The ATO handles most disputes satisfactorily; however some disputes go off the rails, according to a report entitled Tax Disputes, tabled on 26 March 2015 by the Australian Parliament House of Representatives Standing Committee on Tax and Revenue.
The committee inquiry found that some disputes can go awry because of the ATO’s strong powers, the fact that the ATO does not engage with taxpayers, and that the ATO’s investigators and reviewers, for the great majority of disputes, are located in the compliance area of the ATO. The committee Chair said poorly managed disputes had severe consequences for taxpayers.
The report makes 20 recommendations.
Performance measurement and reporting
Recommendation 1: The Committee recommends that the ATO review its performance reporting measures and:
- develop a measureable key performance indicator of taxpayer perceptions of fairness in tax disputes
- that this key performance indicator be monitored and reviewed by the ATO executive on a regular basis (at least half-yearly), and
- that the outcomes against such a key performance indicator be reported in the ATO Annual Report.
The legal framework
Recommendation 2: The Committee recommends that the Government amend the tax laws and the ATO consider other administrative means by which interest charges would not act as leverage against a taxpayer during a tax dispute.
Recommendation 3: The Committee recommends that the ATO amend its internal and external guidance so that it remits interest where:
- the ATO takes longer than the 60 days available to it to finalise an objection and the taxpayer has acted in good faith, and
- the ATO changes arguments after assessments have been made (such as during an objection or litigation).
Recommendation 4: The Committee recommends that the ATO amend its internal guidance so that findings or suspicion of fraud or evasion can only be made by an officer from the Senior Executive Service.
Recommendation 5: The Committee recommends that the ATO only make allegations of fraud against taxpayers when evidence of fraud clearly exists.
Recommendation 6: The Committee recommends the ATO should ensure that allegations of fraud or evasion are addressed as soon as practicable in an audit or review.
Recommendation 7: The Committee recommends that the Government introduce legislation to place the burden of proof on the ATO in relation to allegations of fraud and evasion after a certain period has elapsed. The change should be harmonised with the record keeping requirements. These periods could be extended, subject to concerns of regulatory costs on business and individuals.
Recommendation 8: The Committee recommends that the Government introduce legislation to require judicial approval for the Commissioner of Taxation to issue a departure prohibition order.
Recommendation 9: The Committee recommends the ATO better engage with taxpayers prior to litigation so that they are aware of what the model litigant rules require, and do not require, of the ATO.
Recommendation 10: The Committee recommends the ATO approach the Australian Government Solicitor to determine if they can provide advice and assistance to the ATO in terms of best practice in complying with the model litigant rules.
Recommendation 11: The Committee recommends that the Government review the Small Taxation Claims Tribunal and determine whether it should continue. If so, there should be a one-off increase to the $5,000 limit to take account of inflation since 1997 and a system introduced so the threshold increases incrementally in future to keep pace with inflation.
Readiness to engage
Recommendation 12: The Committee recommends that the ATO implement recommendation 3.5.2 from the Inspector-General’s report on alternative dispute resolution for all taxpayers (ie considering whether to engage in direct conferences with taxpayers at multiple points in a dispute).
Recommendation 13: The Committee recommends that the ATO give more consideration to taxpayers when making information requests, with priority given to:
- setting timeframes in practice statements, with a minimum of 28 days for all requests
- giving taxpayers the opportunity to seek an extended timeframe upon receipt of a request, and
- giving reasons for an information request, typically based on a risk hypothesis.
Recommendation 14: The Committee recommends the ATO introduce a triage system for disputes so that, early in a dispute, matters can be escalated to ATO staff sufficiently senior or with the appropriate technical skills to resolve the dispute quickly and effectively. Such decisions should consider taxpayer fairness, among other criteria.
Other administrative matters
Recommendation 15: The Committee recommends that, as much as practicable, the ATO should give taxpayers written notice of issues and topics to be raised in s 264 interviews.
Recommendation 16: The Committee recommends that the ATO invite the Commonwealth Ombudsman to advise on improving its compensation processes, including compensation liability and amounts.
The governance framework
Recommendation 17: The Committee recommends that the ATO ensure that the information passed between an auditor and an objection officer surrounding a dispute only consist of the factual case documents, and the audit conclusion provided to the taxpayer. Any internal auditor commentary on the dispute should remain with the audit team.
Recommendation 18: The Committee recommends that the ATO develop protocols to ensure that an individual Tax Counsel Network officer only be allowed to provide advice or contribute to the provision of advice at the audit or objection stage of a dispute.
Recommendation 19: The Committee recommends that the ATO establish a separate Appeals area:
- under the leadership of a new Second Commissioner — Appeals to carry out the objection and litigation function for all cases
- establish and publicly articulate clear protocols regarding communication between Appeal officers and compliance officers, including a general prohibition against ex parte communication, save where all parties are informed of, and consent to, such communication taking place, and
- empower the appeals function to independently assess and determine whether matters should be settled, litigated or otherwise resolved (for example, Alternative Dispute Resolution).
Recommendation 20: The Committee recommends that the Government establish a new position of Second Commissioner - Appeals, reporting to the Commissioner of Taxation to head up the new Appeals area within the ATO.
The full text of the report is available here.