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Chapter 5: Implementation of recommendations of IGT’s 2008 review on revenue bias in private rulings

5.1 On 7 February 2005, the then Minister for Revenue and Assistant Treasurer asked the Inspector-General of Taxation (Inspector-General or IGT) to review and report on whether there is a ‘pro-revenue’ bias evident in private binding rulings (PBRs) issued by the Commissioner of Taxation under Part IVAA of Taxation Administration Act 1953. As a result of this request and industry representations to do so, the Inspector-General then conducted a review of the potential revenue bias in private rulings involving large complex matters. This review focussed on private rulings involving large business taxpayers.

5.2 The review33 found that because of the ATO’s dual role as a rulings administrator and a revenue collector it was generally accepted that the ATO would have an inherent revenue bias in finely balanced matters. However, the review found that there was no evidence of undue revenue bias in large complex PBRs.

5.3 Based on a representative survey, however, around 70 per cent of large business PBR applicants perceived the Tax Office to have a revenue bias in its PBRs. A major cause of these perceptions was identified as being a lack of transparency — taxpayers observed unexplained Tax Office behaviours and in the absence of cogent explanations interpreted those behaviours as being motivated by a revenue bias. The Inspector-General made ten recommendations to address this. The Tax Office fully agreed with six of these recommendations and partly agreed with four.

5.4 The ten recommendations suggested improvements in the following areas:

5.5 The structure adopted in this chapter in addressing the implementation of each recommendation is to outline in sequence the following:

5.6 A recommendation is considered implemented where the Tax Office has demonstrated to the Inspector-General that the particular recommendation has been satisfactorily addressed. In some cases this status has been allocated by the IGT to a recommendation where some work remains to be done, but only where there are detailed plans, actions and commitment to complete implementation in a short timeframe.

5.7 The ATO’s original response to the IGT’s recommendations is included in Appendix 4 of this report.

Recommendation 1

Informing taxpayers when it sees a need for external input, including from the Treasury, on interpretive matters that relate to their PBR applications and the reasons why.

ATO position

Implemented.

Evidence supporting the ATO position

5.8 Recommendation 1 was agreed in part, because in situations where external input is required from Treasury, it would not be appropriate to disclose the reasons why the Tax Office is seeking Treasury input. The Tax Office considers such communications to be confidential.

5.9 The agreed aspect of the recommendation has been primarily addressed by the Tax Office through the development and delivery of an Interpretative Assistance (IA) training package which educates Tax Office staff on ‘effective communication’ and their ‘roles and responsibilities’ in providing rulings to taxpayers. The foundational level training, ‘IA Processes and Case Management (foundation)’ was developed and delivered prior to the Inspector-General’s 2008 Review of the potential revenue bias in private binding rulings involving large complex matters. It was delivered as a workshop to staff in the latter half of 2007 on a first come first in basis and focussed on active case management and communication. As a pre-requisite to this workshop, attendees who registered were required to have at least twelve weeks experience in the Tax Office.

5.10 Subsequently the intermediate level training, ‘IA Framework, Case Management and Procedures (Intermediate)’ was developed as a two-day course which was piloted on the 26th and 27th of May 2009 and rolled out across the relevant Tax Office IA sites in late May/early June 2009. The course consists of three modules: (1) Roles and Responsibilities of an IA case officer/team leader, (2) Practices and Procedures in doing IA case work, and (3) Case studies. This intermediate level training was deemed mandatory to all IA staff engaged in rulings work by the Large Business and International (LBI) Executive. Small and Medium Enterprise (SME) staff also attended the intermediate training.

5.11 The following table sets out the numbers of staff who attended the IA training:

Table 5.1: Numbers of ATO staff who attended the IA training

IA Processes and Case Management (foundation)
Date Sites Participant numbers
3 & 4 July 2007 Hurstville 19
2 & 3 August 2007 Melbourne 19
6 & 7 August 2007 Perth 16
IA Framework, Case Management and Procedures (Intermediate)
Date Sites Participant numbers
27 May 2009 Parramatta 28
3 June 2009 Albury 15
11 June 2009 Brisbane 14
5 & 16 June 2009 Sydney 33
19 June 2009 Northbridge 18
23 June 2009 Moonee Ponds 23
24 & 25 June 2009 Box Hill 26
30 June 2009 Waymouth 26

5.12 The need to keep taxpayers informed of any external input sought on interpretative matters has also been presented to the IA network by the network leaders in late 2008. Those who comprise the IA network include the LBI IA Directors; thus the presentation to the IA network ensures that the key messages will be channelled down to those staff working on rulings. Since 1 July 2009, the IA network has become part of the LBI IA Business Management Committee.

5.13 The Practice Statement PS LA 2008/3 which was issued during 2008 reflects the need for communication with taxpayers where external input is sought. Paragraph 90 of PS LA 2008/3 now reads:

The Commissioner can take into account information provided by an entity other than the applicant, provided that the Commissioner tells the applicant what the information is and that the Commissioner intends to take the information into account. The applicant must be given a reasonable opportunity (ordinarily 28 days) to comment on the use of that information before the ruling is made.

5.14 The Tax Office decided that an update for Online Resource Centre for Law Administration (ORCLA)34 was not required.

5.15 In terms of current ATO processes, when a business line case officer encounters an issue, that may or may not ultimately involve discussion with Treasury, the case officer will follow the established escalation procedure. The Tax Counsel Network (TCN) /Centre of Expertise (CoE) gatekeeper will allocate the issue to the TCN/CoE with the relevant expertise. Those officers have access to relevant materials and registers. It would be TCN/CoE that would consult with Treasury on an issue arising in a case and they would inform the case officer that is happening. The case officer would, in turn, keep the taxpayer informed by advising them that it has been necessary to have discussions with Treasury. However, as the content of discussions with Treasury is confidential, the case officer would be unable to advise the nature of those discussions.

IGT conclusion — Implemented

5.16 The Tax Office partly agreed to this recommendation because it considers that it is not appropriate to disclose the reasons why the Tax Office is seeking external input from Treasury. The ATO-Treasury protocol states that:

Communications between the Tax Office and Treasury on tax and superannuation matters are confidential as they are, effectively, in the nature of communications between an agency and the government.

5.17 The Inspector-General considers that there are generally two categories of ATO-Treasury communications in this context. One category of communications discusses the implications of the ATO’s views — for example, the identification of circumstances in which the law is not aligned with current Government policy or where there would be economic consequences if the ATO adopted a certain view of the law. The second category of communications is where the ATO considers that there are two or more interpretations open on a reasonable reading of the law, but the underlying purpose for the law is not clear.

5.18 The IGT agrees that there should not be a disclosure of the content of ATO-Treasury discussions where they fall within the first category of communications. There are strong public policy reasons to keep confidential the advice to Government on implications of policy.

5.19 However, where the communications fall within the second category, there are strong reasons why these communications should be disclosed as they will otherwise place taxpayers at a significant disadvantage. The IGT had also specifically identified the lack of transparency of ATO-Treasury dialogue on interpretative matters as one of the underlying causes of perceptions of revenue bias in PBRs. This concern was also raised by the JCPAA in its questioning of the Commissioner and Second Commissioner on the ATO’s unwillingness to agree to the full implementation of this recommendation35.

5.20 The IGT also notes that shortly before this review was finalised, the Government publicly released the Report on Australia’s Future Tax System that was presented to the Treasurer on 23 December 2009. Recommendation 114 of this report is as follows:

Information or advice provided by Treasury to assist the ATO in determining the purpose or object of the law, or materials used by the ATO to determine policy intent (other than correspondence with or from government) should be made public.

5.21 The Government has not provided a response to this recommendation.

5.22 In relation to the implementation of what the ATO agreed to implement, the IGT undertook case work which showed that the ATO was advising taxpayers when it was discussing the technical issue with Treasury (although not the reasons why it was discussing the matter with Treasury). Also, as noted in the ‘Evidence supporting the ATO position’ section for this recommendation, the Tax Office has procedures in place for taxpayers to be kept informed by case officers, although not contemporaneously, where Treasury input has been sought regarding their PBR application.

5.23 On this basis, the IGT concludes that the Tax Office has completed what it has agreed to implement.

Recommendation 2

Informing taxpayers of the outcomes of external input, including from the Treasury, and internal deliberations on matters that affect them, especially where an unfavourable ruling is likely.

ATO position

Implemented.

Evidence supporting the ATO position

5.24 Recommendation 2 was agreed in part, because it would not be appropriate to disclose the nature or outcomes of discussions with Treasury, as the Tax Office considers such communications to be confidential. The Tax Office’s evidence supporting this position is the same as that contained in paragraphs 5.8 to 5.15.

IGT conclusion — Implemented36

5.25 As discussed in the IGT’s analysis in recommendation 1 above, the Inspector-General notes that the Tax Office did not agree to implement this recommendation in full. The Inspector-General had specifically identified the lack of transparency of ATO-Treasury dialogue on interpretative matters as one of the underlying causes of perceptions of revenue bias in PBRs.

5.26 In respect of informing taxpayers of the outcomes of internal deliberations, a sample of the relevant ATO files demonstrates that the ATO informs applicants of the outcomes of internal deliberations (such as TCN and CoE deliberations) before the

ATO concludes the ruling. The ATO also provides similar messages to its staff to do so in PS LA 2008/337 and its IA Intermediate training package.

Recommendation 3

Where an understanding of purpose is a factor in the decision in large business unfavourable PBRs, including a statement of the underlying purpose of the legislative provisions on which the interpretation is based and the source for that purpose (for example, how the legally permissible extrinsic materials have been relied upon to ascertain that purpose and in concluding its view).

ATO position

Implemented.

Evidence supporting the ATO position

5.27 This recommendation has been primarily addressed through the IA Intermediate training package [referred to in paragraph 5.10]. This training covers the need for Tax Office staff to communicate to taxpayers the policy intent used to interpret the law, provide full explanation of why this is the better view and the extrinsic material used to make this decision.

5.28 To further enhance staff knowledge of statutory interpretation, the trainer conducting the intermediate level training requested attendees to complete the existing Ilearn package (self-paced) on statutory interpretation. Also, the Law and Practice business line is developing a more detailed statutory interpretation course that is planned to be rolled-out in 2010. The pre-requisite to the detailed statutory interpretation course will be the existing Ilearn package.

IGT conclusion — Implemented

5.29 The ATO confirmed that the new quality assurance process (the ATO’s Integrated Quality Framework system) does not directly assure adherence by tax officers to the requirements of the recommendation. The Tax Office’s ILearn package on statutory interpretation does not contain any instruction to tax officers in line with recommendation 3. A more detailed statutory interpretation course is currently being developed for IA staff.

5.30 However, the Inspector-General reviewed 6 LBI PBRs finalised during 2008/09 where the underlying purpose of the legislative provision was a material factor for deciding the ATO view in unfavourable decisions. The Inspector-General found that all included a statement and source in line with the recommendation.

Recommendation 4

More widely adopting the key principles of the Priority PBR process in relation to large business PBRs:

  • Centralised point of reference (process owner) responsible for marshalling resources and taking remedial action to ensure cases are not delayed;
  • Alignment of taxpayer and Tax Office priorities;
  • Front end engagement of all expertise to avoid sequential processing; and
  • Taxpayers and Tax Office working together to clarify the ruling.

ATO position

Implemented.

Evidence supporting the ATO position

5.31 In addressing the need for a centralised point of reference for rulings and front-end engagement of expertise, the priority rulings system has been expanded to allow certain class rulings into the priority process. As a result PS LA 2005/10 was withdrawn and a new practice statement PS LA 2009/2 has been published to redefine the way the priority process works. The changes to PSLA 2005/10 were substantial and involved extensive internal and external consultation.

5.32 To communicate the release of PS LA 2009/2, a multi-level communication strategy was developed. Internally, articles were placed in ATO Extra (an ATO staff newsletter) and Business Service Line newsletters. Externally the Commissioner mentioned the change in his speech to the Corporate Tax Association, which is a speech reported extensively in the media.

5.33 The IA training package covers this recommendation by providing directions for staff around ‘roles and responsibilities’ in providing rulings, in both the foundational and intermediate level training [referred to in paragraphs 5.9 and 5.10].

5.34 The advice guidance material in ORCLA has been updated with a link to the new practice statement PS LA 2009/2. This recommendation has also been enhanced by the creation of the new Interpretive Advice segment in LBI on 1 July 2009, which allows for holistic management of the IA function.

IGT conclusion — Implemented

5.35 The purpose of the recommendation is to increase transparency, improve communication and to clearly demonstrate objectivity in large business PBRs by improving the quality of the application process. The Tax Office response has been to expand the Priority PBR Process to certain class rulings. Although class rulings are not PBRs, this action is welcome. However, it does not help to implement the recommendation. This is because the recommendation is directed at extending the principles of the priority process towards other large business PBRs.

5.36 However, the IGT notes that the Tax Office created a new IA Group in LBI on 1 July 2009. This change is part of a new model for IA work arrangements to deliver productivity improvements relating to the four key principles of the Priority PBR Process.

5.37 The IGT notes that an internal ATO review, conducted in 2009, has also recommended that the key principles of this priority process should be extended to other large business PBR applications. As at the end of 2009, the findings and recommendations from the internal review remain part of the ATO’s continuing improvement work. The IGT observes that the ATO is implementing a differentiated service model for large business PBR applications and implementing an ‘early engagement model’ for those applications involving more complex issues and/or significant risk to the ATO and/or taxpayer — for example, where Part IVA sign-off is requested, or where a ruling involves a known problematic area of the law. The processes involved in this model require, amongst other things, early engagement of relevant ATO expertise, regular call overs (with senior executive interventions if time frames are not met) and discussions with the PBR applicants.

5.38 Although the Tax Office is still in the early stages of bringing about change to more widely adopt the Priority PBR process in relation to large business PBRs the work outlined above and the trend in improving timeframes for finalising large business PBRs38 indicates that the Tax Office’s approach is having the desired effect. The recommendation is therefore considered implemented.

Recommendation 5

Increasing transparency, improving communication and more clearly demonstrating objectivity in relation to PBR technical decision making by:

  • before an adverse decision is made, communicating to the applicant the basis for the likely Tax Office view (including external opinions where relevant), an explanation of why the Tax Office’s view is to be preferred over the applicant’s, indicating the relevance of information provided by the applicant, and providing the applicant an adequate opportunity to comment;
  • vetting requests for additional information and (if requested) providing reasons why the information is relevant and identifying the specific aspect of the technical issue that turns on the requested information;
  • if requested by the applicant, providing applicants with written reasons for delay if the PBR has not issued after three months, including contact details for the relevant LBI segment leader, CoE Manager and Deputy Chief Tax Counsel;
  • where necessary, engaging recognised independent external subject specialists to supplement Tax Office capability to respond to large, complex PBRs; and
  • where requested by the PBR applicant, ensuring that the Case Manager provides the applicant with a free and quick flow of direct contact with those technical decision makers (whether in TCN, CoE or LBI) that determined, or are determining, the technical issues relating to the application.

ATO position

Implemented.

Evidence supporting the ATO position

5.39 Senior leaders in the Law and Practice business line have reinforced the key messages of ‘access to decision makers’ to the senior staff of the CoE, such as ensuring that CoE staff are available when requested by applicants of rulings to discuss the outcome or specific issues. In LBI the key messages have been presented to the IA network by the network leaders in late 2008. As the forum consists of LBI IA Directors, the messages are channelled down to IA staff.

5.40 The IA training package covers the five elements of this recommendation through the foundational and intermediate level training [referred to in paragraphs 5.9 and 5.10]. At the intermediate level training, the trainer provided attendees with copies of Recommendation 5 and 6.

5.41 Also the advice guidance material in ORCLA has been updated and practice statement PS LA 2008/3 has been issued. In regards to sub issue (2), paragraph 90 of PS LA 2008/3 now reads:

Generally, if additional information is necessary to make a private ruling it must be requested from the applicant. … provided that the Commissioner tells the applicant what the information is and that the Commissioner intends to take the information into account. The applicant must be given a reasonable opportunity (ordinarily 28 days) to comment on the use of that information before the ruling is made.

IGT Conclusion

5.42 The original IGT recommendation has five separate parts, each of which is commented on separately below.

Part i) — Implemented

5.43 Case testing, which included the obtaining of feedback from taxpayers and their advisers, demonstrated that the ATO complied with this part of the recommendation. However, in withdrawn PBR applications, the IGT was unable to conclude whether aspects of this recommendation (such as, explaining why the ATO view was preferred over the taxpayer’s, or providing an adequate opportunity to comment) were implemented. Feedback from applicants asserted dissatisfaction with the ATO’s conduct in this regard. This indicates to the IGT that although finalised unfavourable PBRs exhibit these ATO behaviours (and on this basis the IGT concludes that this part of the recommendation is implemented) there is room for the ATO to improve its processes by focussing on exhibiting these behaviours closer to the point in time at which it communicates its likely unfavourable view.

5.44 A review of the IA Intermediate training package revealed a reference to the first part of recommendation 5 and to the need for ATO officers to communicate with taxpayers where the issuing of an unfavourable ruling is being considered. Participants are also referred to the ATO business segment in PS LA 2008/3 which deals with tax officers engaging in informal discussions with taxpayers. Paragraphs 201 and 202 of the practice statement encourage officers to inform applicants of concerns which may lead to an unfavourable response.

5.45 Neither the IA training package or PS LA 2008/3 mentions the need to provide an explanation of why the Tax Office’s view is preferred over the applicant’s, or to indicate the relevance of information provided by the applicant. A review of PS LA 2008/3 confirmed that no change has been made to the practice statement to implement this aspect of the recommendation.

Part ii) — Implemented

5.46 An ATO internal review has recommended that a process be implemented that monitors and approves requests for further information from taxpayers, where the ruling request is more than two months old or where there have already been more than one or two requests for information issued.

5.47 Specific reference to, and discussion of, the requirements of this part of the recommendation regarding information requests has been included in the IA Intermediate training package. The Inspector-General notes that paragraph 2 of PS LA 2003/9 requires ATO technical decision making staff (including those that handle PBR applications) to follow the policies and procedures set down in ORCLA. The Tax Office has updated its ORCLA manual to reflect the requirements to explain why the information is relevant. The ATO has assured the IGT that inherent to this explanation is a communication of the technical issue which turns on the requested information. On this basis the IGT considers that the recommendation is implemented.

Part iii) — Implemented

5.48 In conducting the follow up review, the Inspector-General determined that a number of PBRs have taken more than three months to issue. However, the ATO advises that in none of these cases did the applicant ask for written reasons for the delay. This may be a result of applicants being unaware of this option.

5.49 The Inspector-General considers that although not essential to the implementation of this recommendation, that the Tax Office should alert applicants of this option — for example, by alerting applicants to this option in the acknowledgement letters that the Tax Office sends to PBR applicants.

Part iv) — Implemented

5.50 The requirement to engage independent external subject specialists has been highlighted in the IA Intermediate training package. Sample testing by the Inspector-General evidenced that independent external subject specialists had been appropriately engaged.

Part v) — Implemented

5.51 Direct reference to this part of the recommendation is made in the IA Intermediate training package to encourage effective communication with applicants. This commitment has also been referred to by the Commissioner in a number of speeches39:

We will re-emphasise that the responsibilities of our case managers include … arranging dialogue between the company and our decision makers on the case.

5.52 The IGT observed, in the unfavourable PBR cases that were reviewed, in almost all cases access was provided to PBR applicants where requested by the applicant or their representative. However, the IGT is aware of circumstances where applicants or their representatives feel this engagement could operate more effectively. On balance, the IGT concludes, based on the material reviewed, that this part of the recommendation is implemented where PBR applicants have made requests.

Recommendation 6

Ensuring that tax officials involved in interpretive matters are aware of the accepted principles of the purposive approach to statutory interpretation (including the accepted materials to ascertain that purpose) and that they should not rely on advice of what policy developers or legislative drafters intended.

ATO position

Implemented.

Evidence supporting the ATO position

5.53 This recommendation has been primarily addressed through the IA Intermediate training package [referred to in paragraph 5.10]. This training covers the need for Tax Office staff to communicate to taxpayers the policy intent used to interpret the law, provide full explanation of why this is the better view and the extrinsic material used to make this decision. At the intermediate level training, the trainer provided attendees with copies of Recommendations 5 and 6.

5.54 To further enhance staff knowledge of statutory interpretation, the trainer conducting the intermediate level training requested attendees to complete the existing Ilearn package (self-paced) on statutory interpretation, which covers the purposive approach to interpretation. Also, the Law and Practice business line is developing a more detailed statutory interpretation course that is planned to be rolled-out in 2010. A pre-requisite to the detailed statutory interpretation course will be the existing Ilearn package.

IGT conclusion — Implemented

5.55 The Tax Office response primarily relies on the IA Intermediate training package which was developed to provide attendees with a more in-depth understanding of the statutory framework of interpretative assistance work, the practices and procedures supporting that work, as well as officer’s roles and responsibilities. A review of the package reveals that attendees were made aware of the IGT recommendation and of a self-paced ILearn package Statutory Interpretation: An Introduction:

… which all IA officers should complete. 40

5.56 The Inspector-General considers that, one exception aside, the ILearn package should impart a well-rounded understanding of the accepted principles of statutory interpretation. This exception concerns the use of advice given by policy developers and legislative drafters in resolving interpretative matters.

5.57 The only reference in the ILearn package to ATO-Treasury interaction on interpretation matters appears on page 35 of that package:

Advice from Treasury to the Tax Office on the policy intent of a provision would not generally be considered extrinsic material for the purposes of the Acts Interpretation Act 1901. These policy advices should be used carefully when determining the legislative purpose of a provision. It will usually be best practice to use the same extrinsic materials as the Court would use.

5.58 Although the above instruction recognises that such advice is impermissible according to the rules of statutory interpretation, it also indicates to staff that there may be circumstances where they are able to use Treasury advice on the ‘policy intent’ of a provision as a basis for making an interpretative decision. This clearly does not align with discussion in the Inspector-General’s 2008 report at paragraphs 5.20 to 5.25 and 5.35 to 5.56 — as the IGT had specifically identified the treatment of policy advice in interpretative matters as one of the underlying causes of perceptions of revenue bias in PBRs.

5.59 In relation to whether the ATO has ensured that tax officials involved in interpretative matters are aware of these principles, the IA training package was designed primarily for case officers and authorising officers in the business lines, although:

… it should also be attended by staff from specialist areas, for example Centres of Expertise, Tax Counsel Network members, or Business Line specialists who will contribute to IA casework …41

5.60 However, the Tax Office response to the recommendation indicates that only LBI staff and SM&E staff attended. Staff from CoE and TCN are also involved in interpretative matters in the resolution of large complex matters, being the ATO’s senior technical officers. Given that TCN and CoE staff deal with statutory interpretation on a daily basis, the IGT would not expect that they be required to attend this level of training.

5.61 On this point the Tax Office assures the IGT that it has reinforced with its senior technical officers that the proper interpretation of the law is not determined by advice of what policy developers or legislative drafters intended in relation to interpretative matters. On this basis the IGT considers that the recommendation is implemented.

Recommendation 7

Clarifying, preferably in its interagency protocol, the Tax Office’s and Treasury’s expectations of the purpose and nature of their interactions on technical matters that relate to already enacted law. This clarification should include:

  • that PBRs should not be delayed because the technical issues relating to those PBRs are the subject of discussions with Treasury; and
  • that in relation to interpretive matters, the Tax Office may invite comments on the purpose or object of the legislative provisions in question, while recognising that any Treasury comments are not determinative.

ATO position

Implemented.

Evidence supporting the ATO position

5.62 The revised protocol was posted on the ATO’s website on 25 March 2008. The relevant section under the heading ‘For enacted law’ states that the Tax Office routinely consults with Treasury, the professions, affected taxpayers and the public in forming its view of the interpretation of the enacted law.

IGT Conclusion

5.63 The original IGT recommendation has two separate parts, each of which is commented on separately below.

Part i) — Implemented

5.64 The ATO has completed two revisions of the ATO-Treasury protocol since the Inspector-General’s report was released in February 2008. The ATO has not included a commitment that PBRs are not to be delayed because a technical issue relating to the particular PBR is the subject of discussions with Treasury. The ATO has indicated that the clarification was too detailed to incorporate into the ATO-Treasury protocol. This is because the ATO considers that protocol to be a high level document. However, the ATO has undertaken to incorporate the clarification into an internal corporate document within the immediate future.

5.65 The ATO also provided the IGT with examples of cases where the PBRs were issued before Treasury consultations had concluded on the technical issues. In line with the discussion in paragraph 5.46 to 5.50 of IGT’s 2008 report, the ATO has acted without awaiting Treasury’s final response in the cases viewed by the IGT.

Part ii) — Implemented

5.66 In relation to the second part of the recommendation, an appropriate revision has been made to the protocol.

Recommendation 8

Ensuring that the Tax Office follows the formal protocol processes in every case where it sees a need for dialogue with Treasury on potential implications of its view of the law. This would include providing a comprehensive administrative impact statement (including details on how it will administer the law if there is no law change).

ATO position

Implemented.

Evidence supporting the ATO position

5.67 This formal process has been in place since July 2007. All ATO minutes that suggest a law change must be cleared by the ATO’s Chief Tax Counsel before they are sent to Treasury. The ATO’s Governance and Government Relations (GGR) group ensures this happens because all minutes to Treasury must also be cleared by the First Assistant Commissioner GGR or the Assistant Commissioner Policy and Practice. Moreover, GGR controls the issue of minute numbers so that all minutes go through this central point.

IGT conclusion — Implemented

5.68 The Inspector-General sample-tested relevant ATO-Treasury formal communications, and in all cases ATO Minutes had been prepared in line with the recommendation.

Recommendation 9

Issuing PBRs irrespective of whether the matter involves consideration of a technical issue that is the subject of a developing or contemplated public ruling.

ATO position

Implemented.

Evidence supporting the ATO position

5.69 The message that private binding rulings should be issued, irrespective of whether a public ruling has been completed, has been reinforced by senior leaders in LBI and Law and Practice through the quarterly aged case call over processes. Also the network leaders of the LBI IA network discussed this recommendation with the IA Directors in meetings in late 2008. The presentation to the IA network ensures that this recommendation is channelled down to IA staff.

5.70 The IA foundation training package [referred to in paragraph 5.9] covers this recommendation through good case management. The subsequent IA Intermediate training package [referred to in paragraph 5.10] covers this recommendation in module (1) Roles and Responsibilities of an IA case officer/team leader.

IGT conclusion — Implemented

5.71 The Tax Office has verbally reinforced via the call over process and through presentations to senior IA staff that PBRs ‘should’ not be delayed because of a contemplated or developing public ruling. The IA Intermediate training package advises participants to ‘note’ the IGT recommendation. The Tax Office confirmed that the 2007 Foundation training package contained broad messages regarding good case management and officer responsibilities, but did not refer to the IGT recommendation. The IGT confirmed that there is no further communication or instruction to tax officers regarding the recommendation. Although, not essential to the implementation of this recommendation, the IGT considers that these messages to ATO staff should be reinforced through a binding staff instruction. In any event, the IGT has confirmed with the Tax Office that even where a technical issue is the subject of a developing or contemplated public ruling, a PBR involving the same issue will not be delayed because of this. Once the ATO precedential view on the issue is decided, the PBR will continue to be processed, independently of the public ruling. The IGT considers that this approach would appropriately implement the recommendation.

5.72 The Inspector-General sought to sample test cases in line with the recommendation but the Tax Office confirmed that there were no such cases. It is noted that the ATO’s own internal review conducted in 2009 indicates that, in 16 of 34 LBI PBRs not completed within the 90-day corporate timeframe, there were issues associated with unsettled or contentious areas of the law. However, the ATO assures the IGT that the analysis of those aged complex and difficult cases did not show those cases to have been delayed due to the development of a public ruling.

Recommendation 10

Reporting achievements against performance standards and elapsed timeframes of PBRs in Tax Office annual reports.

ATO position

Implemented.

Evidence supporting the ATO position

5.73 This recommendation was agreed to in part because while the Tax Office already reports achievements against performance standards, the question of elapsed time is not so clear. A private binding ruling requires a joint effort by the Tax Office and the taxpayer. Accordingly, the elapsed time from the date of application to the date of issue of the ruling is not a good measure of the Tax Office’s performance as some delays can be due to the taxpayer.

5.74 Where the ATO adopts the principles of the Priority PBR process, it engages with the taxpayer when the arrangement is being developed. Much of the work in these cases is done before the ruling is lodged and the time elapsed from the date of lodgement is largely an irrelevant measure.

5.75 Therefore, to the extent agreed, this recommendation has been implemented and no further action is required.

IGT conclusion — Implemented

5.76 The Tax Office agreed in part to the Inspector-General’s recommendation by stating that reporting on elapsed time can be skewed because of delays due to taxpayers. Just a few months following the Inspector-General’s 2008 report, the Joint

Committee of Public Accounts and Audit (JCPAA) tabled42 a report that included two recommendations relating to the subject matter of the Inspector-General’s Recommendation 10. One of the JCPAA’s recommendations was that the ATO publish the elapsed timeframes for large business PBRs in the Commissioner’s annual reports. Both JCPAA recommendations were implemented by the Tax Office in its 2007-08 Annual Report.

5.77 Therefore, although the Tax Office stated that it would only partially implement the Inspector-General’s recommendation, it did fully implement it following the JCPAA’s reiteration of this recommended action.


33 Review of the potential revenue bias in private binding rulings involving large complex matters, Inspector-General of Taxation, February 2008.

34 ORCLA is a ‘virtual’ manual of policies, procedures and other instructions for staff who make technical decisions in respect of laws administered by the Commissioner of Taxation.

35 Federal Parliament’s Joint Committee of Public Accounts and Audit Biannual hearing with Commissioner of Taxation, 30 April 2008, Sydney, Proof Committee Hansard, pages 17 – 23.

36 This recommendation was implemented only to the extent that the ATO agreed with the original recommendation.

37 See paragraphs 198 and 201.

38 The ATO has advised that the average timeframe to complete a large business PBR in 2003/04 to 2004/05 was 174 days, while the average timeframe to complete a large business PBR in the first 8 months of 2009/10 is around 130 days. It also states that the total average timeframe for the year is expected to decline due to the declining average timeframes for large business PBRs currently in progress — around 80 days as at end of February 2010.

39 D’Ascenzo M, A New Dimension, speech to the Corporate Tax Association Convention, Sydney, 12 May 2008

40 Interpretative Assistance Framework, Case Management & Procedures (Tax Office training package – version 01/2009 – p.5).

41 Interpretative Assistance Framework, Case Management & Procedures (Tax Office training package -version 01/2009 – p.1).

42 Report 410 – Tax Administration – tabled by the JCPAA on 26 June 2008.