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Large Business Compliance. Jim Killaly, Deputy Commissioner, Large Business and International, Australian Taxation Office. Increasing internationalisation of the Australian economy debate on sovereignty and local interest increasing stocks and flows of investment and income

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Large business compliance l.jpg

Large Business Compliance

Jim Killaly, Deputy Commissioner,

Large Business and International,

Australian Taxation Office


Environment l.jpg

Increasing internationalisation of the Australian economy

debate on sovereignty and local interest

increasing stocks and flows of investment and income

repatriation of profits is a big issue

strong interest in renegotiation of DTAs

increasing levels of foreign ownership

community expectations about corporate citizenship

Environment


Slide3 l.jpg

Net investment in

Australia

Australian

investment abroad

Foreign investment

in Australia

Australia’s international investment position (ABS)

800000

700000

600000

500000

$m

400000

300000

200000

100000

0

Mar-89

Mar-90

Mar-91

Mar-92

Mar-93

Mar-94

Mar-95

Mar-96

Mar-97

Mar-98

Mar-99

Mar-00

Sep-89

Sep-90

Sep-91

Sep-92

Sep-93

Sep-94

Sep-95

Sep-96

Sep-97

Sep-98

Sep-99

Sep-00

Quarter

The average annual growth for Australian investment abroad over the last ten years was

13.1% and for Foreign investment in Australia it was 9.% . This compares with the

average annual growth of nominal GDP which was 5.9%. Outward is growing twice as

strongly and inward one and a half times as strongly as GDP.


Slide4 l.jpg

Australia’s global positioning

increasing concern on “branch office syndrome”

debate on fiscal policy and its role in competitiveness

tax competition

tax havens

preferential regimes

bank and commercial secrecy

Environment


Slide5 l.jpg

Significant global restructuring and repositioning by MNEs

markets/ business opportunities

mergers and acquisitions

cost pressures

capital markets and capital management

volatility of interest and exchange rates and commodity prices

risk management a driving focus

Environment


Slide6 l.jpg

Increasing share of global trade and investment being managed by MNEs

Significant increase in related party dealings

$50 billion rise in income and expenses in two years

Heightening focus on international financing and financial markets

Debate on sustainable economic development

competition issues

Environment


Slide7 l.jpg

Technology revolution managed by MNEs

Government is redefining itself

Marked shift in the balance of portfolio and direct investment and shareholder voice

implications for “patient” investment

Increasing questioning of value systems and institutions

Significant expanding use of tax planning to avoid policy intent

Reducing impact of imputation

Environment


Slide8 l.jpg

1. An international tax system that facilitates investment and trade, promotes corporate citizenship and improves the social and economic wellbeing of the Australian community.

Effective management of harmful tax competition:

to prevent distortion of investment

to ensure Australia remains internationally competitive.

Australian views reflected in decisions of international tax forums.

International - Desired Future - Goalposts for Success


Slide9 l.jpg

2. International tax policy and law which aligns with the proper functioning of markets, positions Australia well and ensures that Australia gets its fair share of tax.

System ignores conduit activity and reflects economic substance and value added.

Australia’s tax treaty network is maintained and enhanced to ensure Government objectives are met.

Assessment and collection systems are effective

High level of cooperation between revenue authorities to share information, resolve disputes and protect the legitimate interests of Australian residents.

A community of revenue authorities that actively promotes the ongoing improvement of taxation administration

International - Desired Future - Goalposts for Success


Slide10 l.jpg

Corporate Pathways proper functioning of markets, positions Australia well and ensures that Australia gets its fair share of tax.

Insur. &

Super

Financial

Arrangements

Other Centres

of

Expertise

LB&I High Level Design : Systemic Management - Strategic Market & Client Focus

Subject Expertise

Client Management

National Industry Groups

National Client Group

ITD

CGT

Financial

Services

Innovation

Losses

Large

clients

1X1

relationship

Priv’n

Energy and Resources

Multi-Media &

Info Technology

$100M

Middle Market Alliance (LB&I)

Functional Centres

$10M

LDD

Middle Market Alliance (SB)

(Note: displaying the Alliance is not meant to imply increased ownership by LB&I)

$1M

Project

capability

Tax

Planners

Projects commissioned by the GMT

Corporate

BIC

HWI

Technical Excellence & Integrated Tax Design

RevenueManagement

Relationship Management

Compliance Assurance

National Practices - optimising business ‘praxis’ in core processes


Slide11 l.jpg

2 proper functioning of markets, positions Australia well and ensures that Australia gets its fair share of tax.

1

3

Note: 1 The remaining 9000 (middle market) economic enterprises account for the remaining 10% of tax assessed

2 Turnover ~ $800 million

3 Turnover ~ $100 million


Slide12 l.jpg

Average growth for LB&I over the period = 13% pa proper functioning of markets, positions Australia well and ensures that Australia gets its fair share of tax.

Average growth for nominal GDP over the period ~ 6% pa


Slide13 l.jpg

Average growth in LB&I collections over the period = 12% pa proper functioning of markets, positions Australia well and ensures that Australia gets its fair share of tax.

(10% pa adjusted for the PAYG bring-forward)


Slide14 l.jpg

The Number of LB&I Audit Results proper functioning of markets, positions Australia well and ensures that Australia gets its fair share of tax.

(collections & adjustments)

200

189

180

160

143

140

122

120

No.

100

80

60

40

20

0

1998/99

1999/00

2000/01

Financial Year


Slide15 l.jpg

Fieldwork Stock over Four Years proper functioning of markets, positions Australia well and ensures that Australia gets its fair share of tax.

900

739

800

672

700

600

659

500

540

Audit Numbers

531

513

400

416

300

340

200

100

0

1997/98

1998/99

1999/00

2000/01

Years

Start

Final


Slide16 l.jpg

Results from Audit Activity of Large Business Sector proper functioning of markets, positions Australia well and ensures that Australia gets its fair share of tax.

2,500

2,000

1,908

1,542

1,523

1,500

1,430

Dollars (millions)

1,234

1,231

1,113

1,075

1,049

1,000

996

925

910

848

793

700

669

625

548

512

500

494

452

451

371

343

337

281

276

162

151

135

81

54

0

1990/91

1991/92

1992/93

1993/94

1994/95

1995/96

1996/97

1997/98

1998/99

1999/00

2000/01

Financial Year

Tax and Penalties ($m)

Notional Tax ($m)

Collections ($m)


Why have a cooperative compliance model l.jpg

Why have a Cooperative Compliance Model? proper functioning of markets, positions Australia well and ensures that Australia gets its fair share of tax.

It provides:

a rationale

practical guidance

explanation to large business and the community

translation of ATO strategic models to large business compliance activity

Why have a Cooperative Compliance Model?


Objectives l.jpg
Objectives proper functioning of markets, positions Australia well and ensures that Australia gets its fair share of tax.

  • Optimising economic growth

  • Generating community confidence

  • Building cooperative relationships with business


Insights from transfer pricing casework l.jpg

Understanding the economic enterprise, its markets and key relationships

From transactions to functions assets and risks

From price to profit channel, the profit drivers and margins

Benchmarking economic performance

Understanding business strategy and investor mindset

Awareness of structuring location and changes

Awareness of interaction of tax systems and impacts on investment, trade and income flows

Insights from Transfer Pricing Casework


Slide20 l.jpg

Need for a global perspective and solution relationships

Clarifying the rules and methodologies

Positioning the program

Engaging industry

Mirroring performance

Building and continuing a relationship

Facilitating risk assessment

Moving from confrontation to cooperation

Insights from Transfer Pricing Casework


Slide21 l.jpg

React relationships

Transactions/

Events

Anticipate

Patterns & Trends

Drivers

Change

World Views

Transform


Philosophy of administration l.jpg

It is the community’s tax system relationships

A systemic behavioural approach needed

keeping the people in the picture and building relationships across all functions

tax system part of wider global socio-economic system

tax administration should reflect market and business realities, not impede business, and operate in real time

tax performance needs to be evaluated against economic performance

tailored approaches appropriate to the risks

Need to engage industry & MNEs with underlying tax policy and LB&I’s programs

Philosophy of Administration


Slide23 l.jpg

There are several interrelated drivers of compliance relationships

“compliance” needs to be reframed to reflect them all

industry needs to be part of an ongoing dialogue on this and have a design role

a balanced multifunctional program is needed to support the new approach

Tax administration needs to be transparent

publication of strategic statement

publication of risk model and methodology

mirroring of each other’s performance

Philosophy of Administration



Five key themes l.jpg

Relating professionally relationships

Building understanding

Balancing self regulation with enforcement

Improving the quality of the law

Meeting community expectations

Five key themes


Slide26 l.jpg

Figure 1 The compliance pyramid relationships

Cooperative compliance is about movement; both up and down the pyramid, from active enforcement measures at the top,

to self regulation and cooperation at the base

Active

enforcement

Assisted

self-regulation

Self-regulation and cooperation


Slide28 l.jpg

Self-regulation philosophy in Model in line with relationships

self-assessment principles.

The taxpayer can independently:

Take a position on issues

Conduct due diligence & risk assessments

ATO freed up to focus on:

Higher risk issues

Increased and more effective coverage


What has happened l.jpg

Co-designed with the members of the CCC. relationships

Released in November and available to taxpayers

LB&I and GST Large Enterprise Compliance using it; influenced ATO restructuring

Large business asking about their risk category

Philosophy being explained and brought to life within the ATO.

CCC sub-committee oversighting implementation

What has happened?