A.2.2 On Tax Office litigation practices generally, paragraphs 75 to 78 stated:
- The ATO has published its official policies in relation to prosecutions and settlements. The ATO, as an agency of the Commonwealth, is also bound by the Attorney-General’s Model Litigant directions.
- There is concern amongst taxpayers and tax practitioners that these policies are not effectively implemented because responsibility for instituting litigation is devolved to relatively low levels within business lines and regional offices.
- A review into this issue could examine whether the ATO’s litigation policies are providing effective and transparent guidance to tax officials and to taxpayers on the cases that should be taken to Court. Such a review could also examine the governance arrangements in place to ensure that litigation is only commenced in accordance with these policies.
- It would be possible for the Inspector-General of Taxation to examine the mechanisms available within the ATO for taxpayers against whom proceedings are instituted to seek further consideration of their circumstances.
A.2.3 On test case litigation, paragraphs 79-84 stated:
- Access to test litigation funding to challenge an ATO position is critical for individuals and small businesses that could not be expected otherwise to afford the high costs associated with Court proceedings. This is especially so where the ATO position has broad impact.
- The ATO has published its policy on test litigation. This policy is administered through the Litigation Panel in the ATO which includes prominent lawyers and tax advisers who are independent of the ATO.
- Submissions were received from investors in Mass Marketed Tax Effective Investments (MMTEIs) alleging they were not treated fairly in terms of access to test litigation funding. There is particular concern that the ATO has only tested its position on MMTEIs to an extremely limited extent in the Courts and that the significant case law on MMTEIs has been established by privately funded actions.
- The Inspector-General of Taxation would not review particular decisions of the Litigation Panel, but could consult with members of the Litigation Panel to determine the systems through which the ATO adopts advice and recommendations from the Panel.
- Any review into this issue could examine how the ATO’s test litigation policy applies to aggressive tax planning arrangements.
- The Inspector-General could also review the procedures the Litigation Panel has in place to fulfil its Charter role ‘to provide a contact point for public feedback about Tax Office involvement in litigation and dispute resolution’.
A.2.4 During January 2005, the Inspector-General met with representatives from industry, business and tax practitioner organisations. Stakeholders at these discussions supported the Inspector-General conducting a broad review of the Tax Office’s litigation management systems covering issues such as the consistency of Tax Office views argued in litigation and senior Tax Office management’s awareness of and support for cases litigated.
A.2.5 On 10 March 2005 the Inspector-General announced that he would review the Tax Office’s administration of litigation amongst other issues, as a matter of priority.
A.2.6 The Inspector-General advertised the review on its website www.igt.gov.au from 10 March 2005. The review was also reported in the press and in specialist accounting and legal publications.
A.2.7 Written submissions to the review were taken from members of the public and a number of organisations.
A.2.8 Members of the review team also met with taxpayers, members of the legal profession, members of the Judiciary, staff and members of the AAT, staff of the Office of Legal Services Coordination and staff of the Commonwealth Ombudsman to discuss the review.
A.2.9 The Commissioner of Taxation was asked to provide information and documents relevant to the review. Visits were made to a number of branches of the Tax Office and to the Tax Office’s National Office in Canberra to examine relevant files and interview relevant Tax Office staff.
A.2.10 The review also took into account a number of other inquiries relevant to this review.