The Deputy Commissioner of Taxation (Commissioner) has wide ranging powers to secure the recovery of tax liabilities and it is not at all unusual for the Commissioner to utilize these powers.
From time to time, the Commissioner has taken an active and early interest in M&A and deal activity, in some cases unilaterally taking action to secure the resulting tax liability where the Commissioner is of the view it is necessary to ensure recovery (often where there is a risk of assets leaving the jurisdiction).
By way of example, many will remember the Commissioner’s pursuit of TPG in 2009 when the Commissioner exercised its collection powers to freeze bank accounts that held material proceeds from the Myer float during the week prior to the transaction. The conundrum for the Commissioner in the TPG case was that the freezing orders were ultimately lifted after it was realised that the frozen accounts had already been emptied by way of transfers offshore.
In this regard, it should be noted that obtaining freezing orders prior to an assessment falling due is not at all unusual. Other well known cases where, the Commissioner has sought freezing orders following the issuing of an assessment but prior to the debt falling due under the assessment include FCT v Resource Capital Fund III LP  FCA 1247 and FCT v Regent Pacific Group  FCA 36.
Our recent update on the State Grid case, which can be found here, provides a key example of an increasingly swift off the mark Commissioner. By way of recap, in State Grid the Commissioner successfully obtained a freezing order – even before the transaction giving rise to the alleged prospective tax liability occurred.
Whilst since our update the parties have filed further submissions with the Federal Court and the final outcome is not yet known publically – regardless of the outcome, it does reflect the move to “real-time”, swift and decisive action on the Commissioner’s part where it is considered that there is a need to ensure the recovery position in respect of a prospective debt.
Increasing intelligence and data capability predicting M&A activity
Many high profile M&A transactions are well documented, sometimes involving publically listed companies or IPOs and, as a result, there is a vast amount of information available to shareholders, prospective shareholders and the public at large (including the ATO).
In addition to publically available information, the ATO also has at its disposal “data holdings”, advanced data analytics, data matching capabilities and techniques which are used to monitor transactions and identify suspicious activity.
What is most interesting is a recent open approach to market by the ATO to procure two separate predictive intelligence and data matching services aimed squarely at gathering real-time and forward looking data on M&A, deal and capital raising activity.
The first approach to market identifies that the ATO would like to procure a range of data and information, some of which includes:
- forward looking intelligence on private and public/multinational businesses, looking at possible M&A and Capital Raising activity;
- comprehensive media aggregation that identifies and catalogues M&A transactions in real time;
- details of market transactions in the Australian market, involving private and public large and SME businesses that are local and international entities, including advisors involved, nature of acquisition/disposal, $ value of transaction, deal size and level of restructuring events occurring;
- real-time coverage of live Equity Capital Market (ECM) events, quality information on ECM deals and data, and access to ECM content from global information sources;
- intelligence regarding the entities that have been purchased by Private Equity (PE) to provide an understanding of the current portfolio assets of PE houses globally and any exits, including the type of exit relating to transactions that may have tax consequences in Australia;
- domestic and global intelligence on in-progress or recently completed transactions;
- current and historical data intelligence on all aspects of private and public/multinational M&A (ie mergers, acquisitions, divestitures, IPOs and demergers/spinoffs, flip up/top-hat activity);
- financials/multiples for comparable analysis;
- information/details relating to advisory/buy/sell opportunities; and
- industry trends and forecasts.
Data matching and mass data integration
The ATO’s second approach to market is in relation to the ATO’s interest in obtaining an integrated mass data transfer facility that can be incorporated into the ATO’s existing data warehouse to enable data matching to occur in relation to deal activity for public, international and private businesses populations.
The request for tender indicates that the ATO is hoping the mass transfer would be conducted via an open access system that allows the ATO to automatically access and replicate the supplier’s data into the ATO Data Warehouse. This could enable data matching to occur and the data to be made available to ATO staff via the ATO Data Warehouse.
Impact for taxpayers
The above open approaches to market would appear to reflect that the Commissioner is considering using predictive technology which could assist greatly in moving towards an increasing pattern of real time engagement in M&A transactions. This additional knowledge and insight also means that the Commissioner could be ready much earlier to engage with taxpayers about payment of a resulting tax liability and (if required) take swift action to secure the liability.
It is noted that the ATO is requesting supplier suggested approaches to the provision of the datasets so the timing, scope, nature and scale of the system(s) will be dependent on what is offered by those responding to the public tender.
However, even before this predictive technology is in place, it must be remembered that the ATO has been very clear about the use of what it describes as its “growing data holdings” to identify and treat tax avoidance behaviours. It is therefore important for those involved in M&A, capital raising and deals activity which may give rise to a tax liability to seek advice on and consider the correct tax treatment of the transaction and, in particular, the tax consequences of any exit strategy.
It is also important to consider early (voluntary) engagement with the ATO. This will be important for residents and non-residents, as well as sell-side and buy-side alike given the potential withholding tax consequences which may arise for those buying from foreign residents and entities.
This article was written by Kristie Schubert, Partner.