Annual Compliance Arrangements with Large Corporate Taxpayers

ANAO Report No 2014–15 Annual Compliance Arrangements with Large Corporate Taxpayers
58
3.8
While the RDF has been in place since 2008, it has only been at the forefront of the ATO’s large market compliance strategy since 2011 when, to improve transparency about compliance activities, taxpayers were first informed of their RDF risk profile across the three tax types.
Of particular importance, is that the ATO began targeting ACAs towards key taxpayers in
2011.
Conducting the RDF process
3.9
Between July and November each year, the ATO conducts the RDF process to risk rate large corporate taxpayers. Unlike the RDF for tax segments with larger population groups, such as high wealth individuals, the RDF for large corporate taxpayers does not use highly automated processes involving algorithms and scoring systems to initially categorise taxpayers.
77
Rather it relies on largely manual processes, with most attention given to higher consequence taxpayers.
3.10 On this basis, the RDF process begins with the ATO’s consideration of the consequences of a taxpayer’s noncompliance. This is determined differently for each tax type. For example, for income tax consequence is generally determined by the taxpayer’s turnover, and factors such as tax paid, asset value and market share are also considered.
78
As a result, the taxpayer is allocated to a higher consequence or a lower consequence classification. A higher consequence taxpayer can either be a key taxpayer or a higher risk taxpayer (the two highest quadrants of the RDF), depending on their likelihood of noncompliance. Similarly, lower consequence taxpayers can either be lower risk or medium risk, depending on their likelihood of noncompliance.
3.11 The ATO then assesses for higher consequence taxpayers their likelihood of noncompliance. In 2014–15 this involves using a large market profiling tool and analysing available information about these taxpayers, their
77 In applying the RDF to high wealth taxpayers, the ATO uses an extensive automated process, as discussed in ANAO Report No 2013–14, Managing Compliance of High Wealth Individuals, p. 47.
78 The ATO advised that while the initial assessment is mainly based on consequence, other factors are also considered, because it has sufficient understanding of the population of large corporate taxpayers. In considering taxpayer’s consequence of noncompliance, the RDF team analyses the various consequence factors (such as market share, ability to affect the tax compliance of competitors in the industry, annual turnover, taxes paid, assets, amounts reported on activity statements, and amounts reported for excise obligations, which have been sourced from the ATO’s data warehouse.

ANAO Report No 2014–15 Annual Compliance Arrangements with Large Corporate Taxpayers
58
3.8
While the RDF has been in place since 2008, it has only been at the forefront of the ATO’s large market compliance strategy since 2011 when, to improve transparency about compliance activities, taxpayers were first informed of their RDF risk profile across the three tax types.
Of particular importance, is that the ATO began targeting ACAs towards key taxpayers in
2011.
Conducting the RDF process
3.9
Between July and November each year, the ATO conducts the RDF process to risk rate large corporate taxpayers. Unlike the RDF for tax segments with larger population groups, such as high wealth individuals, the RDF for large corporate taxpayers does not use highly automated processes involving algorithms and scoring systems to initially categorise taxpayers.
77
Rather it relies on largely manual processes, with most attention given to higher consequence taxpayers.
3.10 On this basis, the RDF process begins with the ATO’s consideration of the consequences of a taxpayer’s noncompliance. This is determined differently for each tax type. For example, for income tax consequence is generally determined by the taxpayer’s turnover, and factors such as tax paid, asset value and market share are also considered.
78
As a result, the taxpayer is allocated to a higher consequence or a lower consequence classification. A higher consequence taxpayer can either be a key taxpayer or a higher risk taxpayer (the two highest quadrants of the RDF), depending on their likelihood of noncompliance. Similarly, lower consequence taxpayers can either be lower risk or medium risk, depending on their likelihood of noncompliance.
3.11 The ATO then assesses for higher consequence taxpayers their likelihood of noncompliance. In 2014–15 this involves using a large market profiling tool and analysing available information about these taxpayers, their
77 In applying the RDF to high wealth taxpayers, the ATO uses an extensive automated process, as discussed in ANAO Report No 2013–14, Managing Compliance of High Wealth Individuals, p. 47.
78 The ATO advised that while the initial assessment is mainly based on consequence, other factors are also considered, because it has sufficient understanding of the population of large corporate taxpayers. In considering taxpayer’s consequence of noncompliance, the RDF team analyses the various consequence factors (such as market share, ability to affect the tax compliance of competitors in the industry, annual turnover, taxes paid, assets, amounts reported on activity statements, and amounts reported for excise obligations, which have been sourced from the ATO’s data warehouse. Positioning of ACAs within the ATO’s Compliance Framework
ANAO Report No 2014–15 Annual Compliance Arrangements with Large Corporate Taxpayers
59 operating environment and potential tax risks.
79
Compliance staff make an informed judgement as to the initial risk rating and the relevant risk category of the taxpayer in the RDF. If the taxpayer’s RDF rating changes from the previous year, he or she will be advised. Taking into account any response from the taxpayer, the compliance officer will then complete the RDF moderation report recommending a final RDF risk category for the taxpayer for the year.
3.12 For income tax (PG&I), PRRT (PG&I) and GST (ITX), an RDF Moderation Panel, comprised of Senior ATO Executives, reviews the appropriateness of the classification of each higher risk and key taxpayer.
80
This process involves reviewing each taxpayer’s moderation report, as well requesting additional taxpayer assurance information when needed. The PG&I
2013–14 income tax moderation outcomes for higher consequence taxpayers resulted in a reduction in the number of taxpayers rated as higher risk and key. The difference between the population for 2012–13 and 2013–14 was attributed to some corporate restructuring and a number of taxpayers transitioning from higher consequence to lower consequence due to their metrics (tax payable, turnover and gross assets) falling below the thresholds applied to the higher consequence portion of the RDF model.
RDF risk classification
3.13 The number of large corporate taxpayers in each category, from
2011–12 to 2013–14, is shown in Table 3.1 and demonstrates the potential for many additional taxpayers to have entered into ACAs. For example, only 24 of
158 key taxpayers (15 percent) had an ACA as at July 2014.
81 The profiling tool used is a database accessed from one of the ATO’s SharePoint sites that draws information from the data warehouse and case management system about the taxpayer, their taxation details and the results of any compliance activity, respectively. Officers may also manually add relevant information. Key factors considered in assessing likelihood include the taxpayer’s compliance history, effective tax rate, organisational structures and governance processes.
80 In ITX, the panel considers a RDF Moderation Report covering the main likelihood and consequence data, and other qualitative information provided by client relationship managers.
81 It also shows the small number and rapid decline in large corporate taxpayers rated as higher risk, from 14 into only three in 2013–14.

ANAO Report No 2014–15 Annual Compliance Arrangements with Large Corporate Taxpayers
60

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