Australian Government - Australian Taxation Office crest


Mr Rick Matthews
Acting Inspector-General of Taxation
Level 19, 50 Bridge Street
Sydney NSW 2001

Dear Rick

I refer to the Inspector-General’s letter of 25 October 2007, your final draft report and subsequent discussions on the potential revenue bias in private binding rulings (PBRs) involving large complex matters.

We welcome your finding that there was no evidence of actual revenue bias in PBRs. We acknowledge your finding that there are perceptions of revenue bias and appreciate your comments and recommendations to help us address these perceptions.

However, I would like to make some comments about some other aspects of the report.

Revenue bias findings

While we welcome the core finding that there is no evidence of ‘undue’ revenue bias in PBRs and accept that our dual role as collector and administrator can lead to perceptions of revenue bias, we do not agree that there is an inherent bias in the PBR system.

Strained interpretation and overly legalistic approach

We welcome the Inspector-General’s comments that ‘the Tax Office genuinely strives to provide an interpretation which supports the ‘policy intent’ of the law, as it understands it’. And that ‘(T)his approach is consistent with the purposive approach to statutory interpretation and is not, of itself, a revenue bias’.

However, we note that some taxpayers have said that they thought that the Tax Office sometimes adopted an ‘overly legalistic’ or strained interpretation of the law and that the motivation for such an approach was perceived to be a pro-revenue bias. We accept that these perceptions exist and that we have to improve transparency to remove these perceptions. We have agreed to the Inspector-General’s recommendation No. 3 as a step towards making those improvements.

Withdrawing applications, refusals to rule and delays

We also note that at various points the report states that tax officers ask applicants to withdraw PBR applications.

There may be a variety of reasons where it may be appropriate for an applicant to withdraw an application. Where, for example the issue to be decided is the subject of a pending court decision in respect of another taxpayer it can save the taxpayer the costs of an objection or an appeal if the taxpayer withdraws the application and waits the court decision. We agree that we should not ask taxpayers to withdraw applications, but we do need to ensure that they are aware of the options that are available in certain circumstances and the consequences that flow from each of those options.

At paragraph 5.32 the Indooroopilly matter is used as an example that shows how the Tax Office might adjust ‘ruling dates’ to negate objection rights. We strongly reject this assertion. There is no evidence which suggests that we have done this in Indooroopilly, let alone as a matter of practice.

Need for greater understanding and transparency

Since 2003-04 and 2004-05 (the focus years of the Report), the Tax Office has continued to work on our capacity to respond to PBR requests quickly, including looking at ways to work with large market taxpayers and their advisers to improve timeframes further. Your report acknowledges that we have already made substantial improvements to increase transparency and reduce timeframes for PBRs involving large complex matters, including the introduction of the priority PBR process.

These improvements include increased transparency in the way we communicate progress of PBR applications with taxpayers. Other improvements include better monitoring of aged cases and consequently a better understanding of why cases are delayed. We do accept, however, that there is still room for improvement.

However, there will be circumstances where we are unable to be completely transparent. We agreed in part to recommendations 1 and 2, not because we disagree with the principles on which they are based, but because there will be circumstances in which we are unable to inform taxpayers of the nature or outcomes of discussions with Treasury. Our view is that dialogue with Treasury is confidential and cannot be disclosed to a PBR applicant. We will continue to explore with Treasury if there is any scope for movement on our position in the context of revising the protocol between the two agencies.

The revised Tax Office/Treasury protocol will also clarify the separate roles of each agency on matters of interpretation described in paragraphs 2.16 to 2.23. The revised protocol will be published when it is completed.

The report notes some cases where advice given to Treasury by the Tax Office did not fully comply with our own standards for such advice (see paragraph 5.48). We believe these cases occurred before a recent revision of our practice statement on procedures for giving formal advice to Treasury and the development of a standard template which ensures relevant issues are dealt with in the advice. The revised practice statement was issued in July this year and must be followed by all Tax Office staff.


The Tax Office responses to the Report’s specific recommendations are at Attachment 1.

Thank you for the opportunity to provide this response to your report.

Yours sincerely


Bruce Quigley
Second Commissioner Law
1 February 2008

Attachment 1

Tax Office's response to recommendations

IGT recommendation ATO Response

1. Informing taxpayers when it sees a need for external input, including from the Treasury, on interpretive matters that relate to their PBR applications and the reasons why.

Agree in part.

The Tax Office agrees to inform taxpayers when it sees a need for external input including from Treasury. In general, this is already happening as a consequence of the improvements to communication that we have put in place since the focus years of the Report. However, where the external input is from Treasury, it would not be appropriate to disclose the reasons why as we consider such communications to be confidential.

2. Informing taxpayers of the outcomes of external input, including from the Treasury, and internal deliberations on matters that affect them, especially where an unfavourable ruling is likely.

Agree in part.

We will keep applicants informed about the progress of rulings, including when it becomes necessary to obtain advice from external or other internal sources, however it would not be appropriate to disclose the nature or outcomes of discussions with Treasury as we consider such communications to be confidential.

3. Where an understanding of purpose is a factor in the decision in large business unfavourable PBRs, including a statement of the underlying purpose of the legislative provisions on which the interpretation is based and the source for that purpose (for example, how the legally permissible extrinsic materials have been relied upon to ascertain that purpose and in concluding its view).


4. More widely adopting the key principles of the Priority PBR process in relation to large business PBRs:

  • Centralised point of reference (process owner) responsible for marshalling resources and taking remedial action to ensure cases are not delayed
  • Alignment of taxpayer and Tax Office priorities
  • Front end engagement of all expertise to avoid sequential processing
  • Taxpayers and Tax Office working together to clarify the ruling.

5. Increasing transparency, improving communication and more clearly demonstrating objectivity in relation to PBR technical decision making by:

  • before an adverse decision is made, communicating to the applicant the basis for the likely Tax Office view (including external opinions where relevant), an explanation of why the Tax Office’s view is to be preferred over the applicant’s, indicating the relevance of information provided by the applicant and providing the applicant an adequate opportunity to comment;
  • vetting requests for additional information and (if requested) providing reasons why the information is relevant and identifying the specific aspect of the technical issue that turns on the requested information;
  • if requested by the applicant, providing applicants with written reasons for delay if the PBR has not issued after 3 months, including contact details for the relevant LB&I segment leader, CoE Manager and Deputy Chief Tax Counsel;
  • where necessary, engaging recognised independent external subject specialists to supplement Tax Office capability to respond to large, complex PBRs; and
  • where requested by the PBR applicant, ensuring that the Case Manager provides the applicant with a free and quick flow of direct contact with those technical decision makers (whether in TCN, CoE or LB&I) that determined, or are determining, the technical issues relating to the application.
Agree. However there may be circumstances where it may not be appropriate to provide applicants with copies of external opinions (e.g. where the Tax Office is claiming Legal Professional Privilege).

6. Ensuring that tax officials involved in interpretive matters are aware of the accepted principles of the purposive approach to statutory interpretation (including the accepted materials to ascertain that purpose) and that they should not rely on advice of what policy developers or legislative drafters intended.


7. Clarifying, preferably in its interagency protocol, the Tax Office’s and Treasury’s expectations of the purpose and nature of their interactions on technical matters that relate to already enacted law. This clarification should include:

  • that PBRs should not be delayed because the technical issues relating to those PBRs are the subject of discussions with Treasury;
  • that in relation to interpretive matters, the Tax Office may invite Treasury comments on the purpose or object of the legislative provisions in question, while recognising that any Treasury comments are not determinative.

Agree in part.

The Tax Office and Treasury are working together to clarify our interactions in respect of interpretation of the enacted law. A revised protocol will be published when it is complete.

We agree that no PBRs should be delayed because of discussions with Treasury on technical issues; however there may be rare cases where the implications of an interpretation are of such significance that they require consideration of a policy response.

8. Ensuring that it follows the formal protocol processes in every case that it sees a need for dialogue with Treasury on potential implications of its view of the law. This would include providing a comprehensive administrative impact statement (including details on how it will administer the law if there is no law change).


We already have a formal process for providing advice of this type to Treasury, which includes a standard minute that requires a statement of the impacts on taxpayers as well as our administration, revenue effects, if any, and how we will administer the law if there is no law change. This formal process is mandated in the Tax Office by a practice statement, PS CM 2003/14, that was reviewed and reissued in 2007. We will ensure conformance with this process.

9. Issuing PBRs irrespective of whether the matter involves consideration of a technical issue that is the subject of a developing or contemplated public ruling.


10 Reporting achievements against performance standards and elapsed time frames of PBRs in Tax Office annual reports.

Agree in part.

While we do report achievements against performance standards, the question of elapsed time is not so clear. A Private Binding Ruling requires a joint effort by the Tax Office and the taxpayer. Accordingly, the elapsed time from the date of application to the date of issue of the ruling is not a good measure of the Tax Office’s performance as some delays can be caused by the taxpayer.

Where we adopt the principles of the Priority PBR process we engage with the taxpayer when the arrangement is being developed. Much of the work in these cases is done before the ruling is lodged and the time elapsed from the date of lodgement is largely an irrelevant measure.