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A new era of taxpayer compliance

A new era of taxpayer compliance

Annemarie Wilmore discusses a new approach by the ATO towards real time compliance and greater tax certainty.

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Director, Dispute Resolution & Controversy

KPMG Australia

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In the past, the Australian Taxation Office (ATO) would select taxpayers to audit based on perceived risks, moderated by its risk differentiation framework and as announced in its annual compliance program.

More recently there has been an increasing shift towards real time compliance and achieving greater tax certainty in Australia, commencing with measures such as annual compliance arrangements, pre-lodgment compliance reviews, and the reportable tax position schedule.

International profit shifting, cross-border tax avoidance and ensuring companies have good corporate governance and tax risk management have emerged in recent years as recurring focus areas. The ATO is seeking to ‘sustainably’ reduce the $2.5 billion net income tax gap for large companies through key initiatives, including:

  • legislative measures like the Multinational Anti-Avoidance Law (MAAL) and Diverted Profits Tax (DPT) and encouraging taxpayers to engage early on tax issues
  • Justified Trust reviews and annual top 100 reviews to ensure full compliance or action on non-compliance
  • Publishing Law Companion Guidelines (LCG), Practical Compliance Guidelines (PCG) and Taxpayer Alerts where the ATO view is provided on critical issues, so that taxpayers are informed about the level of potential risk attached to a tax position
  • offering taxpayers the opportunity to engage with the ATO prior to a transaction in order to obtain real time certainty
  • looking to settle prior year disputes with an agreement to ‘lock in’ treatment for future years.

This new approach flags the end of the audit era, with the ATO announcing in its Tax and Corporate Australia publication that it is not attempting to audit away the tax gap. Instead, to reduce the gap, the ATO is seeking to “head off non-compliance before it occurs”.

Despite this new approach, taxpayers can still expect significant and extensive reviews of taxation positions, particularly where there is a difference in opinion on critical tax issues. To the extent disputation occurs, the ATO continues to welcome alternative dispute resolution (ADR) and settlement as potential pathways to resolution.

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