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. The ATO recognises the integral role that good corporate governance systems have in ensuring companies can appropriately identify and manage tax compliance risks. As with any risk management system however, for corporate boards to fully understand the implications of escalated risks they will require informed independent advice. The ATO accepts that obtaining such advice benefits the revenue system by ensuring tax risk is recognised and managed effectively.

2. While recognising the Commissioner has the legislative power to access relevant information, the ATO accepts that advice^[1] prepared for a corporate board on tax compliance risk should, in all but exceptional circumstances^[2], remain within the confidence of a board of company directors (including properly constituted sub committees) and their advisors.

EXPLANATION

About this practice statement

3. 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.

4. This practice statement does not restrict access to corporate board advice on tax compliance risk to the extent that a taxpayer decides to make such documents available to the ATO. It is recognised that some corporate taxpayers willingly provide such information to assist in prompt and effective consideration of tax compliance risks by the ATO.

5. No adverse inference is to be drawn for taxpayers who do not willingly supply such information and claim the advice provided to their board of directors should remain confidential in accordance with this practice statement.

6. The concession provided for in this practice statement relating to corporate board advice on tax compliance risk (the concession) only applies to companies that can demonstrate they have risk management and governance frameworks in place which include tax.

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

(a)

ATO procedures for seeking access (including access procedures set out in Our approach to information gathering)

(b)

claims for legal professional privilege

(c)

claims that a document is a restricted source or non-source document to which access is governed by the guidelines to accessing professional accounting advisors' papers (accountants' concession).

8. In this regard it is noted some corporate board documents containing advice on tax compliance risk may also be subject to claims for legal professional privilege or the accountants' concession.

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

Access to documentation and other information

10. Access to documents and other information is fundamental to the ATO's ability to undertake compliance activities and to perform its role as required by law. Many of the taxation acts administered by the Commissioner have information gathering provisions, for example, sections 263 and 264 of the Income Tax Assessment Act 1936, sections 353-10 and 353-15 of Schedule 1 of the Taxation Administration Act 1953.

11. During compliance activities the ATO will, in the first instance, ordinarily seek information from documents prepared in connection with the conception, implementation, authorisation and formal recording of a transaction or arrangement and which explain the setting, context and purpose of the transaction or arrangement. It is not the ATO's intention to review documents, in the first instance, that contain advice to a corporate board concerning tax compliance risk.

12. Compliance activities may also include close scrutiny of the tax risk management processes that a board of directors has oversight of to determine if they are operating effectively. This information can help form the ATO's view of how well a taxpayer manages tax risk.

Who can advise a board of directors on tax compliance risk?

13. Advisors can be either in-house or externally based (including contractors) and must be suitably qualified to provide advice to a corporate board on tax compliance risk. A suitably qualified advisor would be:

(a)

someone whose taxation advice is bound by the standards of a third party professional association, for example a lawyer, accountant or tax agent; or

(b)

someone who has academic qualifications in a relevant area that would qualify them to provide expert advice, for example law and accounting.

What can qualify as corporate board advice on tax compliance risk?

14. Corporate board advice on tax compliance risk is confined to the information within a document that has been created by advisors for the sole purpose of providing advice or opinion to a corporate board relating to a major transaction, arrangement, corporate system or process:

(a)

on the likelihood and impact of the tax compliance risk; or

(b)

as to whether the ATO or an administrative or judicial decision making authority may take a contrary view or position to that of the taxpayer on the tax compliance issue; or

(c)

for courses of action to effectively manage the tax compliance risk.

What does not qualify as corporate board advice on tax compliance risk?

15. Advice that does not have a sole purpose of advising a corporate board on tax compliance risk does not qualify for the concession. For example, tax compliance risk advice for a corporate board that is later used to advise on how to implement an arrangement would have a dual purpose, thereby losing the sole purpose characterisation necessary to claim the concession.

Concession for corporate board discussions on tax compliance risk and tax risk registers

16. Minutes directly relating to corporate board discussions on tax compliance risk advice and requests for advice relating to such risks by a corporate board do not qualify as advice within the meaning of paragraph 14 of this practice statement. However, in recognition of the need for candid discussions and communications concerning tax compliance risks, the Commissioner has determined that the concession can also apply to such information. Note, if exceptional circumstances exist, or a taxpayer is willing to forego a claim for the concession to assist in resolving an issue, access to such information may occur.

17. Many organisations have formal processes in place to identify certain transactions, arrangements or systems that may have an element of associated tax risk for placement on a risk register that is oversighted by the board. Whilst reporting upon recognised tax compliance risks to a corporate board does not qualify as advice within the meaning of paragraph 14 of this practice statement, the Commissioner will allow the concession to apply to those sections of a risk register^[3] that directly concern tax risks. However, if exceptional circumstances exist, or a taxpayer is willing to forego a claim for the concession, access to such registers may occur.

18. It is noted, however, that openly disclosing current tax risks with the ATO leads to quicker risk mitigation and ultimately reduced compliance costs. Certain ATO compliance products require taxpayers to disclose specific material tax risks for a defined period under review for these very purposes. A taxpayer cannot use the concession for tax risk registers as a means to prevent disclosure of tax risks in such circumstances.

19. Additionally, the exception for tax risk registers cannot be used as a means to prevent reporting tax risks as required by any applicable legislative or regulatory requirement. For example a tax risk requiring notification to the ATO when completing a reportable tax position schedule.

Dealing with claims for the concession

20. The process set out below should be followed by a taxpayer where the ATO seeks access to documents and the taxpayer considers that access to particular documents should be limited on the basis that they wholly or partly contain advice or information subject to the concession:

(a)

Advise the ATO, as soon as possible, you intend making a claim under the concession.

(b)

By the due date of a formal or informal request for information, support a claim for the concession by providing details per below for each document you consider contain advice or information subject to the concession:

•

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

•

the title of the advice or information and a general description of the nature of the advice or information

•

the name(s) and role(s) of the author(s)

•

the names and roles of all addressees to whom the advice or information has been circulated

•

the reason(s) for the distribution to each addressee

•

the reason(s) why the document is categorised as containing advice or information subject to the concession

•

the date(s) on which the advice, or information was provided to a director of the company, the board or a properly constituted sub-committee of the board.

Note: where a document is to be redacted before being provided to the ATO, the details listed above do not need to be provided to the extent they are evident in the redacted document.

(c)

Once a claim for the concession has been received by the ATO a review will be conducted by the compliance team and the senior officer to whom they report. The taxpayer will be notified in writing within 28 days of their decision whether to accept or set aside a claim. In limited circumstances, for example where there are a large number of claims, a period greater than 28 days may be agreed upon.

(d)

To the extent that any of the taxpayer's claims remain in dispute following the ATO's decision (referred to in subparagraph 20(c) of this practice statement), a designated senior officer^[4] will review the matter. This review may involve a cursory inspection by a representative for both the ATO and taxpayer that have had no prior invovlement in the claim for the concession and that are not a party to the audit or review being undertaken. The review will result in claims either being accepted or set aside by the designated senior officer.

21. Unless the ATO either ultimately rejects a claim for the concession or exceptional circumstances apply, the ATO will not seek to access advice or information subject to a claim for the concession.

Exceptional circumstances

22. Circumstances that may be taken to be exceptional and necessitate the ATO to seek access to advice or information subject to a claim for the concession include:

(a)

the taxpayer has not co-operated or is not cooperating with the ATO to provide full and complete information in a timely manner and the advice or information subject to a claim for the concession is considered relevant to the compliance activity (relevance is a matter for the ATO to determine)

(b)

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

(c)

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

(d)

the Commissioner has reasonable grounds to believe that an anti-avoidance provision may apply

(e)

the taxpayer has a demonstrated history of aggressive tax positions that the ATO has significant concerns with.

23. If the ATO considers a claim for the concession would be valid, however exceptional circumstances within the meaning of paragraph 22 of this practice statement exist, a submission may be made to a designated senior officer to lift the concession.

24. The taxpayer will normally be given an opportunity to put their own submission to the designated senior officer to support why the concession should not be lifted.

25. If the designated senior officer determines that exceptional circumstances apply and that the concession should be lifted, the ATO will provide the reason(s) for this decision and notify which exceptional circumstance(s) apply.

26. In limited circumstances the ATO may seek access without notice and a decision may be made to access information without giving the taxpayer the opportunity to claim the concession. In this situation the ATO may copy documents that potentially contain advice that falls under the concession. If this occurs, and the taxpayer claims the concession applies, the documents will be quarantined and dealt with in accordance with the procedures outlined above.

Amendment history

Date of Issue: 23 December 2004

Date of Effect: 23 December 2004

File 04/8281, 1-5UHK85C

Other References:
Our approach to information gathering
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:

ONETEL Ltd v. Deputy Commissioner of Taxation
(2000) 101 FCR 548
2000 ATC 4229
58 ALD 103

Deloitte Touche Tohmatsu v. Deputy Commissioner of Taxation
[1998] FCA 1439
98 ATC 5192
(1998) 40 ATR 435

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

JMA Accounting Pty Ltd & Anor v. Carmody & Ors
2004 ATC 4916

Esso Australia Resources v. Commissioner of Taxation
[1999] HCA 67
201 CLR 49
168 ALR 123
74 ALJR 339 (21 December 1999)

Macquarie Bank Limited and Macquarie Group Ltd v. Commissioner of Taxation and James Campbell
[2013] FCAFC 119

Stewart v. FCT
[2011] FCA 336