26 Mar 2013

The new ATO tax disputes and independent review regime

Dr Niv Tadmore explains the potential effects of the ATO's new independent review regime.

The new ATO tax disputes and independent review regime
Dr Niv Tadmore, Partner, Clayton Utz

Now Niv on the 14th of March the new ATO Commissioner Chris Jordan announced a new model for resolving tax disputes. What is going to change and what are the drivers behind this?

Dr Niv Tadmore

Currently whenever you have a dispute with the ATO you have three main phases before you get litigation.

Firstly there is an ATO audit and a position paper, then an assessment on objection and then an independent review by the Tax Office. In recent years there has been a bit of criticism about the independent review – that it is not always independent or at least a perception that it's not fully independent. The new Commissioner has decided to tackle this issue – or at least the issue of perception – and he has decided to put in place a process that is going to be understood, accountable and transparent.

The gist of the new process is to change the order of the phases so we still have of course an ATO audit position paper but there we will have an independent review and only then the assessment of objection and this could be a bit of a game changer going forward.

So then what will be the practical impact of this new model on the conduct and resolution of disputes?

Dr Niv Tadmore

I believe there will be two major practical implications.

The first one is when the Commissioner talks about an independent review process he talks about a structural change and about bringing the legal team within the ATO into the dispute. Now because most tax disputes are not about pure technical disagreements but are about facts and evidence, if the legal team gets involved in a dispute early you may be able to resolve a dispute, or at least narrow down the scope of the dispute, so going forward it's going to be managed in a more efficient and effective way.

The second practical impact is about the assessment. An assessment is debt due and payable to the Government and that has some implications:

  • number 1 it may trigger a number of covenants or obligations under your funding agreement with your banks;
  • number 2 if you are a listed company you may have to disclose that to the market; and
  • number 3 because it is due and payable, the ATO may feel compelled to collect the money or demand some sort of a down payment in relation to that assessment.

The good thing about the new model is that the resolution point or at least the independent review point is moved before that, so all those special points that do not help to resolve disputes do not occur, so you can focus with the ATO on the real issue rather than be pressured by different background noise that you get after the assessment is issued.

So what do you think is the main area that the Commissioner should focus on to make the new model successful?

Dr Niv Tadmore

The whole point of the new model is to engage positively or constructively when you agree to disagree and a lot of times it's about a lot of money. Now the ATO has come a long way over the past two years in terms of its attitude to alternative dispute resolution and actively engaging its taxpayers. This is a new level of engagement and of course it takes two to tango, so the challenge that the Commissioner is facing is:

  • number 1 to ensure that the ATO embraces and implements that new model and it's not confined to practice statements and the management of the ATO; and
  • number 2 to persuade the taxpaying community that it is here for real and is here to stay.

I think given the benefits of the new model or the potential benefits I believe it's doable and I think it will be done.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.