Large Business Stewardship Group key messages 15 November 2022

Information about the key topics discussed at the Large Business Stewardship Group meeting held on 15 November 2022.

Last updated 12 December 2022

Large market

Deputy Commissioner Rebecca Saint provided the large market update.

Tax gap

Australia now has some of the highest levels of tax compliance of large business in the world with 93% of tax paid voluntarily, and 96% after compliance activities.

In 2019–20, large corporate groups reported approximately $59.4 billion in corporate income tax. The net tax gap is estimated at $2.6 billion, or 4.2% for this fiscal year. The gross tax gap is estimated at $4.6 billion, or 7.4%.
For 2019–20, we estimate a petroleum resource rent tax (PRRT) gap of 1.3% or $13 million. This means over 98% of PRRT was paid.
Members queried the ATO’s vision for large market compliance of 96% tax paid voluntarily and 98% after compliance activities. It was noted that with continued investment, existing programs we have in place will help us achieve this vision.

Tax avoidance taskforce

The extension and expansion of the tax avoidance taskforce was announced in the Budget.

This includes resource expansion in our existing programs including advice and guidance, Top 1,000 client next actions and risk-based programs in the medium and emerging market.
Data and analytics tools are also in scope where we can improve our differentiated engagement with taxpayers.

Justified trust

To date we have assured more than $197 billion of income tax under the justified trust program.

More than 50% of the businesses in the Top 100 program have achieved a high assurance rating that they are paying the right amount of tax.
Our reports on the Top 1,000 show that over 82% of taxpayers achieved high or medium assurance overall which increased to 92% after their second review.

Members queried how taxpayers with medium assurance can achieve high assurance within a review cycle, specifically if a re-rating can occur. The ATO noted that in some circumstances a provisional high assurance is given with an agreement by taxpayers to self-action and inform the ATO once completed.

Corporate tax transparency report

In November, the ATO released the Corporate tax transparency report 2020–21.

The report reveals the amount of tax paid by large corporates in 2020–21 is the highest since reporting started 8 years ago. Almost 2,500 corporate entities paid a combined $69 billion in income tax – $11.4 billion or nearly 20% more than the previous year.
To coincide with the release of the Corporate tax transparency report 2020–21, the latest Tax and Corporate Australia insights have also been published.

The timing of transparency releases was also discussed.

Action item	2022111501
Due date	24 December 2022
Responsibility	Michael Ingersoll
Action item details	Large Business Stewardship Group (LBSG) sub-group to provide feedback on the timing of the ATO release of tax transparency data

Publications

Recently released publications were shared:

OECD Forum of Tax Administration

From 28 to 30 September, the ATO hosted the 15th Plenary meeting of the OECD Forum on Tax Administration (FTA) in Sydney, welcoming tax commissioners and delegates from over 40 member countries of the OECD. It was the first in-person meeting in3 years.

Deputy Commissioner Hector Thompson advised that the OECD two-pillars solution was on the agenda, and focused mainly on Pillar 2 with discussion on adoption of existing multinational tax certainty tools. Digitalisation and capacity building were also a big focus, with the ATO using its opportunity as hosts to invite some of the Pacific Island administrations to their first plenary meeting.

There was a greater involvement of business representatives in the sessions. Some LBSG members participated in the FTA Plenary and noted the emerging leaders' session and hearing perspectives from different tax jurisdictions as highlights.

Private wealth program

Deputy Commissioner Louise Clarke provided an overview and shared insights on the private wealth program and population.

The private wealth programs are predominantly funded under the tax avoidance taskforce.

Top 500 program

The Top 500 program is an assurance program. The key challenge in this program is that many Top 500 clients have gaps in their tax governance.
We tailor our advice on what is required for good tax governance to recognise that some Top 500 groups have passive businesses while others have more complex active businesses.
Those Top 500 clients who do not want to engage with the ATO under the program are subject to our traditional compliance activities.
The owners of Top 500 private groups are typically older Australians with an average age of 71 years, so an emerging issue in this market segment is succession planning. We intend to have a focus on the tax issues associated with succession planning in the next few years.

Next 5,000 program and the internationals program

The Next 5,000 program is a risk-based program.
Similarly with the rest of the private wealth market, we are seeing common tax risks such as: Division 7A issues, omission of income and capital gains tax (CGT) avoidance – particularly with changing ownership of businesses.
There is notable movement of clients between the Next 5,000 program and the Top 500 program.
We see a surprising number of cross-border transactions and we see Australian high-wealth individuals investing offshore and, in some cases, investing in Australia via offshore entities.
We have an internationals program to address tax risks arising from cross-border transactions.

Medium and emerging program and the trusts programs

Medium and emerging private groups represent about 97% of the total private group population.
With recent funding under the tax avoidance taskforce, private wealth will increase engagement strategies with medium and emerging private groups.
The trusts program is already in place. It is an important program because we have found that there is insufficient understanding on the part of trustees and accountants of how to meet tax obligations in respect of trust income and distributions. The trust program will expand in the coming years.

Treasury

Deputy Secretary Diane Brown provided an update on the recent Budget and on the consultation undertaken by Treasury since the last meeting.

Acting First Assistant Secretary Kathryn Davy provided the update on OECD Pillars, noting work is moving at pace.

Pillar 1

Significant work remains to finalise the design of Pillar 1

The current focus is on developing the Multilateral Convention (MLC) through which Amount A will be implemented, with timeframes pushed back to next year.

A public consultation document for Amount B is expected to be realised by year-end, with a view to completing work on Amount B in the first half of 2023.

A second Progress Report which includes the rules on the administration of the new taxing right, including the tax-certainty related provisions, was released on 6 October 2022.

Pillar 2

Pillar 2 has largely been agreed with tax authorities.

The OECD/G20 Inclusive Framework is now developing the GloBE Implementation Framework to support tax authorities in the implementation and administration of the GloBE Rules which were released by the OECD in December 2021.

The ATO and Treasury are actively involved in the consultation. Our key feedback to the OECD working parties is on the practical, administrative implications of proposed policy design and prospective interaction with the existing tax system.

Members expressed concern about the timeframe, the expense in implementing the two-pillar approach and that business seek to improve levels of engagement with the ATO and Treasury. The ATO and Treasury noted the feedback from members.

Board of taxation

Chief Executive Officer Christina Sahyoun provided an update on the current work program:

The CGT roll-over review report has been submitted to government.
The Board has held a series of consultation meetings with stakeholders for the digital assets and transactions review. The Board has received over 40 written submissions. A working group has been established to assist the Board and is due to report to the Treasurer by the end of the year.
The Board is working with the ATO and Treasury to develop the Board’s future work program and invited LBSG members to put forward any ideas or areas for tax system improvement.

Review of new legislation guidance products

Chief Tax Counsel Fiona Dillon provided an update on a renewed focus on public advice and guidance and the outcomes of the recent review into new law guidance and extrinsic material that was jointly undertaken by the ATO and Treasury.

Public advice and guidance

The ATO has included the delivery of effective public advice and guidance (PAG) as a core priority in the 2022–23 corporate plan and has recently restructured the way this will be delivered with accountability now sitting with Fiona.

Members’ feedback on how the ATO can improve our advice and guidance, including our consultation arrangements, is welcome.

Recommendations, that will be made by the ATO and Treasury review into new law guidance and extrinsic material, will further help improve the ATO’s delivery of effective PAG.

Review into new law guidance

Following concerns from some stakeholders about the role of new law guidance products and a desire to improve the quality of Explanatory Memorandums, the Treasury and ATO established a working group in 2021 to review new law guidance.

In addition to what ATO is already doing to improve our advice and guidance, the review has recommended related improvements to the development of our new law guidance, along with recommendations for Treasury to better ensure the effectiveness of explanatory memoranda, as a static document, in terms of clearly explaining policy intent.

The findings from the joint review will be particularly focused on identifying and promoting best practices for developing new law guidance products and extrinsic material which will further help improve the ATO’s delivery of effective PAG.

Members discussed the timeframes around some of the advice, including the length of time around tax rulings. The ATO noted that the review confirmed a desire to have timely production of advice on the highest priority matters, rather than delayed advice on a more extensive range of issues. Better prioritisation and scoping of issues for advice and guidance will help timeframes.

In terms of administrative guidance, Fiona explained that we often need time to observe the law in operation before providing advice to taxpayers about what are low-risk and high-risk arrangements under new law. A general discussion about practical compliance guides and the effectiveness of taxpayer alerts followed. The ATO clarified that taxpayer alerts are often issued at the early stages – when arrangements for which the ATO may have concerns are seen to be emerging. They are intended to serve as an early warning rather than as the only applicable guidance provided on a particular risk or issue.

The ATO invites members feedback on how the ATO can improve PAG prioritisation and development, both in terms of new advice and guidance, as well as advice already under development.

CTA 2022 benchmarking survey

Michelle de Niese provided an update on the findings from the Corporate Tax Association (CTA) 2022 benchmarking survey, noting it is shared with the ATO to provide perspective on the pressures faced by the tax teams of large corporates.

The results show that tax teams for Top 1,000 are doing a lot more with the same or less full-time equivalent staff since the survey began in 2018.
Compliance activity is dominating the time of tax teams, rather than business partnering, particularly on fringe benefits tax. Justified trust activity is the main driver for this compliance activity. This activity is on the rise, and CTA members are querying whether there are diminishing marginal returns from all the extra activity they are currently obligated to undertake.
In terms of tax partnering (advisory work), time spent has reduced and this is an ongoing concern.
The existing numbers of reviews being undertaken are not alarming and as expected, given the client market and issues at stake.
The survey also sought views on ATO relationships. The results show relationships are generally strong with exceptions of which both the CTA and ATO are aware.

Emerging issues

Hybrid mismatch and reporting obligations

Members discussed hybrid mismatches and reporting obligations of taxpayers in the International dealings schedule (IDS). The ATO noted that the questions in the IDS reflect that the law requires taxpayers to ascertain whether they have any imported hybrid mismatches and if so, the relevant quantum. The ATO will consider whether any further guidance is needed to assist taxpayers, particularly in relation to reasonable endeavours.

GST risk and strategy

The ATO advised that public groups and international (PGI) is creating a PGI-GST Hub to support the management of GST for public and multinational businesses. The aim is to:

complement our approach to GST risk and strategy in the large market
ensure we have a holistic view of the GST risks which arise in the large market, and actively design and drive initiatives to address these risks
support a more coordinated and connected approach for taxpayers by managing large market related risks principally within PGI.

Reportable tax position schedule instructions

The ATO sought member feedback on proposed changes to the 2023 reportable tax position (RTP) schedule instructions. The ATO talked through the proposed changes with members which included new questions, removal of questions, sub-category additions and category change. The final instructions will be published to ato.gov.au in December 2022.

Members are to provide feedback on proposed changes to the 2023 RTP schedule instructions via email to ReportableTaxPosition@ato.gov.auThis link opens in a new window by Tuesday 29 November 2022.

Large market client service offerings

Further to discussions at earlier meetings, the ATO noted the ongoing review of our service offering channels in the large market. We are working with our partners in other business lines to understand the effectiveness of channels available for large business, and to identify opportunities to drive improvements.

Other business

The ATO is looking to expand the population beyond the existing Top 100 and Top 1,000 population for client-to-agent linking. The project aims to strengthen the agent linking process to reduce the risk of unauthorised access to taxpayers’ online accounts. The next tranche of the expansion will generally include all entities in the PGI population, including payroll providers. This is expected to be implemented in the next few weeks. Communications to inform impacted stakeholders will issue shortly.

Attendees

Attendees list
Organisation	Member
ATO	Rebecca Saint (Co-chair), Public Groups and International
ATO	Faith Harako, Public Groups and International
ATO	Michael Ingersoll, Public Groups and International
Australian Petroleum Production and Exploration Association	Michael Fenner
Australian Super	Bevan Grace
BHP Billiton	Premila Roe
BlueScope	Irene Filippone
Board of Taxation	Christina Sahyoun
Business Council of Australia	Pero Stojanovski
Corporate Tax Association	Michelle de Niese (Co-chair)
Law Council of Australia	Adrian Varrasso
Property Council of Australia	Kelly Wong
Treasury	Diane Brown

Guest attendees

Guest attendees list
Organisation	Attendee
ATO	Fiona Dillon, Office of the Chief Tax Counsel
ATO	Hector Thompson, Public Groups and International
ATO	Louise Clarke, Private Wealth
ATO	Megan Croaker, Public Groups and International
ATO	Melissa Spurge, Public Groups and International
Treasury	Kathryn Davy

Apologies

Apologies list
Organisation	Member
ATO	Rebecca Richards, Public Groups and International
Australian Banking Association	Darren Norman
Australian Retailers Association	Abs Osseiran
Big 4 Representative	Cindy Perryman
Group of 100	Marc Lewis
Lion	Megan Williams
South32	Brian Purdy
Tax Institute of Australia	Pete Rhodes
Treasury	Marty Robinson

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