ATO releases draft Infrastructure Framework | KPMG | AU

ATO releases draft Infrastructure Framework for consultation

ATO releases draft Infrastructure Framework

Minh Do and Scott Farrell analyse the ATO's view of the key tax risks associated with common infrastructure and privatisation transactions.

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Climbing the mountain

On 31 January 2017, the Australian Taxation Office (ATO) released its much anticipated draft of the Australian Tax Framework (Framework) covering the following chapters:

  • Construction of social infrastructure using the ‘securitised licence’ Public Private Partnership (PPP) model.
  • Privatisation of government businesses into stapled structures.
  • Other infrastructure-related issues (including gifted assets and the meaning of control for the purposes of Division 6C).
  • Areas of ATO compliance focus (including what the ATO considers abuse of PPP structures, illegitimate use of staple structures and managed investment trust (MIT) requirements).

Whilst the Framework sets out what the ATO sees as the key tax risks associated with the most common infrastructure and privatisation transactions, there are still a number of areas of uncertainty which are not covered by the paper, so the Tax Office’s position remains uncertain. For example, an earlier draft of the paper included the restructuring of an existing company into a staple as a matter of concern. However, this example is no longer included in the latest draft.

The Framework is not meant to explain the tax treatment of every type of transaction contemplated. Rather, the ATO intends for it to be a guide on how the tax law will apply to standard-form transactions. Further, the ATO has indicated that the Framework is intended to be a living document.

There remains material tax issues which arise from the consultation paper where the ATO has provided limited technical support for the conclusions reached. In the absence of providing further detailed guidance, this may lead to uncertainty as to the tax outcomes of many transactions.

We note that the Framework does not bind the ATO to a particular view of the law, as only taxation rulings, taxation determinations or private rulings can do that, but it does serve to put taxpayers on notice as to what the ATO’s views are. However as stated in the document, if you have transactions that are similar to the transactions outlined in this document, their officers would be expected to follow the overall views set out in the document. This includes officers that issue rulings as well as those conducting compliance activities. This is concerning as one of the objective as stated in the paper is to “provide assurance to the federal government that an appropriate amount of tax is collected” but there is a lack of clarity as to what ‘appropriate’ means.

Given the recent changes with Foreign Investment Review Board (FIRB) and the requirement for tax conditions, the Framework provides an insight into the types of transactions where it will be critical for foreign investors to liaise with the ATO prior to these transactions being implemented. High risk issues identified in the paper may also influence the nature of the tax conditions imposed by FIRB.

KPMG will continue to liaise with the ATO concerning the issues covered by this paper. If you have any comments or concerns that you would like raised with the ATO, please contact us for further information.

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