ATO Practice Statement Law Administration

PS LA 2004/14

• This practice statement was originally published on 23 December 2004. Versions published from 1 July 2006 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be obtained from Corporate Policy and Process in Tax Counsel Network by emailing TCNLawPublishingandPolicy@ato.gov.au.
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STATEMENT

1. While recognising that the Commissioner has the legislative power to request access to most documents, the ATO accepts there is a class of documents which should, in all but exceptional circumstances, remain within the confidence of company directors and their advisors on tax compliance risk. The ATO calls these documents 'corporate board documents on tax compliance risk'.

2. Corporate board documents on tax compliance risk are documents:

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created by advisors (being suitably qualified in-house or independent advisors)

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created for the sole purpose of providing advice or opinion to the board of directors (including properly constituted sub-committees) on tax compliance risks and their likelihood and impact, and

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that address tax risks associated with major transactions and arrangements and/or tax risks arising from corporate systems and processes.

3. Access to corporate board documents on tax compliance risk will not be sought by the ATO during a compliance risk review or an audit of a corporate taxpayer except in exceptional circumstances and the access will need to be approved by an appropriate Senior Executive Service officer, as described in the ATO's Guidelines to accessing professional accounting advisors' papers (the Accountants' Guidelines).

4. Circumstances that may be taken to be exceptional and necessitate access to corporate board documents on tax compliance risk would include cases where:

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the taxpayer has not cooperated with the ATO to furnish full and complete information in a timely manner

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information important to the risk review or audit, including evidence as to purpose for entering into or carrying out a transaction or arrangement, cannot be sufficiently established from the taxpayer's source documents and other enquiries, or

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the taxpayer has a history of serious non-compliance, for example involving fraud or evasion or persistent avoidance of their tax obligations, or is under investigation in that regard.

5. The process for dealing with taxpayers' claims that particular documents are corporate board documents on tax compliance risk is set out in this practice statement. This process is similar to the process for dealing with taxpayers' claims in relation to restricted source and non-source documents under the Accountants' Guidelines.

EXPLANATION

About this practice statement

6. The approach set out in this practice statement is intended to strike a balance between facilitating rigorous governance of tax compliance risk by companies, while ensuring the ATO can obtain the information it needs for its active compliance activities.

7. This practice statement is subject to existing laws and policies applicable to:

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procedures for seeking access (including as set out in the ATO's Access and information gathering manual)

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claims for legal professional privilege, and

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claims that a document is a restricted source document or a non-source document to which access is governed by the Accountants' Guidelines.

In this regard note that some corporate board documents on tax compliance risk may be subject to the Accountants' Guidelines or claims for legal professional privilege.

8. The practical application of this practice statement will be kept under regular review to ensure that its purpose is being achieved.

Corporate governance and tax risks

9. As part of its compliance management strategy the ATO publishes its annual Compliance Program and companion publications such as Large business and tax compliance[SC1] (June 2003). In publishing identified risks and how it intends to address them, the ATO aims to encourage taxpayers to undertake more rigorous tax risk assessments and to better manage their tax risks.

10. In January 2004 the Commissioner sent letters to the chairs of the boards of directors of Australian listed companies to provide practical guidance for boards in the management of the tax risks associated with major transactions or arrangements. Attached to the letter was a list of 10 questions that boards could consider putting to their tax advisers with a view to identifying and managing relevant tax risks.

11. The ATO recognises that those responsible for managing a company's tax compliance risks need to be able to undertake broad ranging and candid communications. Those persons would include the company's employees, its external advisors and its directors undertaking governance of tax compliance issues.

12. Documents may be prepared as part of those communications to provide advice and opinion to directors on the identification, assessment and management of tax compliance risks, whether or not they specifically address the Commissioner's 10 questions. Effective governance of tax compliance issues will depend to some extent on the quality of documentation about tax risks.

Access to documentation and other information

13. The ATO conducts active compliance activities through a suite of products, including risk reviews and audits. Access to documents and other information is fundamental to the ATO being able to undertake its compliance activities and to perform its role as required by law. Many of the taxation Acts administered by the Commissioner have provisions granting access and notice powers to the Commissioner and officers authorised by him - for example, sections 263, 264 and 264A of the Income Tax Assessment Act 1936; sections 353-10 and 353-15 of Schedule 1 of the Taxation Administration Act 1953.

14. During a compliance risk review or audit the ATO will, in the first instance, ordinarily seek information from documents prepared in connection with the conception, implementation and formal recording of a transaction or arrangement, and which explain the setting, context and purpose of the transaction or arrangement.

Dealing with claims relating to corporate board documents on tax compliance risk

15. Corporate board documents on tax compliance risks are documents created by advisors for the sole purpose of providing tax risk advice or opinion to the board of directors. A document that records a transaction or arrangement is not a corporate board document on tax compliance risks. However, the ATO may accept that a document is a corporate board document on tax compliance risks where it merely summarises or reproduces information sourced from other classes of documents to give context to the tax risk advice or opinion.

16. The process set out below should be followed where ATO personnel request access to taxpayer documents and the taxpayer claims that access to particular documents should be limited on the basis they are corporate board documents on tax compliance risks:

(a)

Ask the taxpayer to provide a list of the documents in question. The list should include the following details for each document:

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the date of the document (or the date the document was created)

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the title of the document and a general description of its nature

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the names and roles of the authors

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the names and roles of all addressees to whom documents have been circulated

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the reasons why the document is categorised as a corporate board document on tax compliance risks, and

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the date/s on which the document was provided to a director of the company, the board or a properly constituted sub-committee of the board.

(b)

Review the list within 3 working days of its receipt, or such other period as may be agreed, and decide whether or not to accept the taxpayer's claims.

(c)

Make arrangements for those documents the ATO has not accepted are corporate board documents on tax compliance risks and a copy of the list to be sealed in envelopes or other containers and lodged with a professional representative of the taxpayer or the ATO. The representative is to give written assurance that the envelopes or containers will be kept in secure storage on the representative's premises and will not be opened otherwise than with the consent of both the taxpayer and the ATO.

(d)

Arrange a joint cursory inspection by legal representatives of the taxpayer and the ATO of those documents the ATO has not accepted are corporate board documents on tax compliance risks. The inspection is to be for the limited purpose of enabling the representatives to determine which of the documents in question they agree are or are not corporate board documents on tax compliance risks and which of the documents remain in dispute.

(e)

To the extent that any of the taxpayer's claims remain in dispute following the joint inspection (referred to in paragraph d above), the ATO may engage a suitably qualified independent third party as its consultant to review the documents in question and advise the ATO on whether they should or should not be accepted as corporate board documents on tax compliance risks.

(f)

In the case where the classification of a document cannot be resolved for any reason following the above process, it will be open for the ATO to access the document in question without further regard to this practice statement.

17. Where, in accordance with this practice statement, the ATO does seek to access corporate board documents on tax compliance risk, consideration will be given to excluding material from the documents to the extent that it is advice or opinion that does not relate to the subject matter of the risk review or audit.

18. The acceptance by the ATO of the confidential status of corporate board documents on tax compliance risks as between the company directors and their advisors for the purposes of this practice statement will be maintained in circumstances where they are disclosed by company directors to third parties for the purpose of better management of tax risks and the disclosure is agreed to be on a confidential basis.

19. This practice statement does not restrict access to corporate board documents on tax risk to the extent that a taxpayer decides to make these documents available to the ATO. It is recognised that some corporate taxpayers are willing to make such documents available to assist in prompt and effective assessments of tax compliance risk by the ATO when risk reviews or audits are being undertaken. However, no adverse inference is to be drawn merely because a taxpayer does not make such documents available in accordance with this practice statement.

Amendment history

Date of Issue: 23 December 2004

Date of Effect: 23 December 2004

File 04/8281

Other References: Access Manual Chapter 07 - Access to Professional Accounting Advisors' Papers
Access and information gathering manual
Guidelines to accessing professional accounting advisors' papers

Subject References:
Corporate Governance
Information gathering and access powers
Power to obtain information and evidence
Risk management

Legislative References:
ITAA 1936 section 263
ITAA 1936 section 264
ITAA 1936 section 264A
FBTAA 1986 section 127
FBTAA 1986 section 128
TAA 1953 Schedule 1 section 353-10
TAA 1953 Schedule 1 section 353-15

Case References:

ONE.TEL Ltd v Deputy Commissioner of Taxation
(2000) 101 FCR 548
2000 ATC 4229
44 ATR 52

Deloitte Touche Tohmatsu v Deputy Commissioner of Taxation
(1998) 98 ATC 5192
(1998) 40 ATR 435

Pratt Holdings Pty Ltd v Commissioner of Taxation
(2004) 207 ALR 217
2004 ATC 4526
56 ATR 128

JMA Accounting Pty Ltd & Anor v Carmody & Ors
2004 ATC 4916
57 ATR 365