1.1 This is the report on the review conducted by the Inspector-General of Taxation (Inspector-General) of the Australian Taxation Office's (Tax Office or ATO) ability to identify and deal with issues concerning service entity arrangements. This report is made under section 10 of the Inspector-General of Taxation Act 2003 (IGT Act).

1.2 The review was announced as one of the case studies which the Inspector-General would examine pursuant to his review into the Tax Office's ability to identify and deal with major, complex issues within reasonable timeframes. This review was announced on 31 October 2005. Its terms of reference are reproduced in Appendix 1 to this report. Details of how the review was conducted are also given in Appendix 1.

1.3 The decision to undertake the review was prompted by concerns raised with the Inspector-General by industry and tax practitioners.

1.4 A number of key and subsidiary recommendations arose from the review. These are listed in Chapter 2 which also contains a summary of the review.

1.5 Chapter 3 of the review contains a description of the nature of service entity arrangements and a history of the Tax Office's approaches to these arrangements, while Chapter 4 outlines the comments and concerns raised in submissions to this review on the Tax Office's approach to service entity arrangements.

1.6 Chapter 5 sets out the review's findings on the Tax Office's timeframes and consultation processes for dealing with service entity arrangements. Chapter 6 deals with the review's findings in relation to the Tax Office's legal and compliance approaches to service entity arrangements. Chapter 7 discusses the review's findings in relation to the Tax Office's communication processes for service entity arrangements.

1.7 During the course of the Inspector-General's review, the Tax Office made or proposed a number of changes to its processes for dealing with service entity arrangements. Some of those changes directly addressed concerns raised with the Inspector-General. All changes made or proposed by the Tax Office are noted in this report wherever relevant.

1.8 The Commissioner of Taxation's response to the review is in Appendix 2. The Commissioner's detailed comments on each recommendation of the report are set out immediately below each recommendation.