On 22 April, the Senate Economics References Inquiry released Part II of its report on Corporate Tax Avoidance, ‘Gaming the System’. The Committee’s second interim report highlights increasing concern with the conduct of multinational companies that it considers to be ‘gaming the system’ through lack of transparency of their corporate tax structures and their unwillingness to be forthcoming with that information not only to the Inquiry but also to the Commissioner of Taxation.

Last week, Chris Jordan and his Deputy Commissioners made it abundantly clear to the Inquiry, that where they are being ‘stooged’ or ‘gamed’ by large corporate taxpayers during the review or audit process, the ATO will harden its approach and quicken the assessment process rather than continue its focus on resolving disputes. He indicated there are a number of large business audits in the short to medium term pipeline in which assessments are expected to issue on the basis of his best estimate. In the Commissioner’s own words: ‘This is our best estimate. You now prove us wrong.’

In addition the Commissioner also indicated that he will shift to having larger more strategic cases move quickly to litigation and work with the Federal Court of Australia to fast track the determination of the cases by the Court.

The Commissioner must be seen to be taking immediate and decisive action.

Delay or perceived lack of cooperation to provide information requested by the Commissioner will no longer be tolerated or be a viable tactic to defer an assessment.

Where all information is not forthcoming in a timely manner the ATO has the ability to use its existing powers earlier, and apply them more broadly. In particular, the ATO has the ability to do any one (or all) of the following:

  • Compel the provision of information and documents from Australian companies.
  • Compel the provision of offshore information to be provided by the parent company and impose an evidentiary penalty should that information that is not produced in response to the request be identified later.
  • Attend premises and seize documents without notice.
  • Compel key company individuals to give evidence under oath.
  • Compel the provision of information from third parties which the company deals with.
  • Issue assessments based on best available evidence.
  • Issue assessments for an income tax year not yet complete and without any notice (and then immediately freeze the assets of that taxpayer or any entity that owes money to that taxpayer and immediately move to seize the assets).
  • Prevent individuals from leaving the country.
  • Initiate recovery proceedings of the amount assessed even though an appeal has been lodged.

In giving his evidence to the Senate Inquiry, the Commissioner has also made it clear that he has lost patience with ‘reckless’ claims of legal professional privilege to prevent disclosure of information and court challenges that are prolonged, drawn out and expensive.

Key steps to prepare now for future ATO audits and disputes

  1. Objectively assess and identify your tax risks and be ready to produce all relevant documents to clearly demonstrate facts and evidence of your facts to support your tax positions. The facts and evidence should also be directed to what is required by the relevant legislation.
  2. Engage proactively and meaningfully with the ATO so that you understand what risks the ATO has identified, where in the lifecycle of an investigation you are and the precise nature of the information the ATO is seeking in order to prevent escalation of the dispute. Taxpayers need to be aware of their obligations particularly their burden of proof. Missteps in this area could easily result in the Commissioner utilizing compulsive powers or moving straight to amended assessment.
  3. When raising an assessment, the ATO does not have to be correct in the tax imposed in the assessment. The burden of proof imposed on taxpayers is onerous and, while very few disputes result in litigation, the ATO is well aware that it is a taxpayer’s job to convince a court that an assessment is excessive. Therefore, demonstrating as early as possible that you can prove your position with evidence will minimise the risk of adverse amended assessments.