Welcome to the first edition of the HWL Ebsworth Lawyers Tax Controversy & Dispute Resolution Quarterly Update.
We are delighted to bring you content addressing a range of current and emerging issues, including key developments in the revenue disputes space, key guidance from the regulators and significant decisions of Courts and Tribunals.
HWL Ebsworth Lawyers update
Welcome to Kristie Schubert and Jacqueline McGrath
HWL Ebsworth Lawyers are pleased to introduce Kristie Schubert, Partner, based in Sydney, and Jacqueline McGrath, Special Counsel, based in Melbourne, who are tax controversy and dispute resolution specialists.
They have recently joined the firm from KPMG Law’s tax controversy and dispute resolution team. They are looking forward to assisting our clients where they need assistance in managing revenue-related disputes, including preparing for engagement with the ATO as well as assisting with ATO reviews, audits and tax litigation.
The attached link contains a short bio of both Kristie and Jacqueline and their respective contact details.
Case updates
R&D case update: Coal of Queensland Pty Ltd v Innovation and Science Australia [2021] FCAFC 54
On 2 September 2021 the High Court dismissed the taxpayer’s application for special leave to appeal from the decision of the Full Federal Court in Coal of Queensland Pty Ltd v Innovation and Science Australia [2021] FCAFC 54.
As a result, the Full Federal Court decision (which upheld the earlier decision of the AAT) that certain activities designed to make extracting coal from particular deposits commercially viable were not “core activities” for R&D purposes stands.
If you have any questions regarding the implication of Coal of Queensland for your R&D activities, please reach out to Kristie Schubert or Jacqueline McGrath who both have a substantial amount of experience in assisting clients to resolve R&D tax disputes across various industries.
Transfer pricing case update – awaiting a decision in Singapore Telecom Australia Investments Pty Limited v Commissioner of Taxation
Background
On 18 May 2001, Singapore Telecommunications Limited (SingTel), through its wholly owned Australian subsidiary, Singapore Telecom Australia Investments Pty Limited (SingTel Au), made a takeover offer for the majority of the shares in Cable & Wireless Optus (Optus). The takeover bid was successful, with SingTel Au reportedly paying $17.2 billion.
The tax consequences of the Optus takeover was the subject of scrutiny by the Full Federal Court in Cable & Wireless Australia & Pacific Holding BV (in liquiatie) v Commissioner of Taxation [2017] FCAFC 71. In that case Cable & Wireless sought to argue that part of the price paid under the share buy-back was a “share capital account” and the amounts paid were therefore not dividends and that withholding tax should be refunded. Cable & Wireless was unsuccessful.
Fast forward to August 2021 and this time around it was SingTel Au disputing the tax consequences associated with its financing of the takeover in the Federal Court in Singapore Telecom Australia Investments Pty Limited v Commissioner of Taxation. The case was heard by Justice Moshinsky in the Federal Court over 9 days in August. John De Wijn QC and Lachlan Currie appeared for the Applicant. Mark Robinson QC and Chloe Burnett SC appeared for the Commissioner of Taxation.
Following Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62, which was handed down by the Full Federal Court on 21 April 2017, this case marks only the second substantive Australian transfer pricing case on cross-border intra-company financing and therefore, despite being only a first instance decision, has nevertheless generated a lot of interest.
The Federal Court is also anticipated to rule on several procedural and legal matters in addition to the substantive transfer pricing issue. This is likely to include the admissibility of certain expert evidence as a result of various objections and submissions put at the hearing.
Justice Moshinsky has reserved his decision.
Watch out for our key insights once the decision is handed down. In the meantime, please reach out to Kristie Schubert or Jacqueline McGrath if you would like to discuss.
Customs case update: AAT refuses tariff concession order
Ceramic Oxide Fabricators Pty Limited and Comptroller-General of Customs [2021] AATA 2770 (9 August 2021).
On 9 August 2021, the Administrative Appeals Tribunal made a decision in favour of the Comptroller-General of Customs regarding a decision to refuse an importer’s application for a tariff concession order regarding a particular imported good (a kiln).
In case you missed it, please see a link to our article on this case here.
ATO compliance activities
ATO Tax Avoidance Taskforce Highlights 2021
On 3 September 2021 the ATO published its Tax Avoidance Taskforce Highlights for 2020-2021 (the Report).
The Report, published annually, serves two purposes. First, it provides an overview in respect of the activities of the Taskforce for the past year and second, sounds a warning about what (and who) will be the focus of the ATO’s attention for the year to come.
Watch out for our in-depth article on the on the Report shortly.
Top 100 justified Trust program ‘monitoring and maintenance’ program
The Australian Taxation Office (ATO) has provided guidance on the ‘Monitoring and Maintenance’ approach it intends to take in maintaining its confidence that those taxpayers who attained an overall ‘high assurance’ rating under its ‘Top 100 Justified Trust’ program are continuing to pay the right amount of tax. Please see our update here.
Whilst the ‘Monitoring and Maintenance’ approach set out in the guidance is specific to the Top 100, those companies that fall into other categories, such as the Top 1,000 or Next 5,000 would be well advised to have a look at the approach being taken for the Top 100. There are likely, at the very least, to be some similarities with the approach the ATO is likely to adopt for the Top 1,000 and Next 5,000.
Top 500 – ATO findings report
The Top 500 compliance program, which focuses on the ATO obtaining assurance that taxpayers classified as being within the top 500 companies are “paying their fair share of tax” has been in place for several years. The ATO issued its Interim Top 500 Findings Report at the end of June setting out key themes, observations and areas of focus from the reviews undertaken to date.
Broadly the Findings Report reflects that while most groups within the Top 500 population have been reporting correctly, the majority that have been engaged with the ATO still have some level of work to do in order to achieve “Justified Trust” with the ATO.
Please reach out to Kristie Schubert or Jacqueline McGrath if you would like to discuss how you can prepare ahead of ATO engagement or if you would like to discuss the outcome of your assurance review – including how to address any areas raised by the ATO and how your results compare to the results published in the ATO’s Findings Report.
Draft Practical Compliance Guide 2021/D4 – ‘Intangibles arrangements’
An emerging area of focus for revenue authorities globally, including the ATO, is in relation to the development, enhancement, maintenance, protection and exploitation of intangible assets (known as DEMPE activities).
With this in mind, the ATO issued its draft Practical Compliance Guideline 2021/D4 on Intangibles Arrangements on 19 May 2021 for consultation purposes. The draft Practical Compliance Guideline sets out the Commissioner of Taxation’s intended compliance approach to international arrangements connected with the development, enhancement, maintenance, protection and exploitation of intangible assets.
The consultation process for the draft Practical Compliance Guideline closed on 16 July 2021 and the ATO are yet to advise of a completion date for the release of the final Practical Compliance Guideline. However, the ATO has indicated that the final Guideline will set out the ATO’s compliance approach to international arrangements connected with the development, enhancement, maintenance, protection and exploitation of intangible assets, specifically, the potential application of the transfer pricing, general anti-avoidance rule and the diverted profits tax provisions. The capital gains tax and capital allowances provisions will also be discussed in the final Guideline where these may be considered alongside, or relevant to, the ATO’s transfer pricing, general anti-avoidance or diverted profits tax risk assessment.
If you have any questions or concerns about how the proposed approach may impact your activities either now or in the future, please contact Kristie Schubert or Jacqueline McGrath.
Collection and recovery of disputed debts
The ATO has announced a rewrite of PS LA 2011/4: ‘Collection and recovery of disputed debts’ to further clarify the Commissioner’s approach to debt collection and recovery of disputes debts.
We will provide a further update on the key changes to PS LA 2011/4 when the final guidance is issued.
ATO discussion paper – tax implications of inter-bank offered rate reform
The Australian Taxation Office released a discussion paper on the tax implications of the Inter-bank Offered Rate (IBOR) reform on 12 August 2021.
Importantly, the ATO recognises that the transition to alternative risk-free rates may be challenging, therefore, the intention is that the ATO will publish final guidance on the tax implications arising from IBOR reform as higher-level web-based content on the ATO website.
We will provide a further update when the guidance is issued.
Innovation and incentives
Patent box
As announced in the 2021 22 Budget, the Australian Government will introduce a patent box for eligible corporate income associated with new patents in the medical and biotechnology sectors. The aim is to encourage companies to base their medical and biotechnology research and development (R&D) operations, and commercialise innovation, in Australia and to retain associated patent profits in Australia. It is intended for the patent box regime to apply to companies for income years commencing on or after 1 July 2022.
The Government issued a Discussion Paper with the objective of informing the Government’s consideration of the detailed design of the patent box (including on the application of ‘Harmful Tax Practices’). The closing date for submissions on patent box was 16 August 2021. As such, the consultation period has now ended.
We will provide further updates as they are available. In the meantime, please contact Kristie Schubert or Jacqueline McGrath should you have any questions regarding patent box or accessing R&D tax incentives.
Other news
Tax transparency
Each year the ATO is legally required to publish information about corporate tax entities, that are:
- an Australian public or foreign owned entity with a total income of $100 million or more;
- an Australian resident private company with a total income of $200 million or more; and
- an entity reporting petroleum resource rent tax (PRRT) payable.
Every year, in accordance with this requirement, the ATO publishes the tax details of large public and private companies in the Report of entity tax information. The information in the report comes from income tax returns and includes the company’s:
- name;
- Australian business number (ABN);
- total income;
- taxable income;
- total tax payable; and
- PRRT amount payable (if applicable).
The ATO will write to the relevant companies each September listing the details the ATO plans to publish to data.gov.au. This means that companies have the so they have the opportunity to review and, if needed, correct the information prior to it being published.
If your company or the company you represent meets the threshold for inclusion in the report, and haven’t received a letter from the ATO by 4 October 2021, the ATO should be contacted.
Review of GST on low value imported goods
On 5 July 2021 the Government announced that the Board of Taxation would undertake a review into the Low Value Imported Goods (LVIG) measure which facilitates the addition of Goods and Services Tax (GST) on low value imported goods. The Board will assess the effectiveness of the LVIG regime and provide advice regarding its ongoing operation.
The Board of Taxation has prepared a consultation guide to explain the review process and guide stakeholders on how to contribute. It also poses a number of questions for interested parties to think about when formulating input to the review.
The Board of Taxation has also invited participation in the series of virtual roundtable consultation sessions in August and September. If you would like to participate in discussions, you are encouraged to express your interest at LVIG@taxboard.gov.au.
The Board of Taxation is also seeking written submissions in response to the consultation guide. Submissions can be made until 22 September 2021 to LVIG@taxboard.gov.au. Please note that all submissions will be published except where the submission is made on a confidential basis.
Stakeholders are also invited to provide early feedback by way of an informal email on key issues to LVIG@taxboard.gov.au.
The Board of Taxation has been asked to report back to the Government by 17 December 2021.
News from the OECD
International tax reform
As many will be aware, several significant milestones have been reached following global negotiations conducted during the last decade on international tax reform.
Significantly, as at 12 August 2021 a total of 133 countries have joined a new two-pillar plan to reform international taxation rules. The objective of the reform is to ensure that multinational enterprises “pay a fair share of tax wherever they operate”. Broadly, under Pillar One some taxing rights will be re-allocated from the home countries of multinational enterprises. The objective being that there will be a fairer distribution of profits and taxing rights of the largest multinational enterprises, including digital companies regardless of physical presence. Pillar Two seeks to introduce a Global minimum corporate tax rate to protect the tax bases of countries globally. In July the G20 Finance Ministers agreed that a Global minimum corporate tax rate should be set at 15%.
Following these ‘in principle’ agreements, there will be further work and negotiations required to traverse what will be a technically complex road ahead. We will keep you updated as further progress is made on this very topical issue. In the meantime, please contact Kristie Schubert or Jacqueline McGrath should you have any questions.
Help for business
NewAccess: support for small business owners
The current business environment is no doubt causing concerns for small business owners. Developed by Beyond Blue, NewAccess is a free mental health coaching program offering flexible phone and video call support options for small business owners so they can manage stress and improve their mental wellbeing.
https://www.ato.gov.au/Newsroom/smallbusiness/General/A-new,-free,-support-service/
