidence twice a year of change in capability against strategies implemented; and
  • match with other supporting data to provide analysis of challenges for the business line, such as demographics, tenure and age data and case callover data in comparison with some of the key capabilities.569

5.46 For example, the Capability Assessments were used to identify the Internationals strategy as one of the LB&I business line's priority capability risk gaps, with further intermediate level products being designed at the time of writing.570

5.47 All capability assessments are self-assessed by officers. However, more recently, these assessments have also been moderated by their team leader.

5.48 The completion rates by LB&I officers for these capability assessments are between 87 per cent and 89 per cent. The transfer pricing capability of LB&I officers in 2010 is reproduced in Figure 8 below:

Figure 8: 2010 LB&I transfer pricing capability

Column graph showing the transfer pricing capability of LB&I officers in 2010.

Source: ATO LB&I Capability Snapshot 2010.

View image enlarged

5.49 The figure above shows that there were a large number of officers that were considered 'entry' level and expected to progress to 'medium' within one to two years. This is reflective of the recruitment of officers for the TPSCI Project. The results also show that 33 officers were considered top performers and 181 staff were expected to be other top performers within five years.

5.50 The results for 2011 were:

Figure 9: 2011 LB&I transfer pricing capability

Column graph showing the transfer pricing capability of LB&I officers in 2011.

Source: ATO LB&I Capability Assessment 2011.

View image enlarged

5.51 The 2011 results continue to show a significant number of entry level staff but also a higher number of staff at the 'medium' level that are expected to progress to the 'complex' level within one to five years. The number of top performers slightly decreased from 33 officers in 2010 to 29 officers in 2009.571 The ATO acknowledges that how well officers are researching and improving their technical skills is unclear from this capability assessment.572

5.52 The results for officers in 2012 were:

Figure 10: 2012 LB&I transfer pricing capability

Column graph showing the transfer pricing capability of LB&I officers in 2012.

Source: LB&I Capability Assessment 2012.

Note: the ATO's reference to 'consolidations' is an error. The data relates to transfer pricing.

View image enlarged

5.53 In 2012, most officers are rated as either at the 'medium' and 'expert' levels.573 Notably, the number of officers completing the survey part on transfer pricing reduced from 485 in 2011 to 230 in 2012.

5.54 It should also be noted that the rating scale for the 2012 results was reduced from 1-12 to 2-6. Additionally, the criteria for the rating scale appears to have changed from an assessment by reference to the degree of support received in case work to levels of personal confidence in knowledge and skill. These rating scales are reproduced in Appendix 8.

5.55 Therefore, direct comparison with previous years' results is not possible. Although the results potentially show an increase in the number of officers rated as 'experts', it is not known whether this is due to the natural progression of officers' capability or simply due to the change in reporting. The assessments for officers' industry, finance and accounting, relationship management and communication capabilities are reproduced in Appendix 9.

5.56 As the SME business line was in the process of implementing capability assessments for its staff in line with previous IGT review recommendations, no data is currently available for the SME business line.574

Transfer Pricing Network's list of specialists

5.57 The TPN also compiles its own list of transfer pricing 'specialists' within the ATO575 which indicates a type of peer assessment of capability. The number of transfer pricing specialists over time are as follows:

Figure 11: Numbers of transfer pricing specialists in the Transfer Pricing Network's list
Date Number
March 2010 35
May 2010 38
July 2010 36
September 2010 37
March 2011 38
May 2011 40
November 2011 38
December 2011 48
2012 -
February 2013 47

Source: ATO Transfer Pricing Network History

Transfer pricing training and development

5.58 In addition to the capability assessments conducted, the ATO has a number of cascading strategies and plans aimed at the training and development of its officers, amongst other things. A key component of these training and development strategies is the ATO's Integrated Capability Development Framework (ICDF) which aims, amongst other things, to help officers build professional capability as a compliance officer. It also aims to align staff learning and development with corporate outcomes by providing a training curriculum that supports the development of skills and knowledge which the ATO expects of officers according to the time spent in the role. The ICDF is supported by a number of strategies with the delivery of its outcomes based on a concept that formal learning comprises approximately 10 per cent is developed through formal training, 20 per cent is developed through support relationships and 70 per cent is developed from on the job experiences (the '70/20/10 learning concept').576

5.59 There are a number of formal and informal transfer pricing and related training available to officers on such areas as transfer pricing generally, accounting, economics, industry and communication.

5.60 The ATO acknowledges that not having adequate training material could result in insufficient staff capability to conduct transfer pricing matters which could result in revenue leakages.577 ATO officer capability is therefore critical to the efficient and effective treatment of international tax risks, such as transfer pricing.578

The ATO's Transfer Pricing Capability Strategy

5.61 The ATO's TPCS comprises a number of objectives in contributing to six broader corporate strategies which are reproduced in Appendix 10. These strategies are specifically aimed at building transfer pricing capability across the ATO in a timely and cost effective manner, providing a mix of suitably qualified staff to allow for succession planning and for the efficient operations of the transfer pricing program, and implementing the transfer pricing capability aspects of the Transfer Pricing Management System (TPMS).579

5.62 The strategy is supported by, amongst other things, a delivery framework and a tailored learning curriculum, and exists within the ATO's corporate framework for learning and development, which is outlined in Appendix 11.

5.63 The figure below shows the TPCS is designed to align with the delivery of a number of broader cascading ATO strategies, with line of sight to the ATO's Strategic Statement and supported by the Learning Pathway for developing officers' capability.

Figure 12: ATO's cascading strategies

Graphic setting out the ATO's cascading strategies.

Source: IGT reproduction of ATO Capability Strategy 2012-13.

5.64 Through the TPCS, the ATO aims to continue to develop a structured skilling program that encompasses theory (formal training), application (case studies), learning (including self-directed learning and informal training), case work (on the job) and mentoring at the foundation, intermediate and specialist levels.

5.65 The formal training program includes the transfer pricing curriculum, relevant aspects of the LB&I end-to-end skilling program, the internationals curriculum, the financial analysis training program, external training courses and seminars, and use of external experts where appropriate.

5.66 Informal training includes monthly TPN technical discussion, telephone hook-ups, provision to the TPN of resources, materials, guides, publications and tools, and on the job opportunities, such as attendance at TPRPs and working with international experts.

5.67 The ATO plans to monitor the level of formal and informal training, learning and level of achievement by, amongst others:

  • including in officers' performance agreements, a commitment to increasing transfer pricing capability through a combination of formal skilling and allocation of transfer pricing work;
  • maintaining TPN capability stocktakes and identifying transfer pricing training needs;
  • ensuring that transfer pricing issues receive appropriate priority in skilling programs; and
  • using the results from its Capability Assessments in planning the transfer pricing capability program.580

5.68 Certain capability strategies are supported by the Learning Pathways. The Learning Pathways outline the development of officers in a number of technical areas, such as income tax (including international tax, transfer pricing, capital gains and consolidation), finance and accounting, and leadership. The Learning Pathways set out the expected timeframes for their capability progression from 'new to job' to 'expert', expected proficiencies at each capability level including, industry awareness and communication, and matches formal training courses to each capability level. It is expected that officers advance through all capability levels in five to eight years, with fast-tracking of more capable officers left to individual managers.581

Transfer Pricing Learning Pathway

5.69 The Transfer Pricing Learning Pathway outlines the formal training products for transfer pricing. It was developed in consultation with Economist Practice, the former Transfer Pricing Risk Manager, whose role included identifying capability gaps, and the LB&I Capability Manager. The Transfer Pricing Learning Pathway is reproduced in Appendix 11.

5.70 No transfer pricing training is mandatory for ATO officers unless they were allocated to the TPSCI Project. There is also no formal accreditation process for movement through the differing levels of proficiency outlined in the Transfer Pricing Learning Pathway.582 However, officers are expected to know enough to identify transfer pricing risks and seek advice.

5.71 The Transfer Pricing Learning Pathway also aimed to develop TPSCI officers from foundation level, with no or minimal previous transfer pricing knowledge or experience, to 'specialist' level after three years. 'Specialists' in this context means:

  • officers that have completed the ATO's internal advanced transfer pricing course;
  • completed ongoing CPD in relation to transfer pricing;
  • capable of leading transfer pricing cases, chairing TPRPs, making transfer pricing determinations; and
  • capable of being an effective member of a Competent Authority team.

5.72 To assist in building the capability of TPSCI officers, external consultants were engaged to help develop and roll out training to officers.583

Transfer pricing learning plan

5.73 A draft learning plan for transfer pricing was also developed by the ATO which allows officers to track their proficiency on various topics, including:

  • the relevant legislation, explanatory memoranda, tax treaties and the OECD guidelines and discussion papers;
  • Taxation Rulings, Interpretative Decisions, Taxation Determinations, Practice Statements and ATO's published transfer pricing booklets;
  • ATO compliance activities as wells as the four-step process in Taxation Ruling TR 98/11 specifically; and
  • transfer pricing issues.

5.74 The draft transfer pricing learning plan is reproduced in Appendix 12.

Formal training on transfer pricing

5.75 'New to job' and 'foundation' transfer pricing courses are aimed at giving officers a basic awareness of international tax and transfer pricing. The relevant training courses are self-directed and amongst other things, outline:

  • international tax, transfer pricing and transfer pricing manipulation techniques and methods;
  • the relevant legislation, case law and ATO rulings;
  • the arm's length principle, comparability and the four-step process; and
  • the relevant ATO compliance activities.

5.76 'Intermediate' level training focuses on the process for ATO risk reviews, audits and APAs and how to apply transfer pricing methodologies. There is also training on specific technical subjects, such as the interaction between thin capitalisation and transfer pricing.

5.77 'Advanced' level topics focus on issues related to transfer pricing, such as double tax agreements and international tax avoidance. An additional training course for TPRP members is being developed.584

5.78 'Expert' level training focuses on leading International Network discussions and authoring risk mitigation strategies for the network.

5.79 The most recent transfer pricing training schedule is set out in the table below.585

Table 14: ATO's transfer pricing training schedule for 2013
Training to take place in week commencing VIC NSW QLD WA
Docklands M Ponds Sydney Parramatta Hurstville Brisbane Perth
TP — New to Subject (NTS) 20 Aug 27 Aug   3 Sep 10 Sep 20 Aug 10 Sep
TP — Risk 8 Oct 15 Oct 17 Sep 8 Oct   22 Oct 29 Oct
TP — Audit   12 Nov 6 May     19 Nov 3 Dec
TP — APA 4 Feb   18 Feb   4 Mar 11 Feb 25 Feb
TP — Business Restructures (BR) 11 Mar 18 Mar   26 Nov 19 Nov 15 Apr 6 May
TP — Interaction with Div 820 (Thin Cap) 22 Apr 13 May 22 Oct 29 Oct   13 May 27 May

Source: ATO International Capability Strategy 2013.

5.80 As part of another learning pathway, the Income Tax Learning Pathway, the LB&I business line runs a generic foundation level training course for its officers on end-to-end active compliance (E2E Course). The E2E Course runs for 11 days and includes, risk reviews, audits and interpretative assistance with a focus on understanding how the LB&I business line approaches its work, why the LB&I business line approaches its work in that manner and how the approach fits with its overall organisational goals and strategies. Specific modules which are part of the E2E Course include:

  • risk and compliance management;
  • planning and managing a case, identifying risks and escalating reviews to audit;
  • understanding business; and
  • interviews, negotiation, information gathering, evidence and audit decision making.586

5.81 The ATO also has formal training to improve the commercial awareness of the economic influences on business, the characteristics of particular industries and how business operates.587 This formal training includes:

  • Oil and Gas, which is a course directed at officers who have been identified as requiring an intermediate knowledge of the oil and gas industry on such issues as the mineral development regime, financial arrangements, contracting and how it applies to Australia and its tax system;
  • Life Insurance — Introduction, which is a self-directed course that explains the operations of a life insurance company within Australia, highlights the key regulatory bodies, describes their main functions and also discusses the features of common products sold by the life insurance companies within Australia; and
  • the E2E Course, which includes a module on understanding business that contains 12 high level questions which officers can use, in combination with undertaking general research about taxpayers' businesses at an early stage in the case, to obtain an understanding of taxpayers, their industry and their business practices.588

Self-directed learning and on the job application

5.82 The ATO provides self-directed learning on transfer pricing issues and on the job application through:

  • Continuing Professional Development (CPD) updates, which were developed in partnership with external providers and partially outsourced the delivery of those modules to external presenters from professional firms who are able to give officers insights into the practical implications of the law for businesses;
  • access to:
    • publications, such as journals, media, industry specific reports, subscription services and an internal transfer pricing newsletter issued bi-monthly;
    • ATO intelligence and economist teams and the TPN and Economist Network;
    • technical conferences and site forums; and
    • the transfer pricing E-Wiki, which includes procedural documents for the conduct of TPR Reviews and transfer pricing audits amongst other things.589
  • Large Business Advisory Group meetings, messages and learnings that are cascaded from senior ATO representatives to operational case teams;590 and
  • the activities of the TPRP.591

Finance and accounting skilling and development

5.83 A Learning Pathway also exists for officers for finance and accounting skills, which is reproduced in Appendix 13.

5.84 This Learning Pathway outlines training and a number of accounting courses, some of which are being developed by external professional bodies, that are recommended for each capability level. This training includes:

  • 'foundation' level training, which focuses on basic accounting and financial reports and understanding basic financial information (a further course on the International Financial Reporting Standards (IFRS) is also being developed);
  • 'intermediate' level training, which focuses on the Australian equivalents to the IFRS, forensic accounting and accounting for income taxes in relation to key accounting standards and analysis of income tax returns;
  • 'advanced' level training, which takes an in-depth analysis of income tax returns, for example around consolidations, capital gains, international tax and losses; and
  • 'expert' level training, which comprises attending seminars through the ATO's Accounting network that has a primary objective to build capability and share knowledge in accounting and tax interactions.592

5.85 The LB&I E2E Course also has specific modules that assist its officers with knowledge and application of accounting and audit techniques such as:

  • the identifying tax risks module, which include analysis of income tax returns, considering known tax risks, reading a tax return and understanding the tax effect on accounting to identify tax risks; and
  • the audit closure and debrief module, which includes technical and analytical skills.593

Relationship and communication skilling and development

5.86 Officers' proficiency around relationship management and communication also features within the Income Tax Learning Pathway.

5.87 This learning pathway includes two training courses for auditors at the intermediate level that focus on developing negotiation and influencing skills and client relationship management. The latter course is aimed at SME officers. At the expert level, the ATO provides a negotiation and influencing course, however, at the time of writing, this course was not found on the ATO's Learning Management System.594 The LB&I area also has its E2E Course which has a module on interviews and negotiation.595

5.88 The negotiation and influencing skills course aims to increase participants' awareness of the opportunities for effectively negotiating and influencing in order to enhance business, professional and personal outcomes and improve employee engagement. It also provides an opportunity to practice and integrate these skills in a supportive learning environment. This course is targeted towards ATO officers who are currently in a role that requires the business application of negotiation and influencing skills at the intermediate level. At the time of writing, the course was scheduled to be run once in four different ATO sites within 365 days.

5.89 The client relationship management course aims to assist SME officers build confidence and effectiveness in dealing with top tier accounting and law firms. In particular, an emphasis is placed on developing skills for officers to 'think on their feet' that is respond effectively to questions or issues raised at the client meetings. The desired outcome is that officers are confident, professional and effective at a variety of meeting situations with taxpayers and their representatives in the upper end of the SME market. At the time of writing, no courses were scheduled for the next 365 days.

5.90 The LB&I E2E Course's interviews and negotiation module aims to:

  • develop officers' ability to refine risk hypotheses and plan the information gathering process required to obtain sufficient information to test hypotheses;
  • understand the attributes of a good interviewer, as well as questioning and listening techniques that should be followed during an interview;
  • identify emotional reactions to other points of view and maintain objectivity; and
  • understand the impact of behavioural and psychological issues on the interview process.

5.91 Although during the review no E2E Course modules were scheduled to be delivered for the next 365 days, during the finalisation of the review the ATO advised that three sessions in two ATO sites had been conducted over July to August 2013 and further sessions were to be scheduled in five additional sites from October 2013 to early 2014.596

5.92 There are also negotiation skills courses offered by the ATO Learning and Development unit. The ATO reports that places in the negotiation skills courses are limited and demand always exceeds supply, as the courses at the advanced level are expensive. Prior to 2010, the LB&I business line organised this training for its officers at the executive level and usually ran between two to four sessions per year. This training was externally sourced.597

APA training

5.93 The ATO has also advised they are involving less experienced officers more in Competent Authority work such as meetings and providing them cases to work on. These officers have mentioned that it takes them two years to understand the role and work of CARs. The ATO have also taken officers from their graduate program as this is a good use of resourcing and is less intrusive on the other business lines, since the CARs are not taking expertise away from the case managers in operations.598

Training and development on functional analyses and transfer pricing methodologies

5.94 The training and support specifically to improve officers' ability to undertake a functional analysis include:

  • the LB&I's E2E Course;
  • transfer pricing specific training for the foundation and intermediate levels; and
  • training on specific industries.599

5.95 These are outlined in more detail below.

LB&I E2E Course

5.96 Part of the LB&I E2E Course is a 96 page module to assist officers with understanding business. Specifically, this module aims to assist LB&I officers to:

  • identify and work through critical areas of understanding a taxpayer's business through the use of a number of models, approaches and concepts; and
  • identify ATO systems to help officers understand the business and run related internal workshops.

5.97 The module outlines a number of model approaches and concepts — for example, the Bullseye Model, the Business Industry Sociological Economic Psychological (BISEP) Model, Porter's Five Forces, functional analyses, value chain analyses and LB&I's 12 high level questions.

Transfer pricing specific training

5.98 The foundational level 'transfer pricing awareness' training, amongst other things, gives participants a basic outline of the four-step process in Taxation Ruling TR 98/11 and the transfer pricing methods. The relevant learning outcome is to be able to explain the four-step process and the different transfer pricing methodologies.600

5.99 The foundation level 'new to subject' transfer pricing training includes a more detailed look at the four-step process in Taxation Ruling TR 98/11. In respect of step one, it is acknowledged that accurately characterising the dealings requires the dealings be looked at in the context of the taxpayer's industry. The module outlines Porter's 'five forces', the Bullseye Model, value chain analysis and the 12 high level questions, amongst others, to assist officers understand the business of the taxpayer and the broader industry and economy. A case study is also included on understanding the business and developing a preliminary functional analysis. The learning outcomes of this course include officers being able to explain transfer pricing risks, identify the main types of international related party dealings, describe how the arm's length principle operates and understand the application of the four-step process.601 This course is similar to the LB&I business line's E2E Course on understanding business. The E2E Course however goes into further detail on functional analyses and its use to allocate profit to reflect the value added in the production and selling process.

5.100 The 'new to subject' course also includes a more detailed look at each of the main transfer pricing methods and selecting the most appropriate transfer pricing methodology, including by determining the reliability of available comparables and difficulties with each transfer pricing method. The learning objectives include officers being able to identify major transfer pricing methodologies and their use and to understand the application of the four-step process.602

5.101 At the intermediate level, the ATO's training for transfer pricing audits outlines the audit process in testing the arm's length outcome including steps 1 and 2 of Taxation Ruling TR 98/11. The training module recognises that step 1 is the most time consuming and critical step. A number of broad questions are framed to assist officers to properly characterise a taxpayer's dealings in the context of their business. Again, it is stated that the objective of step 1 and associated information gathering is to understand the taxpayer's business, identify international related party dealings and understand the industry in which the taxpayer operates. The learning outcomes of this training include officers being able to undertake the various audit steps.603

5.102 This training also looks at the selection of the most appropriate transfer pricing method by assessing the reliability and availability of comparables. Again, there is an outline of the main transfer pricing methods and the factors that affect their comparability and adjustments. This training module also contains two case studies on applying the Comparable Uncontrolled Price (CUP) method and Transactional Net Margin Method (TNMM). The learning outcomes of this training include officers being able to undertake the various audit steps.604

Specific industry training

5.103 The ATO also has two specific industry training courses mentioned earlier for the oil and gas industry and the life insurance industry.

5.104 Those stakeholders who were aware of the ATO's formal training on this area commented favourably and considered that it, under direct supervision of a transfer pricing expert, should deliver the skills needed to conduct functional analyses with confidence.

Support relationships and on-the-job application

5.105 The ATO also establishes support relationships on the conduct of functional analyses during transfer pricing work.

5.106 As recognised in the ATO's adoption of the 70/20/10 approach to learning and development, formal skilling needs to be built upon through application in the workplace and through the guidance and mentoring of more experienced officers.

5.107 At present, officers are generally supported and trained through mentoring by senior members of their team, case workshops with specialists, site technical forums, technical networks and access to guidance material (such as the compliance manual, procedural documents and risk guides).605

5.108 While team leaders and technical leaders play an important role, networks of officers experienced in particular areas of tax law and accounting are also an integral part of the capability strategy to develop the profile of officers so that more officers are confident and competent to undertake complex work.606 This strategy also aims to provide a coordinated approach to networks, while recognising that there are a number of core specialisations in which expertise needs to be developed.607

5.109 As mentioned in Chapter 1, in relation to transfer pricing, support is available through the TPN.608 The purpose of the TPN is to provide a cross business line forum for transfer pricing specialists and case officers to build transfer pricing capability through a number of activities.609 Officers are also able to nominate one or two industry specialities as part of the formal TPN.

5.110 Furthermore, the LB&I business line has two 'communities of practice' to facilitate industry knowledge and capability, as mentioned earlier in this chapter.

5.111 Support with undertaking functional analyses and benchmarking taxpayers is also provided through the Economist Practice or Profit Shifting Practice (PSP) as described in Chapter 2 previously.610

5.112 Additionally, the ATO provides its officers with a range of support materials to assist in developing general commercial awareness as mentioned earlier in this chapter, such as quarterly CPD updates, journals and media reports, industry specific reports and industry and technical conferences.611

Training and development on information gathering

LB&I E2E Course

5.113 The LB&I E2E Course also contains a module on information gathering during audits. This module assists officers in understanding the principles of information gathering in compliance work (e.g. informal approaches versus formal), determining the information needed to test the risk hypothesis, considering and resolving a range of competing complications that occur in the large market and understanding how to escalate information gathering approaches in a complex audit. The module encourages officers to get 'full facts' quickly, along with the relevant supporting evidence.

5.114 The training module recognises that successful information gathering results in timely, full, complete and relevant information to enable good decision making, early and ongoing dialogue, and for the case to be actively managed. Additionally, evidence gathering should be focussed and directed.

5.115 The level of information required to establish facts is also discussed in the context of agreed facts, facts in dispute and alternative facts.

5.116 The training material also acknowledges that officers should disclose what they are asking for and why, be timely in dealings, ready to discuss requirements (planned and prepared), have regular communication with the taxpayer and reduce costs to all parties.

5.117 The learning module also includes three case studies which focus on three skilling areas, namely, preparing for a formal interview, the process, protocols and procedures associated with a formal interview and interview techniques.

5.118 The course emphasises that information gathered during a risk review may be used in any subsequent audit activity and possible litigation. Therefore care should be taken in how records are managed.612

5.119 The LB&I E2E Course on interviews and negotiation includes a section on knowing how much information is needed. The relevant part of the module states:

Information gathering starts with the understanding of why the case has been selected. Irrespective of how wide or narrow is the reason; it provides a focus for the information gathering strategy, and a guide as to the level of information required. The depth of the information gathering process should be tailored depending on the product you are using and the hypothesis you are testing.

It is important to understand the difference between:

  • the amount and nature of information gathered during a review as compared to that gathered during an audit and
  • information gathering during a risk review should be directed to obtaining sufficient information to allow a proper assessment of the risk rather than seeking certainty that an issue exists and a precise value of the issue.

Module 4 of the End to End program looked at understanding the business. You need to be able to see the tax issues in the context of the taxpayer's business affairs, then compare that to what you are seeing on the tax side. Combining the two sets of analyses whilst considering the whole of the tax legislation allows you to identify tax risks and analyse their potential impact.

As you develop a hypothesis for the activity you start to form a picture of the issues that might be relevant. You are then in a position to have a conversation with the taxpayer and use that hypothesis to drive your information gathering strategy. The information to be gathered must be relevant to the hypothesis.613

Intermediate

5.120 At the intermediate level, the transfer pricing audit training contains a section on information gathering and states the objectives to include understanding the taxpayer's business, identifying international related party dealings and understanding the industry in which the taxpayer operates. The module also discusses sources of contemporaneous documentation and other evidence from taxpayers or external sources via interviews with relevant personnel, industry experts or consultants.

5.121 The module states that officers should be able to explain the relevance of information sought and outlines that:

  • The ATO will follow the principles and practices detailed in Taxation Ruling TR 98/11 which provides guidance on the types of documentation that the ATO will expect to see.
  • Officers need to exercise commercial judgment in determining the nature and extent of documentation appropriate to taxpayers' circumstances and will vary with the transfer pricing methodology employed. However, the greater the significance and complexity of the dealings, the greater the ATO's expectation that documents will be created/obtained. Documentation issues are also discussed around low levels of international dealings and particular business strategies.
  • There are no compulsory lists of documents which a taxpayer must keep, appropriate documentation will depend on the facts and circumstances.

5.122 This training also suggests documentation that taxpayers should retain for each step of the four-step process outlined in Taxation Ruling TR 98/11.

Effectiveness of capability development

5.123 In respect of formal training, at the time of writing this report, a framework was being developed by the corporate ATO Learning and Development unit to evaluate such training's effectiveness. Specific effectiveness measures however, are yet to be designed.614 This work is at an early stage and will be seeking business line input. The ATO advises that core questions of the framework will include whether:

  • the learning intervention correctly identified and met the needs of business;
  • the learning solution was timely and of high quality; and
  • the solution made a difference in the workplace.

5.124 The ATO commissioned a researcher, Inside Story, to provide insights into, and guidance on, accelerating the development of expertise in less experienced compliance officers in the SME business line. The research drew from common themes in literature, opinions of experienced ATO officers and observations of a number of expert and less experienced compliance officers. The research examined SME officers' dealings in compliance cases to identify and capture the characteristics of expert officers' thinking, decision making and processes and the difference in these characteristics to those of less experienced officers. In July 2010, Inside Story presented its report, S&ME Compliance Officer Research, which identified the characteristics of expert compliance officers in five core areas and created an 'Expertise Assessment Tool' from these areas:

  1. strategic thinking, including investigative ability, critical thinking and diagnostic ability;
  2. draws from previous experience, including the application of knowledge of an industry;
  3. confidence, including being able to maintain momentum on a case when faced with uncertainty;
  4. productive working relationships, including the ability to seek cooperative solutions and avoid confrontation, and communicate processes and keep taxpayers informed of progress; and
  5. negotiation skills.615

5.125 The full extract of these characteristics is reproduced in Appendix 14.

5.126 In relation to Learning and development, the researcher recommended:

Strengthen relevant existing learning pathway disciplines which align more closely to the competencies in the Expertise Assessment Tool. For example, Communications and Relationship Management, Commercial Industry and Client Knowledge and Case Management and Work Practice;

Develop learning modules to address strategic thinking sub component competencies in Expertise Assessment Tool. Use a staged learning approach appropriate to experience and competency level to fast track development of these skills from the beginning;

Develop a new learning module with a basis in Creative Problem Solving techniques to bring together competencies in Strategic Thinking competency. This could form a capstone learning module once a solid grounding from the Strategic Thinking modules has been achieved;

A grid analysis can be utilised to plot expertise competencies on axes of 'Extent of expertise gap' and 'Importance of expertise gap to outcomes' to establish an order of priority for the program of works to adapt and develop new learning modules for compliance officers.616

IGT observations

5.127 There is a substantial risk that international tax issues, including transfer pricing, will not be effectively and efficiently addressed unless there is a strong individual ATO officer capability:

These risks cannot be addressed unless we have suitably skilled and capable staff... unless we have an effective professional workforce skilled with international capabilities, which can operate effectively in the highly technical sophisticated international market, the ATO will not be able to collect the fair share of international profit/income that is subject to Australian tax.617

5.128 Similar comments were made by PWC Legal in its 2008 APA Review.618

5.129 The IGT observes that the ATO expects its officers to be able to identify transfer pricing revenue risks and seek advice. In this respect, 'intermediate' level transfer pricing training and related development through undertaking transfer pricing risk matters appear to satisfy this expectation. Accordingly, the IGT considers that decision making with respect to transfer pricing matters should be allocated to officers who have a minimum 'intermediate' level of proficiency.

5.130 If the ATO is to invest in developing the abilities of its officers to effectively and efficiently resolve transfer pricing matters, it should clearly identify those abilities that are critical and seek to focus on developing those abilities in its officers. The ATO has previously done similar work in this regard. For example, the Inside Story research commissioned by the ATO provides that the first step should be to observe and identify in tangible terms what an 'expert' does to effectively and efficiently resolve transfer pricing issues that are different to what an inexperienced officer would do.

5.131 The ATO's commitment to learning and development is evident from its skilling and development strategies which are supported by the Learning Pathways and compliance technical networks. It should also be noted that the Economist Practice is in the process of developing its own capability strategy for its officers.

5.132 The IGT observes that whilst the Transfer Pricing Learning Pathway is comprehensive in respect of technical aspects of taxation, there are a number of limitations in the training that is aimed to improve the commercial awareness of officers. For example:

  • there are training courses on only two industries, both appear to be aimed at officers in the LB&I business line;
  • the E2E Course, which includes a high level module on understanding business, is restricted to LB&I officers only;619 and
  • the Transfer Pricing Learning Pathway expects officers to develop proficiency in understanding industries, however, the formal training courses on developing awareness of specific industries are not included within any Learning Pathway.

5.133 Further, the IGT observes a number of training products have not been scheduled to run for the next 365 days at the time of writing. These training products include one of the ATO's two industry training products and one of the two relationship management and communication training products. The ATO commissioned Fyusion Report also found that while many staff took up on-the-job and self-paced training (85 per cent and 76 per cent respectively), other methods, such as mentoring (50 per cent) and formal training, particularly at the advanced level could be improved (between 15 per cent for advanced level and 30 per cent for 'other').620 It is insufficient to simply have these training products listed. The products must be made available sufficiently frequently and relevant ATO officers be required to attend them.

5.134 The IGT considers that improving an officer's ability to conduct a robust functional analysis is a critical factor in improving their ability to successfully resolve transfer pricing issues. Many agree that the E2E Course provides the foundation for developing a functional analysis. However, this is a general induction course for all new LB&I officers without direct relevance to transfer pricing issues. The ATO, therefore, should develop a program of development activities that are focussed on quickly instilling the core abilities involved in successfully conducting a robust functional analysis in a transfer pricing context.

5.135 The knowledge of conducting a functional analysis in and of itself is insufficient. What is needed is confidence in correctly applying that knowledge in practical situations. This requires regular transfer pricing case work and direct supervision by a 'specialist' including feedback on the officer's application of that knowledge. At present, this supervision is provided by team leaders who may not have the requisite level of transfer pricing skills and experience, economists many of which have less than two years' experience and the TPRP which is convened on an ad hoc basis.

5.136 In this respect, it is acknowledged within the ATO that it is important to develop transfer pricing capability with CARs in preference to operational units. The ATO has advised that it is involving junior officers more in Competent Authority work and believes it will take these officers two years to understand that work.621

5.137 The IGT considers that the establishment of a capability building framework, including measuring its effectiveness, will assist the ATO in evaluating and improving its training products. Whilst the implementation and refinement of the capability assessments in this respect are commendable, the reliability and usefulness of the capability assessments require improvement. This is evidenced from what appears to be differing results of capability between the capability assessments on one hand, and the case callovers and the observations of the Internationals Unit leadership team and LB&I Executive on the other.

5.138 Accordingly, the ATO should seek to improve the robustness of its capability assessments, particularly as they are largely a self-rating by officers. The capability assessment questions should be designed to elicit more objective responses by testing officers' actual knowledge and requiring demonstrated application of that knowledge in case work. These improvements may also improve the accuracy of identifying further learning opportunities.

5.139 The capability assessment should be expanded to consider external stakeholder views of ATO officers' capability as recommended in previous IGT reviews. As discussed in those reviews, the ATO could take more proactive measures to obtain such views in addition to using its Client Feedback Questionnaires.622

Recommendation 5.2

The IGT recommends that the ATO:

  1. allocate transfer pricing decision-making authority to officers who have a solid grounding in transfer pricing;
  2. supplement foundation and intermediate level transfer pricing officers' training programs with on-the-job direct supervision by transfer pricing 'specialists' in a range of key activities;
  3. identify the key abilities of 'specialist' transfer pricing officers (including the economist) and develop activities to accelerate the development of expertise such as conducting robust functional analyses; and
  4. develop more rigorous tools for measuring staff capability including obtaining the views of externals and their advisers.

ATO response

Agree in part

The ATO agrees with parts 2 to 4.

The ATO disagrees with part 1. In cases where the transfer pricing risk is not the main risk under examination we would, as we do now, have an officer who is an experienced case officer managing the case and accountable for making decisions.

This officer would take expert advice, as appropriate, on specific risks, including transfer pricing, from relevantly skilled specialists. That case officer may not necessarily be one with a 'solid grounding' in transfer pricing.


539 ATO, Communication (11 March 2013); ATO, 'Communication (12 March 2013)', above n 104; ATO, 'Communication (19 March 2013)', above n 265; ATO, 'Communication 1 (14 March 2013)', above n 149; ATO, 'LMAC Response', above n 402; ATO, 'International Leadership Team Agenda' (February 2011) Internal ATO Document, Item 3.

540 ATO, 'Transfer Pricing Capability Strategy 2012-13' (undated) Internal ATO Document; ATO, 'ILT Agenda (February 2011)', aboven 538, Item 3; ATO, 'International Leadership Team Agenda' (March 2011) Internal ATO Document, Item 4; ATO, 'International Leadership Team Minutes' (April 2012) Internal ATO Document; ATO, 'LBI Executive Minutes: LBI Tenure and Attrition Data' (27 July 2011) Internal ATO Document; ATO, 'Communication (12 March 2013)', above n 104.

541 The SME business line has also adopted the TPCS: ATO, 'Communication 1 (15 March 2013)', above n 421; ATO, 'Communication (11 March 2013)', above n 538.

542 ATO, 'TP Capability Strategy', above n 539, Strategy 1.

543 ATO, 'TP Capability Strategy', above n 539.

544 ibid.

545 ATO, 'Communication (24 October 2013)', above n 101.

546 ATO, 'LMAC Response', above n 402.

547 ATO, 'TP Capability Strategy', above n 539.

548 ATO, 'International Leadership Team Minutes' (July 2012) Internal ATO Document.

549 ATO, 'International Leadership Team Minutes' (August 2012) Internal ATO Document.

550 PWC Legal, above n 109, p 4.

551 Fyusion, above n 294, pp 16, 18, 38.

552 ATO, 'TPSCI Project Staff List' (6 December 2012) Internal ATO Document.

553 ATO, 'Communication (12 March 2013)', above n 104.

554 ATO, 'Communication (11 March 2013)', above n 538; ATO, 'Communication (12 March 2013)', above n 104; ATO, 'Communication 1 (13 March 2013)', above n 166; ATO, 'Communication 2 (13 March 2013)', above n 200; ATO, 'Communication 2 (15 March 2013)', above n 104; ATO, 'Communication (22 March 2013)', above n 166.

555 ATO, 'Communication (12 March 2013)', above n 104; ATO, 'Communication 2 (13 March 2013)', above n 200.

556 ATO, 'LB&I Executive Minutes' (28 September 2011) Internal ATO Document; ATO, 'LB&I Executive Minutes' (24 May 2012) Internal ATO Document; ATO, 'LB&I Executive Minutes' (23 August 2012) Internal ATO Document; ATO, 'LB&I Executive Minutes' (21 September 2012) Internal ATO Document; ATO, 'LB&I Executive Minutes' (24 October 2012) Internal ATO Document; ATO, 'LB&I Executive Minutes' (22 November 2012) Internal ATO Document; ATO, 'LB&I Executive Minutes' (13 December 2012) Internal ATO Document; ATO, 'LB&I Executive Minutes' (21 February 2013) Internal ATO Document.

557 ATO, 'ILT Agenda (February 2011)', aboven 538; ATO, 'International Leadership Team Minutes' (May 2011) Internal ATO Document; ATO, 'International Leadership Team Minutes' (July 2011) Internal ATO Document; ATO, 'International Leadership Team Minutes: Notes' (November 2011) Internal ATO Document; ATO, 'International Leadership Team Minutes' (March 2012) Internal ATO Document; ATO, 'ILT Minutes (April 2012)', above n 539; ATO, 'HOTSA 2012', above n 518; ATO, Communication (6 March 2013).

558 ATO, 'Case Callover Summary', above n 316.

559 ATO, 'Integrated Quality Framework Results 1 August 2009 to 30 June 2010' (undated) Internal ATO Document; ATO, Integrated Quality Framework Results 1 July 2010 to 30 June 2011 (undated) Internal ATO Document.

560 ATO, 'ILT Minutes (July 2012)', above n 547.

561 ATO, 'International Leadership Team Minutes' (November 2011) Internal ATO Document; ATO, 'International Leadership Team Minutes: Notes' (October 2010) Internal ATO Document.

562 ATO, 'IQF Results 2009 to 2010', above n 558; ATO, 'IQF Results 2010 to 2011', above n 558.

563 ATO, 'IQF Results 2009 to 2010', above n 558; ATO, 'IQF Results 2010 to 2011', above n 558.

564 ATO, 'LB&I Executive Agenda: Case Callover Submission' (21 September 2012) Internal ATO Document.

565 ibid.

566 ibid.

567 ATO, 'LB&I Master Learning Pathway' (26 February 2013) Internal ATO Document; ATO, 'Communication (12 March 2013)', above n 104.

568 ATO, 'LB&I Executive Minutes: LB&I Capability Report 2011 Part 1' (6 July 2011) Internal ATO Document; ATO, 'LB&I Capability Snapshot' (May 2010) Internal ATO Document; ATO, 'LB&I Capability Assessment' (5 May 2011) Internal ATO Document; ATO, 'LB&I Capability Assessment' (2012) Internal ATO Document; ATO, 'Communication (11 March 2013)', above n 538.

569 ATO, 'Capability Assessment 2012', above n 567.

570 ATO, 'LB&I Integrated Capability Development Framework 2010-13' (2 November 2010) Internal ATO Document; ATO, 'Communication (11 March 2013)', above n 538; ATO, 'Communication 1 (15 March 2013)', above n 421; ATO, 'Communication 2 (15 March 2013)', above n 104; ATO, 'LB&I Capability Assessment 2012 - Preliminary Assessment' (undated) Internal ATO Document; ATO, 'LB&I Capability and Learning Pathways Strategy 2012-13' (undated) Internal ATO Document; ATO, 'ATO International Tax Capability Report for the Year Ending 30 June 2012' (June 2012) Internal ATO Document.

571 ATO, 'Capability Report 2011 Part 1', above n 567.

572 ibid.

573 ATO, 'Capability Snapshot 2010', above n 567; ATO, 'Capability Assessment 2011', above n 567; ATO, 'Capability Assessment 2012', above n 567; ATO, 'Communication (11 March 2013)', above n 538; ATO, 'Communication 2 (15 March 2013)', above n 104.

574 IGT, 'SME Review', above n 450, Recommendation 2.3; ATO, Communication (19 April 2013); ATO, 'Communication 1 (15 March 2013)', above n 421.

575 ATO, 'Communication (12 March 2013)', above n 104; ATO, 'Communication (19 March 2013)', above n 265; ATO, 'Communication (11 March 2013)', above n 538.

576 ATO, TCDF', above n 569; ATO, 'LMAC Response', above n 402; ATO, 'Communication 1 (13 March 2013)', above n 105; ATO, Communication (8 April 2013); ATO, Communication (1 May 2013).

577 ATO, TCDF', above n 569; ATO, 'Communication (11 March 2013)', above n 538; ATO, 'Communication 1 (15 March 2013)', above n 421; ATO, 'Communication 2 (15 March 2013)', above n 104; ATO, 'Preliminary Assessment 2012', above n 569; ATO, 'Learning Pathways Strategy', above n 569; ATO, 'International Tax Capability Report ', above n 569.

578 ATO, 'International Capability Strategy 2013' (7 September 2012) Internal ATO Document.

579 ATO, 'TP Capability Strategy', above n 539; ATO, 'Learning Pathways Strategy', above n 569.

580 ATO, 'TP Capability Strategy', above n 539.

581 ATO, 'Communication (11 March 2013)', above n 538; ATO, 'Communication 2 (15 March 2013)', above n 104.

582 ATO, 'Communication (11 March 2013)', above n 538; ATO, 'Communication 2 (15 March 2013)', above n 104.

583 ATO, 'Communication (12 March 2013)', above n 104.

584 ATO, 'Communication 2 (15 March 2013)', above n 104; ATO, 'E-wiki', above n 166, Course Synopsis; ATO, 'Capability Report 2011 Part 1', above n 567.

585 The ATO has advised that the training schedule provided does not include training to LB&I officers in November 2012 on Subdivision 815-A of the ITAA 1997 and the ATO's approach to transfer pricing compliance. The schedule also does not include foundation level training on Division 815 of the ITAA 1997 which is scheduled for November 2013: ATO, 'Communication (24 October 2013)', above n 101.

586 ATO, 'End to End Active Compliance Program for Large Business' (undated) Internal ATO Document.

587 ATO, 'Communication 2 (15 March 2013)', above n 104; ATO, 'Communication (8 April 2013)', above n 575.

588 ATO, 'Communication (11 March 2013)', above n 538; ATO, 'Communication (12 March 2013)', above n 104; ATO, 'Communication (8 April 2013)', above n 575; ATO, 'International Tax Capability Report ', above n 569.

589 ATO, 'LMAC Response', above n 402; ATO, 'IGT-TP-TOR6-REQ1' (November 2012) Internal ATO Document.

590 ATO, 'LMAC Response', above n 402.

591 ATO, 'IGT-TP-TOR6-REQ1', above n 588.

592 ATO, 'Master Learning Pathway', above n 566, p 8 (finance and accounting).

593 ATO, 'End to End Program', above n 585, Modules 5 and 8.

594 ATO, 'Master Learning Pathway', above n 566.

595 ATO, 'Communication (11 March 2013)', above n 538; ATO, 'Communication (8 April 2013)', above n 575; ATO, 'End to End Program', above n 585, Module 6.

596 ATO, 'Communication 1 (1 November 2013)', above n 137.

597 ATO, 'Communication (21 May 2013)', above n 173.

598 ATO, 'Communication (22 March 2013)', above n 166.

599 ATO, 'Communication (11 March 2013)', above n 538; ATO, 'Communication (8 April 2013)', above n 575; ATO, 'International Tax Capability Report ', above n 569; ATO, 'Communication (12 March 2013)', above n 104.

600 ATO, 'Transfer Pricing: Basic Awareness' (undated) Internal ATO Document.

601 ATO, 'Transfer Pricing: New to Subject' (undated) Internal ATO Document.

602 ibid.

603 ATO, 'Transfer Pricing: Audit' (October 2011) Internal ATO Document.

604 ibid.

605 ATO, 'LMAC Response', above n 402.

606 ATO, 'TP Capability Strategy', above n 539.

607 ATO, 'LMAC Response', above n 402.

608 ATO, 'Communication (21 May 2013)', above n 173.

609 ATO, 'TPN Charter', above n 168.

610 ATO, 'Communication 1 (14 March 2013)', above n 149.

611 ATO, 'LMAC Response', above n 402.

612 ATO, 'End to End Program', above n 585, Module 6.

613 ibid.

614 ATO, 'Communication (11 March 2013)', above n 538.

615 ATO, 'S&ME Compliance Officer Research' (July 2010) Internal ATO Document.

616 ibid.

617 ATO, 'International Capability Strategy', above n 577.

618 PWC Legal, above n 109, p 48.

619 ATO, 'SAP: End to End Active Compliance Program for Large Business' (undated) Internal ATO Document.

620 Fyusion, above n 294, p 26.

621 ATO, 'Communication (22 March 2013)', above n 166.

622 IGT, 'SME Review', above n 450.