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Auditors Praise Australian Tax Agency On Dispute Resolution

by Mary Swire, Tax-News.com, Hong Kong

20 December 2017


The Australian Taxation Office's (ATO's) use of settlements for the resolution of taxpayer disputes is effective, according to a new report by the Australian National Audit Office (ANAO).

A settlement is an agreement between the ATO and a taxpayer to resolve matters in a dispute, where one or both parties make concessions on what they consider to be the legally correct position. The ATO has a Code of Settlement that sets out its policy in this area.

The ANAO considered whether the ATO enters into, negotiates, and follows up on settlements in accordance with its policies and procedures. It also examined whether the ATO has adequate internal guidance and public reporting for settlements.

The ANAO concluded that the ATO effectively uses settlements to resolve disputes and has made many improvements to its approach to settlements in recent years. The ANAO noted that the ATO has refreshed its Code of Settlement and has introduced an Independent Assurance of Settlement (IAS) process to ensure that settlements with large businesses and multinational companies are fair and reasonable.

The ANAO also deemed that settlements have been entered into, negotiated, and followed up largely in line with the ATO's settlement policies and procedures. In addition, it said that the ATO has comprehensive policies and procedures to provide guidance to its officers – although there is room for improvements in terms of retaining adequate settlement case records in the ATO's case management system.

The ATO is reviewing and updating its online information to make it more streamlined and integrated. The ANAO said that the ATO could provide additional guidance on: principles for determining the terms and amounts of settlement; conflicts of interest; widely-based settlements; and verifying that client account records reflect terms of settlement.

The ANAO also concluded that the ATO provides sufficient transparency around settlements in its public reporting. It said that, compared to other national revenue authorities, the ATO provided the highest level of public reporting around its settlement activities.

In 2016-17, the ATO concluded 648 settlements, with 89 percent of settlements occurring in the pre-litigation stage. Settlement cases for the year had a pre-settlement value of AUD4.6bn (USD3.5bn), with the settled amount being AUD2.7bn. The "settlement variance" – the difference between the ATO's pre-settlement and settled positions, and thus the amount of revenue potentially foregone – was 41 percent.

Responding to the report, ATO Deputy Commissioner Debbie Hastings said: "The ATO does not settle disputes at any cost. The sensible use of settlements is part of our increasing commitment to earlier and more effective dispute resolution, with a focus on ensuring [the] future compliance of the taxpayer."

"We believe this assurance process strikes the right balance between the importance of maintaining confidentiality of taxpayer information and the community's interest in the integrity of the tax system, including the appropriateness of settlements," Hastings said.

TAGS: compliance | tax | business | tax compliance | revenue guidance | Australia | tax authority | revenue statistics

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