What to expect from the ATO’s refined approach to risk identification, disputes and audits
Banking on Tax, Issue 9
The ATO has continued to refine its approach to risk identification, audits and disputes for the large market and the banking sector. On 6 December 2012, the ATO released the revised “Large business and tax compliance booklet”, last published in July 2010.
Transparency, risk management and tax governance practices of taxpayers
The booklet re-states the mutual expectations between the ATO and taxpayers, with a heightened level of governance and diligence expected from corporate taxpayers. The new approach increases the onus on corporate taxpayers to be transparent, to provide information on business events as they occur throughout the year and to provide more information relating to customers and clients. This is particularly important for banks as the ATO seeks increasingly more data for project-based reviews of smaller business and individual taxpayers with offshore links.
Importantly, the booklet puts large business taxpayers on notice that what they have been experiencing in practice in their dealings with the ATO for the last two years is set to continue.
There is an increased focus on the importance that the ATO gives to early engagement, transparency and providing taxpayers with practical certainty. This is squarely aimed at more timely engagement by the ATO and better use of real time information and data gathered by the ATO. Perhaps in response to the continued low take-up of annual compliance arrangements (ACAs), the revisions to the booklet also emphasise the ATO’s view that the real-time engagement and certainty offered to taxpayers by these ACAs can also be achieved by the new reportable tax position (RTP) schedule and the ATO’s pre-lodgement compliance reviews (PCR). The revised booklet contains new sections and chapters on both the RTP schedule and PCRs.
Compared to the previous edition, this booklet provides more detailed and rigorous information on the ATO’s expectations of large business taxpayers as regards tax risk management and tax governance, and how taxpayers can best manage their tax risk. The booklet now includes tax risk management and governance checklists and additional information on the risk-differentiation framework (RDF), as well as increased focus on the role of the board in relation to strategic tax risk management.
Shifting the focus from audits to reviews
We expect to see the ATO continue to shift its focus from large, long audits that cover numerous back years to shorter and more focussed reviews that cover more recent tax periods, with some of these reviews commencing in real time as transactions and events unfold. This will inevitably bring a stronger desire and use of Alternative Dispute Resolution strategies by the ATO, an area where we are expecting a large focus from the new Commissioner, Chris Jordan.
Other highlights of the ATO’s approach to large corporate compliance in 2013 are:
- Further and better information on the RDF. Perhaps in response to taxpayer requests for greater clarity and transparency regarding their risk ratings under the RDF, the revised booklet provides further information on both the factors taken into account in the risk assessment process, and the application of the framework to taxpayers in each RDF quadrant. It also confirms the ATO’s view that taxpayers should approach the RDF as an opportunity to engage with the ATO on a transparent and informed basis
- The ATO’s pilot and rollout of the RTP schedule. Certain large taxpayers will need to prepare and include an RTP schedule when lodging their 2012 and 2013 tax returns, commencing in mid-January 2013. These schedules require reporting on:
- Tax positions that are about as likely to be correct as incorrect, or less likely to be correct than incorrect
- Tax positions disclosed in the financial statements where there is uncertainty about taxes payable or recoverable in respect of the position
- Specified reportable tax positions (effectively a material CGT event)
- General Anti-Avoidance Rules (GAAR) Panel – the ATO has highlighted that it may refer matters to its GAAR Panel in advance of, or in the absence of, any taxpayer position paper response
- Collection of tax - the ATO has also highlighted its 'firmer action' approach to tax debt, including taking an 'early intervention' approach to tax debt and using certain 'stronger measures' available to the ATO to collect such debt.