4.1 In late 2005, the Inspector-General engaged ATAX researchers from the University of New South Wales to survey a representative sample of big business PBR applicants. The researchers sought the views of both internal and external advisers, in a range of industry groups, in relation on a range of taxation matters. Their PBR applications were made or considered during the 2003-04 to 2004-05 financial years. A copy of the ATAX researchers’ report is reproduced in Appendix 2.

4.2 The ATAX researchers consider the views to be representative of all large business PBR applicants.

4.3 Set out on pp 10-33 of the survey report are a number of descriptive findings (the frequency of various responses to each of the survey questions) and analytical findings (testing of responses for significant relationships and the drawing of statistical and analytical generalisations).

4.4 The report also comments on areas of Inspector-General interest (pp 34-36 of the survey report).

4.5 Drawing on these findings and comments, the Inspector-General makes the following conclusions concerning the views of big business PBR applicants:

  • There is a widespread belief that the Tax Office has a revenue bias in PBRs. Big business believes that this perceived bias needs to be addressed.
  • There is a general link between PBR outcomes and whether PBR applicants agreed with the Tax Office’s reasoning.
  • An unfavourable ruling will deter big business from implementing the proposed arrangement. This is despite the changes to remove the penalty for failing to follow a PBR. A significant proportion would withdraw their application because of a probable unfavourable ruling.
  • A perception of revenue bias tends to deter big business from making PBR applications unless it is necessary.
  • Many believe the existing Tax Office control mechanisms are inadequate. They believe that increased technical capacity and a changed Tax Office culture would reduce the potential for a revenue bias.
  • A significant proportion of big business applicants believe that the perception of revenue bias could be addressed by increasing independence in making rulings, increasing dialogue, changing Tax Office culture and increasing tangible objectivity measures.
  • Big business considers that the Tax Office should place greater reliance on applying the law, rather than policy intent. There was strong support for the Tax Office to discuss both the policy intent and the application of the law with Treasury.
  • Big businesses’ opinions on PBR timeframes are mixed. Although many say the PBR process is timely, a significant proportion experience unreasonable delays. Many were unsure if the priority rulings process would improve timeliness, but an overwhelming majority said they would use the process for complex matters.

4.6 These conclusions are discussed below.

Widespread belief that the Tax Office has a revenue bias in PBRs that needs to be addressed

4.7 Almost three-quarters of survey participants believed that the Tax Office has a revenue bias in PBRs. This was based on their personal experience and expectations. Examples of personal experience included Tax Office requests for details of the revenue involved and perceiving the Tax Office to interpret the law inconsistently and in a manner thought to evidence a revenue bias. Examples of expectations included the belief that there is an adversarial Tax Office culture of adopting a default position in ‘grey’ areas to protect the revenue. More examples are provided in pp 24-25 of the survey report.

4.8 Views were held irrespective of the outcome of their PBR or the industry to which the applicant belonged. The perception of bias was not statistically related to:

  • the representative capacity of the survey participant;
  • their industry type;
  • the treatment of the PBR or its outcome;
  • whether the PBR experienced unreasonable delay;
  • the complexity, subject matter or precedential nature of the issues;
  • whether pre-application discussions had taken place; or
  • the level of participants’ satisfaction.

4.9 Almost all of those that perceived a bias believed that the bias needed to be addressed.

Link between PBR outcomes and agreement with the Tax Office’s reasoning

4.10 The ATAX researchers found that there was a link between those participants who disagreed with the Tax Office’s reasoning and those who received an unfavourable outcome. However. the researchers also observed that although more than three-quarters believed the Tax Office’s reasons were generally clear, the level of agreement with reasons was low (about half of participants) when considering the number who had only received favourable PBRs (two-thirds).

Probable unfavourable ruling deters big business from implementing the proposed arrangement

4.11 More than three-quarters of participants said that an unfavourable ruling would deter the business from the proposed course of action. About one-third of applicants who withdrew their PBR application did so because they feared a probable unfavourable ruling.

4.12 Recently the law was changed to repeal the 25 per cent penalty for not following a PBR.19 Two-thirds of those participants that were aware of this change said that it would not influence the deterrent effect of an unfavourable ruling.

Perception of revenue bias deters big business from making PBR applications unless it is necessary

4.13 More than three-quarters of participants said that they had considered making a PBR application but then did not apply. About one-third of these participants did not apply because they did not have confidence in the Tax Office to make an unbiased decision. This is supported by the ATAX researchers’ finding that there was a statistically significant correlation between the number of rulings applied for and the perception of bias. The most likely explanation was that the stronger the perception of bias, the less likely the taxpayer would apply for a PBR. Many said that taking a reasonably arguable position was a preferable alternative unless a PBR was necessary.

Belief that existing Tax Office control mechanisms are inadequate — increased technical capacity and a changed Tax Office culture needed

4.14 About one-half of participants did not believe that the Tax Office had adequate assurance measures and controls to minimise the potential for revenue bias. Just under half were unable to suggest changes. However, one-fifth believed a change was needed to the perceived culture of revenue mindset and associated processes. About one-fifth believed greater internal and external review, technical capacity or understanding was needed.

Belief that perceptions of revenue bias could be addressed by increasing independence in making rulings, increasing dialogue, changing Tax Office culture and increasing tangible objectivity measures

4.15 About one-quarter of participants believed that greater independence in making rulings, including independent review, would minimise the perceptions of revenue bias. About one-fifth believed that a change in Tax Office culture was needed to achieve this.

4.16 Although about one-fifth believed that increased dialogue would minimise the perceptions of revenue bias, it may not reduce the level of perceived revenue bias overall. This is because two-thirds of participants said that they discussed the technical aspects of their application with the Tax Office before applying. These discussions were not statistically related to the existing perceptions of revenue bias.

4.17 However, increased dialogue may increase the level of confidence in the Tax Office’s technical issue resolution. It would demonstrate that the Tax Office has understood the applicant’s position and is better placed to address that position through its ruling.

4.18 About 15 per cent of participants believed that tangible signs of objectivity needed to be increased. Over three-quarters of participants said that the Tax Office’s reasons were clear. Some said that the reasons were clear because they provided the Tax Office with the reasons and the Tax Office ‘cut and paste’ this into the ruling. However, about two-thirds did not think that the Tax Office had fully considered the material that the applicant had provided. Further, one-third thought that the Tax Office had asked for irrelevant material while the application was being considered.

Belief that greater reliance should be on applying the law, rather than policy intent — Tax Office should discuss both application of the law and policy intent with Treasury

4.19 About one-quarter of participants believed the Tax Office relied on the application of the law and about half believed the Tax Office relied on policy intent. However, about half believed the Tax Office should place greater reliance on the application of the law rather than policy intent, whereas about one-quarter believed the Tax Office should place greater reliance on the policy intent.

4.20 More than three-quarters of participants said the Tax Office should discuss the policy intent and the application of the law with Treasury. However, about one-fifth were concerned that these discussions might cause delay.

Opinions on timeframes are mixed

4.21 Opinions on timeframes are mixed. About half of participants said that the PBR process was timely. However, just under a half said that their applications had experienced unreasonable delay.

4.22 Overall, about two-thirds of participants said that they were satisfied with the Tax Office’s service. This was not related to the outcome they received. About two-thirds said that they were adequately advised of the progress of their application. However, there were comments that applicants initiated contact with the Tax Office on this point.

4.23 Over a quarter of participants said that they had considered applying for a PBR but did not because they expected the Tax Office to delay the application. Just under one-third of participants had withdrawn PBR applications, with just under half of these withdrawals because the participant considered that the Tax Office appeared unwilling or unable to rule.

4.24 Most participants were aware of the priority PBR process. More than three-quarters said that they would use that process for complex rulings. However, half remained unsure if it would improve timeframes. There were some comments also that it might be unwieldy in terms of requiring Board involvement.


19 Subsection 284-75(4) of Schedule 1 to the TAA 1953 (the provision for a tax shortfall resulting from a failure to follow a private binding ruling) repealed by Tax Laws Amendment (Improvements to Self Assessment) Act (No. 1) 2005.