Practice Statement Law Administration

PS LA 2007/5

SUBJECT:	Settlements
PURPOSE:	To: • outline key elements of the settlement process, and • prescribe mandatory use of the Code of Settlement Practice by all tax officers in the settlement of taxation disputes

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FOI status: may be released

BACKGROUND

1. A basic duty of the Commissioner of Taxation is to administer revenue laws including superannuation. This duty includes assessing and collecting taxes and determining entitlements arising under taxation law. The general rule therefore is that the Commissioner does not forego tax^[1] properly payable and will, with minimal delay, seek to collect as near as practicable that tax.

2. In determining the amount of tax payable or refund due under the law the Commissioner will have regard to the facts and circumstances of a case, and the strength of any different views as to the application of the law to the facts. There are occasions where the Commissioner's preliminary views are changed prior to assessment, for example, in the light of new evidence or where the Commissioner is persuaded to accept a different view of the law. These do not generally constitute settlements but the application of the law to the particular facts. Our processes to ensure proper and sound decision making in these cases are contained in a range of corporately endorsed policies and work procedures.

3. Settlements involve taking into account a range of factors, such as the costs of further enquiries and the risks of litigation and determining that it is in the best interests of the Commonwealth to accept a certain amount in finalising the dispute. The Courts have recognised that settlement of a dispute about the amount of tax payable is an appropriate approach to particular circumstances and at times highly desirable. Nevertheless, it is important to settle only in appropriate circumstances and when settling, officers must be aware of the importance of transparency and accountability in the decision-making process and in the outcomes of that process.

STATEMENT

4. The Code of Settlement Practice (Code) provides guidelines on settlement of taxation disputes. It outlines when settlement should be considered and the processes which should be followed when a decision is taken to settle a disputed liability to tax. The Code is designed to provide assurance about the appropriateness of settlement decisions. A link to the Code is provided in the other references section at the conclusion of this practice statement.

5. Tax officers who make settlement decisions must follow the Code.

6. A distinction should be drawn between settling the amount of the liability and compromising a debt. The settlement process aims to establish an agreed tax liability where the taxpayer and Australian Taxation Office (ATO) do not initially agree on the tax liability. Compromise occurs when the ATO and taxpayer agree on the amount of the tax liability but the ATO agrees to accept less than the agreed amount in finalisation of the debt. The delegation to compromise a debt rests with very few Senior Executive Service (SES) officers and an agreement to compromise is extremely rare.^[2]

Decision making and approval

7. Settlement procedures outlined in the Code make it clear that:

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there should be no unilateral decision making

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where external counsel has been engaged and understands the substantive issues, the normal expectation is that the advice of counsel would be obtained on the merits of the Commissioner's position and the reasonableness of the proposed settlement, and

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at least two officers should be present during settlement negotiations.

8. Any payment arrangements included as part of a settlement of a taxation dispute must be in accordance with the requirements in Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles.

9. The power to settle taxation liabilities has been given only to a strictly limited range of senior officers. Tax officers must check the Register of Delegations and Authorisations and the Taxation Authorisations Guidelines (links available at the conclusion of this practice statement) to ensure they are properly delegated or authorised to settle a taxation dispute.

10. Senior officers approving settlements are required to sign a Statement of Compliance (link available at the conclusion of this practice statement) affirming compliance with the Code.

Registration and documentation

11. Details of every settlement, including the justification or underlying reasoning for the settlement, must be recorded on the Siebel case management system.

Settlement obligations

12. Business lines must have processes in place to assure adherence by both the ATO and the taxpayers to any obligations set out in a settlement deed.

Currency of the Code

13. Prior to entering into any settlement negotiations with taxpayers, tax officers must be familiar with the principles embedded in the Code and must ensure that the taxpayer's circumstances are appropriate for settlement.

14. The online version of the Code is the only current version of the Code. Tax officers must check the online version before finalising a settlement.

15. Tax officers who have any concerns about the guidance provided by the Code should contact the Disputes and Settlements team in Law and Practice.

Settlement home page and other resources

16. Tax officers should refer to the settlement homepage on the Intranet (link is available at the conclusion of this practice statement) which provides resources that will help when entering into settlements.

17. The resources available on the settlement homepage include information about and links to the Code, Siebel procedures, settlement procedures, settlement integrity assurance, settlement delegation and authorisation, settlement coordinators, frequently asked questions, and other guidelines. These documents provide help to tax officers with settlement issues, but are not a substitute for the Code. Tax officers must refer to the Code for complete guidelines to the settlement process.

Business Line procedures

18. Business lines may have their own additional settlement procedures provided they are consistent with the corporate settlement procedures and the Code. In addition, every business line must:

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publish any additional settlement procedures on the Intranet

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take responsibility for the currency and maintenance of these procedures

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link their Intranet settlement site to the settlement homepage.

Integrated Quality Framework

19. The ATO's Integrated Quality Framework (IQF) process in relation to settlements is designed to provide assurance that officers have complied with the Code.

20. The IQF process is detailed in Law Administration Practice Statement PS LA 2009/6 Quality improvement and assurance: application of and conformance with the Integrated Quality Framework.

Amendment history

Date of Issue: 21 February 2007

Date of Effect: 21 February 2007

File 04/11754
1-384PO26

Related Practice Statements:
PS LA 2007/6
PS LA 2009/6
PS LA 2011/14

Other References:
Code of Settlement Practice
Register of Delegations and Authorisations (link available internally only)
Settlement home page (link available internally only)
Settlement - Statement of Compliance
Taxation Authorisations Guidelines (link available internally only)
Review into aspects of the ATO's settlement of active compliance activities
Settlements IQF operational Guide (link available internally only)

Subject References:
Code of Settlement Practice
Settlement

Authorised by:
Kevin Fitzpatrick
Acting Second Commissioner (Law)