Overview
On 3 September 2021 the ATO published its Tax Avoidance Taskforce (Taskforce) Highlights for 2020-2021 (the Report).
The Report, published annually, serves two purposes. Firstly, it provides an overview in respect of the activities of the Taskforce for the past year. Secondly, it sounds a warning about what (and who) will be the focus of the ATO’s attention for the year to come.
The Report emphasises that the ATO has increasingly sophisticated data and analytics capability and will be leveraging the insights gleaned from its data and analytics to detect tax risk and also shape how it promotes voluntary compliance.
The Report also indicates that promoters of tax avoidance schemes are squarely in the ATO’s sights and that the ATO will continue to challenge taxpayers who seek to withhold information based on what the ATO consider to be baseless claims for legal professional privilege (LPP).
Focus for 2021- 2022
The Taskforce’s focus for 2021-22 will continue to be on specialist large market advisors who the ATO considers promote and run tax avoidance schemes, and engage in uncooperative, misleading and obstructive behaviour. It follows that taxpayers contemplating an arrangement that could arguably fall within the ATO’s definition of “aggressive tax avoidance”, or who are concerned about the advice received (ie if it seems too-good-to-be-true), it is recommended to seek independent advice.
Conversely, taxpayers should also be reminded that where arrangements do not constitute avoidance; it is critical to prepare and gather compelling evidence to demonstrate this fact.
Background
The Taskforce was assembled in 2016 with a guiding principle to maintain the integrity of the tax system by detecting, investigating and challenging what the ATO considers are “the most aggressive tax avoidance arrangements”.
The ATO considers the Taskforce to be an overwhelming success referencing the fact that since inception the Taskforce has raised $22.9 billion in liabilities against public groups, multinationals, wealthy individuals and associated private groups (including trusts and promoters).Of those amounts, the Report indicates that the ATO has collected over $15.9 billion. Whilst the Report has not identified the quantum of liabilities that taxpayers may be in the process of contesting; it is clear from the numbers, that the Taskforce has uncovered a significant volume of arrangements which it considers fall within aggressive tax avoidance.
Set out below are the statistics and specific flags for each group of taxpayers as well as some other insights from the Taskforce Report.
Tax liabilities raised so far
By reference to specific taxpayer groups (‘public groups and multinationals’ and ‘private owned and wealthy groups’); the Taskforce has raised the following tax liabilities since its inception:
| Private owned and wealthy groups (including trusts and promoters) | Public groups and multinationals | |
|---|---|---|
| 2016-17 | $1.1 billion | $4.1 billion |
| 2017-18 | $1.8 billion | $3.0 billion |
| 2018-19 | $1.4 billion | $2.0 billion |
| 2019-20 | $1.8 billion | $2.5 billion |
| 2020-21 | $1.5 billion | $3.0 billion |
Highlights for Financial Year ended 30 June 2021
Top 500 and next 5,000 – private owned and wealthy groups
The ATO has engaged with over 468 of the ‘Top 500’ taxpayers and their associated entities. As a result of this, the Report records having raised $308.1 million in liabilities and collected $113.6 million in cash (with tax assured over $1 billion in tax paid).
The ATO has engaged with 910 taxpayers and their associated entities as part of its ‘Next 5,000’ program. From this, it has raised $223.6 million in liabilities and collected $184.2 million.
The ATO has flagged that they will continue to engage with the Top 500 and Next 5,000 taxpayers through their various compliance products.
The Taskforce will also use its “growing data holdings” to identify and treat tax avoidance behaviours but also assist the ATO in proactively improving system design within this market sector.
Top 1,000 – large public groups
The ATO engaged with over 930 of the ‘Top 1,000’ large public groups under the tax performance program. As a result of this sector’s program; the Report notes having received voluntary disclosures from taxpayers worth $125.1 million and tax loss reductions of more than $264.3 million since the program began in July 2016.
The Top 1,000 combined assurance review program commenced in September 2020 to replace the pilot ‘Top 1,000 program’. For those taxpayers who received an overall low assurance rating in that program, the ATO will commence work reviewing those taxpayers under the combined assurance review process.
For this group, the ATO has flagged its continued focus on the use of complex trust arrangements and distribution flows designed to exploit the use of such structures.
Wealthy individuals
The ATO will be looking more closely at what they consider is a relatively small number of wealthy individuals and their private groups who engage in deliberate tax avoidance behaviours. In this regard, the ATO will continue working cooperatively with partner agencies (such as AUSTRAC and Australian Border Force) to “remove and disrupt harmful practices”.
Again for this group the ATO has specifically flagged its data and analytics capability for risk detection.
Medium and emerging program
This aspect of the Taskforce’s purview focuses on the performance and compliance of the medium and emerging private groups. The ATO reports the risks most associated within this group include tax/economic performance not being comparable to similar businesses, low transparency of tax affairs, aggressive tax planning, accessing business assets for tax-free private use as well as poor governance and risk-management systems.
By way of update on this aspect of the Taskforce’s programs; the Report refers to it having engaged with 1,978 taxpayers and their associated entities that fall within this category. It has raised $229.2 million in liabilities with collections reported at $142.43 million in cash.
International Risk Program
The International Risk Program (another specific initiative of the Taskforce) has conducted 325 compliance activities with privately owned wealthy groups and non-resident taxpayers on international tax related matters, raising $266.4 million in liabilities and collecting $232.8 million in cash.
The ATO has flagged that it continues to identify and address taxpayers deliberately entering abusive trust arrangements.
Legal professional privilege
Whilst LPP has been a particular area of concern for the ATO for some time now; the Report refers to the continued claimed misuse of LPP by taxpayers during reviews and audits to prevent the ATO from accessing documents and information.
Accordingly, the Taskforce will remain active in this area including taking appropriate action in disputing individual claims for LPP. We are aware that the ATO is challenging LPP claims in the Federal Court. This follows the ATO’s win in the High Court in the Glencore “shield versus sword” LPP case in 2019 (see Glencore International AG v Commissioner of Taxation [2019] HCA 26).
The ATO is also developing “best practice guidance” when making such claims in future tax disputes.
Other interesting facts from the Report
- The first Diverted Profits Tax assessment was issued in December 2020.
- Information obtained during the Taskforce’s audits resulted in the de-registration of two tax agents for their role in structuring what it considered were contrived trust arrangements for their clients to gain an unlawful tax advantage.
- The ATO achieved favourable promoter penalty outcomes in two Federal Court applications following investigations by the ATO’s Promoters and Tax Exploitation Program.
- The ATO currently has 88 audits of 79 multinational corporations on foot.
- The ATO have confirmed that during 2021–22, their focus will continue to be on specialist large market advisors who promote and run tax avoidance schemes, and engage in uncooperative, misleading and obstructive behaviour.
Conclusion
It is important to remember that the ATO is actively promoting willing compliance and early engagement to effectively manage tax risk. As such, now is a good time to reflect on your current arrangements and commercial objectives and assess tax risk.
For any taxpayer that has entered into an arrangement that may fall within what the ATO considers an aggressive tax avoidance arrangement, it is advisable to seek independent advice.
Administrative (civil) penalties for tax avoidance schemes are significant (potentially 75% of a tax shortfall, excluding any uplift). As such, it is important to remember for those that make an early voluntary disclosure, there may be the potential for penalty mitigation.
For those taxpayers whose arrangements do not constitute avoidance; it remains critical to record and collate the evidence as to tax positions adopted and/or the commercial objectives/motive of the arrangement to support consistent and targeted advocacy when reviewed by the ATO.
If you have any concerns about your current or proposed arrangements or think you may need assistance preparing for ATO engagement – please reach out to us. We have a team of tax advisers with extensive experience providing tax advisory services, as well as in assisting clients in reviews/audits and are well placed to provide an independent view on your arrangements.
This article was written by Kristie Schubert, Partner and Jacqueline McGrath, Special Counsel.