1.1 In August 2004, Treasury's report on Aspects of Income Tax Self-Assessment (ROSA) noted private sector claims that the Tax Office's private binding rulings (PBRs) were revenue-biased. It recommended that the Government ask the Inspector-General of Taxation to review this issue. On 7 February 2005, the then Minister for Revenue and Assistant Treasurer asked the Inspector-General:

to review and report on whether there is a ‘pro-revenue' bias evident in Private Binding Rulings issued by the Commissioner of Taxation under Part IVAA of the Taxation Administration Act 1953.

1.2 During the scoping of the review, the Inspector-General discussed the issue with representatives of industry, tax professionals, business and Treasury. On the basis of these discussions, the Inspector-General limited the review to those systems delivering PBRs sought by large business on complex issues; that is, the systems delivering around 570 PBRs, applied for by around 350 large business applicants, or considered by the Tax Office, during the 2003–04 and 2004–05 financial years. On the basis of the material leading to the recommendations of the ROSA, this area was thought to more likely involve significant amounts of revenue in areas of greater uncertainty. If Tax Office revenue bias was thought to exist, this area would likely evidence any such bias.

1.3 Terms of reference for the review were publicly released on 25 August 2005. They are reproduced in Appendix 1. The review was conducted by David Pengilley, Senior Adviser. Seventeen submissions were received from taxpayer representatives, tax professionals, tax professional representative organisations and the Commonwealth Ombudsman. Inspector-General staff visited the Tax Office's National, Sydney Centrepoint and Casselden Place offices to access documents and interview Tax Office staff. The Tax Office's records for a random sample of 15 PBR cases were viewed. Also, 78 large business PBR applicants were surveyed (by Australian School of Taxation at University of New South Wales (ATAX) researchers under contract by the Inspector-General) in late 2005 and early 2006 to determine their views on the PBR system. A copy of the survey report is reproduced in Appendix 2.

1.4 In November 2005, the Tax Office questioned the Inspector-General's power to access certain documents. Legal advice was jointly sought and the matter was resolved in June 2006. The Tax Office gave the Inspector-General the documents before the legal advice was resolved. However, the delays cut across other priorities and resources were diverted to keep other matters moving. This meant that the review was put on hold until May 2007.

1.5 In finalising this report, the Inspector-General consulted with selected peak industry organisations, Treasury and the Tax Office. The Tax Office's final written submission is set out in Appendix 6.