Annual Compliance Arrangements with Large Corporate Taxpayers
Administration of ACAs (Chapter 4)
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| Administration of ACAs (Chapter 4) 30. An ACA is the basis for the relationship between the ATO and the ACA holder. As such, the activities undertaken and the terms of the ACA are intended to be flexible and able to be tailored to the individual circumstances of the ACA holder and the complexity of the tax issues. Nonetheless, there is a need for the ATO to closely monitor differences across ACAs, especially in the terms established during the negotiation phase. The ANAO’s review of all 24 ACAs in place as at July 2014 identified variability across ACAs and that the reasons for this variability were not always clear. Although the ACA Oversight Committee now reviews the terms of each new or renewed ACA, there is scope for greater consistency and improved monitoring and management of ACAs. 31. ACA guidance requires that an ACA taxpayer has sound governance and tax risk management arrangements and works with the ATO in an open 21 However, ACA holders include a number of the largest Australian corporate taxpayers, and as at 30 June 2014, ACA holders held 28 percent of assets of all entities in the ATO’s large market for income tax. 22 The ATO has not yet clarified whether to target ACAs to those taxpayers whose compliance behaviours can be improved or to reward those with stronger records of disclosure and compliance. It has also not clarified how to refine ACAs overtime for taxpayers demonstrating a strong record of disclosure and compliance over a number of years. ANAO Report No 2014–15 Annual Compliance Arrangements with Large Corporate Taxpayers 20 and collaborative way, including through disclosure and ongoing dialogue about material tax risk. 23 In assessing taxpayers governance and tax risk management arrangements, the ATO has differing approaches for the main tax types. The ATO advised that, given GST is a transaction based tax, having effective systems in place is more important for GST compliance than for income tax and fringe benefits tax (FBT) compliance, where compliance issues are usually the result of differing interpretations of the law by the taxpayer and the ATO. As such, the ATO is more reliant on the governance and systems of GST taxpayers and validates the governance and tax risk management arrangements of GST ACA holders annually. In contrast, it will accept written assurance from income tax and FBT ACA taxpayers as confirmation of sound governance and tax risk management. The ATO views these assurances as indications of whether significant tax issues are being considered and approved at appropriate levels in the organisation, and subject to proper review. Nevertheless, the ATO has not always followed this approach, and there is scope for the ACA Oversight Committee to more closely monitor and better align the administration of individual ACAs across business and service lines. 32. During the course of the year, many taxpayers have disclosed tax risks. The ATO advised of 41 income tax disclosures in 2013‒14 involving transactions valued at approximately $13.7 billion. However, it was not possible for the ANAO to readily confirm these transactions from the ATO’s records, or to ascertain the ATO’s response to the disclosures in many instances. Nevertheless, it was evident that ACA taxpayers have frequently used the ATO’s interpretative assistance area to resolve areas of contention— the ATO advising that 167 private rulings 25 were sought by these taxpayers over the past three years. The extent of these disclosures and rulings indicates that ACAs have been useful in identifying and treating tax risks for participating taxpayers, albeit not always in real time as ruling processes can be lengthy. 23 ATO, Large Business Annual Compliance Arrangements process map, available from < https://www.ato.gov.au/Business/Large-business/In-detail/Compliance-and-governance/Annual- Compliance-Arrangements/ > accessed 7 June 2014]. 24 For example one income tax ACA holder was only required to provide a governance letter before entering into the ACA and was not required to report changes to these arrangements each subsequent year of the ACA. Two GST ACA holders had a choice of providing a letter on an annual basis or having governance reviewed as part of their annual reviews. 25 A private ruling is binding advice that sets out how a tax law applies to you in relation to a specific scheme or circumstance. ANAO Report No 2014–15 Annual Compliance Arrangements with Large Corporate Taxpayers 20 and collaborative way, including through disclosure and ongoing dialogue about material tax risk. 23 In assessing taxpayers governance and tax risk management arrangements, the ATO has differing approaches for the main tax types. The ATO advised that, given GST is a transaction based tax, having effective systems in place is more important for GST compliance than for income tax and fringe benefits tax (FBT) compliance, where compliance issues are usually the result of differing interpretations of the law by the taxpayer and the ATO. As such, the ATO is more reliant on the governance and systems of GST taxpayers and validates the governance and tax risk management arrangements of GST ACA holders annually. In contrast, it will accept written assurance from income tax and FBT ACA taxpayers as confirmation of sound governance and tax risk management. The ATO views these assurances as indications of whether significant tax issues are being considered and approved at appropriate levels in the organisation, and subject to proper review. Nevertheless, the ATO has not always followed this approach, and there is scope for the ACA Oversight Committee to more closely monitor and better align the administration of individual ACAs across business and service lines. 32. During the course of the year, many taxpayers have disclosed tax risks. The ATO advised of 41 income tax disclosures in 2013‒14 involving transactions valued at approximately $13.7 billion. However, it was not possible for the ANAO to readily confirm these transactions from the ATO’s records, or to ascertain the ATO’s response to the disclosures in many instances. Nevertheless, it was evident that ACA taxpayers have frequently used the ATO’s interpretative assistance area to resolve areas of contention— the ATO advising that 167 private rulings 25 were sought by these taxpayers over the past three years. The extent of these disclosures and rulings indicates that ACAs have been useful in identifying and treating tax risks for participating taxpayers, albeit not always in real time as ruling processes can be lengthy. 23 ATO, Large Business Annual Compliance Arrangements process map, available from < https://www.ato.gov.au/Business/Large-business/In-detail/Compliance-and-governance/Annual- Compliance-Arrangements/ > accessed 7 June 2014]. 24 For example one income tax ACA holder was only required to provide a governance letter before entering into the ACA and was not required to report changes to these arrangements each subsequent year of the ACA. Two GST ACA holders had a choice of providing a letter on an annual basis or having governance reviewed as part of their annual reviews. 25 A private ruling is binding advice that sets out how a tax law applies to you in relation to a specific scheme or circumstance. Summary ANAO Report No 2014–15 Annual Compliance Arrangements with Large Corporate Taxpayers 21 33. The ACA annual review is the opportunity for the ATO and the ACA taxpayer to discuss major transactions and business events from the year, with a view to signing off those considered to below risk by the ATO and developing mitigation strategies for those considered to be high risk. ANAO analysis of the annual review showed some variability across teams and business and service lines. For example, although all reviews considered risks, the three income tax review reports were most effective in considering the broader operation of the ACA. These reviews considered interactions with the taxpayer and other ATO activities such as compliance activity and private binding rulings. In two cases the steering committee responsible for the individual ACA did not meet to sign off the review year, only meeting if there was a dispute between the ATO and the taxpayer. In addition, the membership of the working group and the steering committee for one ACA taxpayer was the same, which essentially meant that the steering committee was endorsing its own work. 34. As indicated above, the ATO does not retain information related to disclosures in a consistent manner. Key ACA documents (including disclosures) are not consistently managed in accordance with the ATO’s policy, and stored on the enterprise wide case management system. Rather, these documents can be in a variety of locations, making it difficult in some instances to view a full history of the ACA with the taxpayer. For three taxpayers, the ATO was notable to locate all documents relating to their ACAs. 35. An analysis of the time taken to complete the various stages of the ACA process also shows that the ATO is often not meeting its own timeliness targets. There would be benefits in including ACA cases in the ATO’s enterprise wide quality assurance processor alternatively undertaking quality assurance at the business and service line level. Download 1.48 Mb. Share with your friends:
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