The Commissioner of Taxation (Commissioner) has released an updated version of practice statement PS LA 2004/14: Access to 'corporate board documents on tax compliance risk'. The practice statement (also referred to as ‘the board advice concession’) details the circumstances whereby advice prepared for a corporate board on tax compliance risk will remain in confidence and not be sought by the Commissioner via the use of his wide ranging legislative powers. The updated PSLA was the result of an extensive consultative process involving representatives of the Big 4 accounting firms and the Corporate Tax Association (CTA).
It is important that corporate taxpayers be aware of the revised scope of the concession available and manage communications with and by their boards accordingly.
Whilst retaining many aspects of the prior concession, the revised practice statement expands the scope of the advice to which the concession may apply. As a result, a broader range of information may now potentially be restricted from access. This is a conscious decision on the part of the Commissioner and in line with his broader agenda of encouraging a greater degree of candid discussions between corporate tax functions and their boards on matters of tax compliance risk.
However, the Commissioner has limited the scope of the board advice concession to only those companies that can ably demonstrate they have appropriate risk management and governance of frameworks in place that includes tax. The Commissioner’s expectations as to what will, and what will not demonstrate an appropriate framework for this purpose is not detailed within the practice statement itself. It remains to be seen whether the documentation of frameworks is sufficient or whether the ATO will rather require evidence that the frameworks are being followed in practice.
As part of its role in ongoing consultation with the Australian Taxation Office (ATO) in relation to the practice statement and related matters, PwC will be seeking further clarity in relation to this and other aspects of the revised concession. Taxpayers should note that, going forward, the ATO’s focus on the effectiveness of corporate controls and governance is likely to be of direct consequence to the degree and frequency of compliance activities they face as well as impacting other aspects of ATO interaction; including the availability of administrative concessions.
What is the board advice concession and how has it changed?
The board advice concession is an administrative procedure that restricts advice prepared for a corporate board on tax compliance risk from being accessible to the Commissioner.
The ATO recognises the importance of corporate boards being fully aware of the implications of escalated risks and acknowledges the benefit of informed advice in this process. In this respect, the board advice concession intends to strike a balance between facilitating rigorous governance of tax compliance risk whilst ensuring the ATO can obtain access to the information it deems necessary to perform its active compliance activities.
In response to increasing instances of ATO officers requesting board and other documents on tax risk management and perceived shortcomings in the existing regime, the ATO has acted to clarify the practice statement to reflect the following amendments to the concession available:
- Advice rather than “documents”
The concession now applies to information within a document where that information has been created by an advisor for the sole purpose of providing advice in relation to tax compliance risk.
Under its refined scope the concession will no longer apply to an entire document to the extent parts do not satisfy the established criteria. If a document has several purposes, the Commissioner accepts that appropriate sections may be redacted.
- Broadened meaning of “advice on tax compliance risk”
The ATO has also further clarified the type of advice that will be considered to encapsulate matters of tax compliance risk. Specifically, the concession will now apply to advice or opinion regarding the following:
- the potential impact of tax compliance risk on major transactions, arrangements and processes;
- whether the ATO or a judicial authority may take contrary view to that taken by the relevant taxpayer; and
- the available courses of action for taxpayers to more effectively manage associated risk on matters of tax compliance.
- Board minutes
Minutes of meetings of the Board can be redacted so that the part of the minutes evidencing discussions by the Board in relation to tax compliance risk advice and requests for advice relating to such risks can be subject to a claim for the revised concession.
- Tax risk registers
Purpose prepared ‘tax risk’ registers are also now covered under the revised concession. This expansion, which has been the subject of much conjecture, will further encourage taxpayers to collate and centrally record material tax compliance risks.
The protection afforded will only apply to those sections of the risk register that are considered to “directly concern” tax risks. This remains an aspect of the concession on which further clarification may be required.
- Who can advise the board?
The ATO has also now specified that, for the purpose of the concession, eligible “advisors” may be either in-house or external, but must be suitably qualified in either case. The addition of advice generated ‘in-house’ again represents an expansion to the previous concession.
- Decision-making process on the concession
The ATO has also more clearly outlined the process for a taxpayer seeking, and the time limit for the Commissioner deciding upon, the availability of the concession where a request for documents has been made. The process outlined details that different escalation points are available for taxpayers to pursue where disputes arise regarding the scope of the concession.
Finally, it is important to note that the revised practice statement has retained its general carve out whereby the Commissioner may ‘lift’ the concession where he considers there to be “exceptional circumstances”.
These “exceptional circumstances” are specified to include:
- where a taxpayer is not cooperating in an ATO review or audit in a timely and complete manner;
- where a taxpayer has not adequately provided documentation to sufficiently establish the purpose for which a transaction was carried out;
- where a taxpayer has a history of serious non-compliance;
- where the Commissioner has reasonable grounds for believing that an anti-avoidance provision (general or specific) may apply; and
- where the taxpayer has a demonstrated history of aggressive tax positions.
Grounds (d) and (e) are new exceptions to permit the lifting of the concession and reflect the ATO’s stern approach to serious taxpayer non-compliance.
What does this mean for taxpayers?
The expanded regime under the revised practice statement is, by and large, a welcome move in providing greater clarity for taxpayers seeking effective communication with their boards on matters of tax compliance risk.
Taxpayers should however be aware that in the absence of demonstrating sufficient governance policies and frameworks are in place, the concession will not apply to prevent material information from being accessed by the Commissioner.
Whilst the improvements to the concession are welcome, taxpayers should be mindful that there may be instances where it might be in their interest to provide a document otherwise covered by the concession. In some cases this could save the company considerable time and resources in the course of an ATO enquiry.