23/05/2016

Recent developments in the Senate Economics Committee point to a more aggressive approach to multinationals and other companies by the ATO.  However the Federal Court has confirmed that no deal has been struck with the ATO for “strategically important” tax cases. 

In his appearance before the Senate Economics Committee on 21 April 2016, the Commissioner of Taxation Chris Jordan appeared to suggest that the ATO has been working with the Federal Court to fast-track strategically important cases.  Some media reports interpreted this to mean that a so-called “deal” was being struck between the ATO and the Federal Court. 

Despite the Federal Court’s confirmation there is no such deal, Chris Jordan’s comments do highlight the increased pressure on the ATO to deliver results in countering tax avoidance, particularly since the widely reported leak of a cache of documents from a Panama-based law firm, Mossack Fonseca in April 2016, which exposed widespread off-shore tax evasion. 

Commissioner Jordan said that tax payers can expect a hardened stance by the ATO in relation to aggressive tax minimisation arrangements:

“We will always start a problem, an audit or a negotiation in good faith, wanting to get a positive resolution.  But when we are basically stooged or gamed – you know, everyone nods and grins and commits to do things and then does not deliver – we are very much hardening our approaches and quickening”. 

Jordan specifically highlighted legal professional privilege as a frustration for the ATO in dealing with companies, particularly because of time spent in resolving privilege claims.  Deputy Commissioner Jeremy Hirschhorn echoed Jordan’s comments, suggesting that the ATO is becoming increasingly frustrated with “reckless claims for privilege”. 

One solution flagged by Jordan to the Senate Committee was for the establishment of an independent body to assess privilege claims made. 

“It would be very useful for us to have a mechanism through a tribunal or wherever to have someone look more quickly at the material and make an independent judgment of what is validly subject to legal professional privilege and what is not."

There is little doubt that privilege will be considered by the Senate Committee further, if the Government grants an extension requested by Committee to explore the implications arising from the Panama Papers scandal. 

Potentially bolstered by its high-profile win against energy Giant Chevron in the Federal Court, the ATO has also warned companies it intends to scrutinise profit-shifting arrangements used by multinationals and large companies operating in Australia. 

Deputy Commissioner Hirschhorn recently said, “our view is that interim arrangements must reflect the economic and commercial reality of operating in Australia and we will continue to engage with taxpayers and review these interim arrangements to ensure they do not themselves amount to tax avoidance schemes”.

These developments highlight the importance of constructive engagement with the ATO, and indicated a heightened potential for tax litigation.  If you would like further information please feel free to contact one of the authors.

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