National Tax Liaison Group key messages 25 November 2021

Key highlights

• Law Design and Practice (LDP) structural changes
• ATO response to the joint bodies’ submission on Public Advice and Guidance (PAG)
• ATO response to undisputed tax debt
• Update of Treasury review of Explanatory Memoranda and the combined review of new legislation guidance material
• Update on Legal Professional Privilege Protocol (LPP)
• Update on OECD Pillar 1 and Pillar 2
• Update from the General Anti-Avoidance Rules (GAAR) Panel.

Opening comments

Kirsten Fish, Second Commissioner, Law Design and Practice Group, ATO and Peter Godber, The Tax Institute

The National Tax Liaison Group (NTLG) Co-chair, Kirsten Fish, welcomed members and noted that this is the last NTLG meeting for 2021. Kirsten thanked Peter Godber from The Tax Institute for stepping into the Co-chair role following Grant Wardell-Johnson’s move to London.

Peter Godber noted that we should be looking forward to a very different 2022 with the NTLG to take on a more elevated position, providing the opportunity to set strategic goals. Peter noted that there will be changes to the NTLG with the closure of the Consultation Steering Group (CSG) and the transfer of its role to the NTLG.

Kirsten noted that delivering the new ato.gov.au website in the next financial year is a key priority for the ATO. Members will continue to be kept informed of progress as milestones are achieved.

Significant consultation is already underway to ensure the balance between technical detail and simplicity to find, understand and use tax and superannuation information. Focus areas have been identified to deliver an improved user experience.

Law Design and Practice structural changes

Kirsten Fish, Second Commissioner, Law Design and Practice Group, ATO

The ATO has undertaken a review of the operations of the LDP Group with the outcomes being a greater investment in senior leadership for objection, review, and litigation functions; raising the profile of PAG; and maximising the value of our enabling and support services.

The structural changes will commence on 29 November 2021 and will involve:

• separating the Litigation and Legal Service functions from Objections and Review, with both areas to have a dedicated SES Band 2 officer
• the Deputy Commissioner for Litigation and Legal Services reporting to the Chief Tax Counsel (CTC)
• the CTC having direct oversight of PAG functions
• PAG responsibilities being spread across the CTC and Deputy Chief Tax Counsel (DCTCs).

As part of the moves, Review and Dispute Resolution will change its name to Objections and Review (OAR) and the creation of the Office of the Chief Tax Counsel (OCTC). The OCTC will comprise two distinct and separate business areas – Tax Counsel Network (which will continue to operate as it has to date) and Litigation and Legal Services. There has been a redistribution of the responsibilities between the DCTCs to reflect these changes and an increase in international tax work.

The CTC will have oversight and accountability for the PAG system, ensuring the policies and strategies support effective PAG. The existing PAG Centre will report to the CTC. OAR leadership will be seeking to understand the pipeline that leads to objections to ensure the right outcomes, timely resolution and feedback loops to the Compliance Engagement Group, while remaining independent of the original decision.

Members were assured that there will not be significant changes for objections and litigation cases as, while working closely together, the teams have been operating separately. The Tax Counsel Network will continue to be involved in strategic litigation cases with Litigation and Legal Services accountable for the cases.

Members noted there may be an impact on the current Dispute Resolution forum. The ATO acknowledged that the implications of the structural changes on external forums will be considered.

ATO Public Advice and Guidance

Alex Affleck, Acting Deputy Chief Tax Counsel, Public Advice and Guidance and Michelle de Niese, Corporate Tax Association

Alex Affleck thanked members for the joint bodies’ submission on PAG and noted there were several issues raised regarding PAG processes which will be considered in light of the structural changes. There will be a focus on the effectiveness of PAG products to ensure the ATO is working on the priority/right issues while considering available resources. It was acknowledged that measuring effectiveness of a PAG product is very difficult. We will consider if PAG products are meeting their intended purpose, having the intended impact and are useful for taxpayers.

In determining appropriate topics for PAG, the ATO considers a number of factors including supporting new legislation, the volume of questions on a topic, identified compliance risks and external representation.

The ATO noted that the submission identified a perceived conflict with the Client Engagement Group developing PAG, however the ATO does not share this view as we aim to have the right people with the right expertise developing PAG.

The ATO identified that over the last three years the number of draft and final Taxation Rulings and Determinations has been significantly higher than the volume of Practical Compliance Guides (PCGs). The ATO will be reviewing our approach to using the PAG panel to consider when and how it is used. Changes were made in 2015 to allow more flexibility and targeted consultation which has resulted in less usage of the PAG panel.

Members were assured that while PCGs are not an interpretative product, the ATO takes a collaborative approach to drafting PCGs. The Tax Counsel Network (TCN) is often involved in the drafting and the PAG centre reviews drafts to ensure consistency of style. PCGs are often developed in conjunction with the determination of technical issues that may require the issuing of a PAG product. In these cases, TCN would be involved with determining the technical issue.

The ATO values external consultation on our products, whether through targeted or formal consultation processes. When we issue a draft, it is important as an organisation to understand different perspectives and administrative impacts of our views, to enable us to make fully informed decisions in terms of finalising our views.

Undisputed tax debt

Vivek Chaudhary, Deputy Commissioner, Lodge and Pay, ATO; Les De Wind, Assistant Commissioner, Lodge and Pay, ATO; Elinor Kasapidis CPA Australia and Tony Greco Institute of Public Accountants

The purpose of this item was to address the Inspector General of Taxation and Taxation Ombudsman Report on Undisputed Tax Debts in Australia which identified that a small percentage of accounts are responsible for a large portion of the debt outstanding. The report gave an insight into undisputed tax debt. Members want to help manage the problem and understand the ATO’s approach to managing it.

At the core of the ATO’s approach is the desire to understand the circumstances of everyone we interact with. This, along with advances in technology and analytics, has accelerated our aspiration to ‘get it right for the client every time’. We have enhanced our engagement activities to minimise the need for enforcement while noting that we can only assist taxpayers who engage with us.

The ATO provided members with a paper on the value of debt holdings and our approach to debt collection. The growth in collectable debt from 2019, which was a marked departure from the previous pattern, was because of the bushfires and COVID-19. The most notable change is the increased debt on activity statements.

We made changes to our payment plan approaches allowing for more flexible arrangements which saw the kept rate of payment plans increase from a low of 48.7% at 30 June 2020 to 68.8% at 30 June 2021. It is also notable that 60% of payment plans are the result of ATO engagement, 20% are initiated by the taxpayer and 20% by intermediaries. The volume of payment plans was directly impacted by the ATO’s approach to stop all activity on debt collection when the pandemic hit.

Members were interested in the age of the debt, the ATO noted that approximately 88% is paid on time with another 6–7% paid within 90 days.

Review of Explanatory Memoranda and new legislation guidance products

Simon Writer, First Assistant Secretary, Law Division, Treasury and Alexander Affleck, Acting Deputy Chief Tax Counsel, Public Advice and Guidance, ATO

Review of Explanatory Memoranda

Treasury noted the progress they have made on changes to the look and feel of the product using new standard templates to improve the efficiency of their production. They continue to review the consistency of the content and assess if the explanatory memoranda (EMs) are meeting the needs of Parliament. Training will commence soon with Treasury staff on how to explain policy in an EM.

Review of new legislation guidance material

Three case study topics, Staples, Diverted Profits Tax and Illegal Phoenixing, were covered in two workshops conducted during October with external stakeholders. The final workshop will review the findings from the first two workshops and consider areas for possible reform. A meeting has occurred with the Board of Taxation seeking their feedback.

Feedback from all sectors noted that PAG needs to be timely and highlighted the desire for transparency of issues and the priority for addressing these. Treasury and the ATO will continue to work together to ensure it is an integrated process.

Members noted that the right stakeholders (internal and external) who understand the topic would be best suited for the final workshop. It would be appreciated if the original officers involved in the legislation and PAG products could attend.

Treasury update

Maryanne Mrakovcic Deputy Secretary, Treasury; Marty Robinson, Acting First Assistant Secretary, Corporate and International Tax Division, Treasury and Michael Croker, Chartered Accountants Australia and New Zealand

OECD Pillars 1 and 2

Michael Croker noted at a recent meeting of the global accounting alliance that audit assurance practitioners are starting to consider what Pillars 1 and 2 mean for them. There was also interest in a dispute resolution process and the commitment of tax regulators to implement the proposals.

Treasury noted that work has shifted from designing the policy to working out how to implement the changes. This will be a significant challenge for all. Treasury have been engaging with the ATO to understand implementation issues while undertaking the policy design work. Consultation will continue however the timeframe is unknown. Some commentators have raised concerns about whether Australia’s Multinational Anti Avoidance and Diverted Profits Tax legislation would be consistent with Pillar 1. Treasury do not believe it is likely to be an issue.

Tax treaties

Treasury has been actively engaged on tax treaties expansion with negotiations commencing with Luxemburg and Iceland and renegotiation underway with India. Preparation for negotiations in 2022 with Greece, Portugal and Slovenia have commenced. A public consultation process for expanding Australia’s tax treaty networkExternal Link was conducted during September and October 2021 with 40 submissions received.

Other matters noted by Treasury

• Consultation on the effective life for intangible assets will commence soon.
• The Bill to implement a reporting regime for sharing economy platform providers was introduced and referred to the Senate committee. The committee recommended that the legislation be passed.
• Work continues with the ATO on the corporate residency measure, particularly the meaning of ‘core commercial activity’.
• The impact of the High Court decision in the Addy case, where it was held that the working holiday maker tax rate contravenes the non-discrimination clause in the UK treaty, is being considered.

Treasury will provide a response to the following member questions:

• For the corporate collective investment vehicles bill, has Treasury been working with the states regarding land tax and stamp duty implications and engaging with the ATO on implementation matters?
• Is the employee share scheme measure retrospective and therefore applies to existing arrangements?
• What progress has been made on superannuation measures announced in the budget?

Legal Professional Privilege Protocol

Rebecca Saint, Deputy Commissioner, Public Groups, ATO; Faith Harako, Assistant Commissioner, Public Groups and International ATO; Belinda Darling, Public Groups and International, ATO; Angela Lee, Law Council of Australia; Jerome Tse, The Tax Institute

The purpose of this item was to provide members with an update on the draft ATO Legal Professional Privilege Protocol. The Law Council has provided a written submission noting that the ATO had already adopted some of its earlier feedback. There are still some outstanding issues. The Law Council will continue to provide further assistance as required.

The ATO acknowledged the constructive feedback and helpful dialogue with the Law Council as well as the members who attended the workshop. All written feedback on the Protocol that the ATO was expecting to receive has now been received. The ATO is separately reviewing the case studies set out in the Law Institute of Victoria’s submission.

Some key feedback themes and areas of concern include compliance costs, risk of waiver, the scope of the recommended particulars, the consequences of not providing the recommended particulars, and the ATO’s preference for the particulars to be provided before the due date of the formal notice.

The ATO noted that it does not expect the Protocol to have application in the context of the vast bulk of ATO’s engagements. This is because the vast bulk of ATO engagements in the large market are done without recourse to formal information gathering powers, and the ATO does not typically have LPP disputes with these taxpayers. The ATO further noted that it will explore all available options in relation to the concerns about the risk of waiver. Where a formal notice is issued, this typically occurs because the ATO is unable to obtain relevant information/documentation using the informal or non-compulsion avenue.

The ATO will be carefully considering all feedback. The ATO’s response will be featured in a compendium which will be published together with the final Protocol, ideally in the first quarter of 2022.

Reflections on the role of the NTLG for 2021

All members

The purpose of this item was for members to provide their reflections on the achievements of the NTLG for 2021. Members noted:

• 2021 was a difficult year given the limitations of engaging solely online
• they are clear on the current scope of the NTLG and their role noting that the Charter will have to be updated to reflect the new responsibilities for governance of consultation
• the approach of four major areas of discussion – policy, law, administration, operations – works well and should be continued
• the challenge is to find the right amount of time for topics to allow for a proper discussion with preliminary reading papers provided to support the discussion
• they want external members to continue to be nominated as leads for each item
• productive consultation involving professional bodies is still a challenge
• interest in identifying some strategic initiatives for the group to focus on
• that a focus on PAG has been useful and it is good to see matters being addressed.

Consultation Steering Group

Kirsten Fish, Second Commissioner, Law Design and Practice Group, ATO

The ATO advised that after an internal review the decision was made to close the Consultation Steering Group (CSG) and broaden the scope of the NTLG to provide governance of ATO consultation activities. The review noted that there was overlap of members and topics for discussion, so the aim is that coming together will leverage the value each group currently contributes to the system and will facilitate a simplified structure through which to consider consultation related matters. We recognise the importance of retaining external involvement in the consultation process governance.

A forward work program for the NTLG for 2022 is being developed where two meetings a year will have a specific focus on consultation. The Board of Taxation will be invited to attend these meetings but will not be permanent members of the NTLG. Existing reports provided to the CSG will be provided to the NTLG. The draft changes to the NTLG charter will be circulated for review and endorsement by members.

Members noted that there may be value in the external Stewardship group Co-chairs being connected to the NTLG and the need for greater connectivity between these groups and the NTLG.

GAAR Panel

Peter Walmsley, Deputy Chief Tax Counsel, Tax Counsel Network, ATO

Since November 2020 the GAAR Panel has considered approximately 29 cases. Of those:

• 14 sought preliminary advice
• another 14 were full matters where the taxpayer attended
• one was a request for general advice on section 100A based on several case studies.

Approximately half of the cases required further work with the remaining approved to proceed. Private Wealth and Integrated Compliance represented 12 cases and Public Groups and Internationals represented 17 cases. About eight cases were for cross border debt financing, seven for transfer pricing, two for Diverted Profits Tax with the remaining cases on a variety of topics.

NTLG action items update

Jessica Chiu, Law Interpretation Specialist, Tax Counsel Network, ATO

A status update was provided on the following open action items:

• NTLG 1911/1 – Establishment of NTLG sub-group to consider compliance costs
  • Since the September update, the ATO has been continuing to scope out the work and ways forward. The ATO has commenced discussion with several academics on current compliance costs research and methodologies. Further discussions are planned to explore alternative ways in which tax compliance costs can be measured. Members agreed this item remains in progress.
   
• NTLG 2106/1 – Information regarding early lodgment of tax returns before pre-fill information is available
  • The requested information was provided in August 2021 on the common errors that occur with early lodgment of returns. Members requested additional information on the data from previous years. In the meeting papers the ATO provided information that compared the adjustment for common errors from July 2021 to July 2020. Members agreed this item is closed.
   

Other business

All

Members have raised directly with Deputy Commissioners the emerging pressure on practitioners regarding key lodgment dates for which deferrals may be sought.

Members requested to be informed of upcoming changes to the government initiative for Small Business and Digitalisation.

Members are seeking information on how to be involved with the Corporate Collective Investment Vehicles working group.

Attendees

Attendees list

Organisation	Attendees
ATO	Kirsten Fish (Co-chair), Law Design and Practice
ATO	Jeremy Hirschhorn, Client Engagement
ATO	Jessica Chiu, Tax Counsel Network
ATO	Robyn Theacos (Secretariat), Enterprise Strategy and Design
Chartered Accountants Australia and New Zealand	Michael Croker
Corporate Tax Association	Michelle de Niese
CPA Australia	Alexis Kokkinos
CPA Australia	Elinor Kasapidis
Institute of Public Accountants	Tony Greco
Law Council of Australia	Angela Lee
Law Council of Australia	Justin Byrne
The Tax Institute	Jerome Tse
The Tax Institute	Peter Godber (Co-chair)
The Tax Institute Professional Bodies Coordinator	Julie Abdalla
Treasury	Maryanne Mrakovcic
Treasury	Marty Robinson

Information about the key topics discussed at the National Tax Liaison Group meeting 25 November 2021.