The Government on Mon 2.6.2014, released the Inspector-General of Taxation’s (IGT) report into the ATO’s management of transfer pricing matters. The report was presented to the Assistant Treasurer in December 2013.
The review found that key causes of stakeholder concerns were inadequate succession planning and resource management.
- Mr Noroozi reported that experience specialist officers had left the ATO’s transfer pricing area and their knowledge was not effectively disseminated across the organisation.
- Another significant cause reported by the IGT was the complex interactions between the ATO’s internal functions and a lack of clarity with respect to the decision-making process.
The IGT made 18 recommendations aimed at developing sufficient organisational capability to address transfer-pricing risks. The ATO agreed to 17 of the recommendations in whole, part or principle. Mr Noroozi said that while the ATO has provided reasoning where it has disagreed, he was concerned, particularly where he had sought to avoid lengthy disputes by allowing ATO specialists or taxpayers to challenge generalist case officer decisions earlier in the compliance cycle. Furthermore, he said the ATO’s decision to limit consultation on transfer pricing matters may impede its awareness of emerging arrangements and potential risks.
In releasing the report, the Acting Assistant Treasurer, Senator Cormann said the Government was “confident that the appropriate implementation of these recommendations will result in more efficient processing of transfer pricing matters by the ATO moving forward”.
[LTN 99, 26/5/14]
Extract from IGoT’s Report
Chapter 1 — Background
Conduct of review
1.1 This is the Inspector-General of Taxation’s (IGT) report of his review into the Australian Taxation Office’s (ATO) management of transfer pricing matters. It is produced pursuant to section 10 of the Inspector-General of Taxation Act 2003 (IGT Act 2003).
1.2 The review arose from concerns raised by taxpayers, tax professionals and their representative bodies in relation to the long timeframes and excessive costs of dealing with the ATO on transfer pricing matters. The IGT started this review, pursuant to subsection 8(1) of the IGT Act 2003, by announcing the terms of reference on 25 October 2012 (a copy is reproduced in Appendix 1).
1.3 The IGT received a significant number of written submissions in response to the terms of reference and also met with a range of stakeholders, including academics, current and former ATO officers as well as taxpayers, tax advisers and their representative bodies, to better understand the issues covered by this review. Broadly, the issues raised related to the ATO’s overarching strategy and recent organisational changes, protracted timeframes to complete compliance activities, lack of ATO communication during compliance activities, inadequate public advice and guidance and ineffective use of consultative forums. The key underlying theme seemed to be insufficient staff capability in dealing with transfer pricing matters.
1.4 Most submissions impressed on the IGT that the above issues have been exacerbated by major changes in the global business environment over the past two decades such as:
ongoing evolution of globalisation leading to the decline of trade barriers and increasing the privatisation of business activity, which is said to have facilitated the expansion of many businesses globally and increased the importance of transfer pricing policies;
- ongoing (re)location of the production of final products and components to various jurisdictions to improve business efficiency with decisions based on production costs, infrastructure, tax incentives and skilled labour force;
- the concentration of service functions and assets, such as research and development, internal finance, production and intangible assets within different business units of a Multi-National Enterprise (MNE) which may be located in different jurisdictions; and
- advances in telecommunications that has allowed, amongst other things, the advent of electronic commerce and ’24/7′ trading.1
1.5 To assist with the IGT’s consideration of issues, the IGT established a working group comprising key tax practitioners and representatives: Richard Atkinson (Rio Tinto); Chris Bowman (BTTP Consulting); Stuart Coggin (GlaxoSmithKline); Michael Fenner (Chevron); Geoffrey Gill (Deloitte); Denise Honey (Pitcher Partners); Nick Houseman (PricewaterhouseCoopers); Jason Levine (GM Holden); Steve O’Connor (Lloyds International); Jesper Solgaard (Ernst & Young); Richard Vann (University of Sydney); and senior ATO officials.
1.6 We greatly appreciate the generosity of the members of this working group in freely giving their time and expertise. Their involvement has greatly enhanced the outcomes of this review.
1.7 The working group considered stakeholders’ concerns and canvassed potential solutions to the systemic issues in a frank and confidential manner. It should be noted, however, that the views and recommendations expressed in this report are not necessarily those of individual members of the working group. The views and recommendations were finalised by the IGT after much deliberation, and based on input received and discussions with the ATO and a range of external stakeholders.
1.8 The IGT also worked progressively with ATO senior management to distil the scope for improvement and to agree on specific actions. Furthermore, the Commissioner of Taxation (Commissioner) was provided with an opportunity to make submissions on any implied or actual criticisms contained in this report.