What are your odds of not being reviewed by the ATO? E-Alert July 2010

'Conquering the enemy by strategy, is the highest, most desirable form of generalship.' Sun Tzu

The Commissioner recently released his Compliance Plan for 2010-11.

Directors, CFOs, group accountants and tax managers would be well advised to read its 47 pages as it highlights the Commissioner's focus areas for the coming year and what he achieved in the 2009-10 year.

Highlights to note from 2009-10 include:

• 36 compliance audits of large businesses and over 350 risk reviews – these resulted in over $1 billion in additional collections;
• additional GST liabilities of approximately $840 million from compliance activities for large business;
• 400 audits, 870 reviews and 4200 phone and letter-based verification activities for SMEs, raising an extra $770 million of tax and disallowing losses of approximately $400 million;
• extra net GST liabilities of over $468 million as a result of more than 21,200 reviews and audits of SME;
• for Project Wickenby the ATO completed a total of 158 audits and 502 reviews and raised approximately $450 million in liabilities.

Focus Areas for 2010-11

• large business (ie with a turnover greater than $250 million) have a roughly 1 in 3 chance of being reviewed by the ATO in the coming year;
• financial institutions should note that cross border financial arbitrage arrangements such as debt generators, non-commercial hedges and asymmetric swaps have been flagged by the ATO as 'inappropriate use' of offshore banking units and transition to the TOFA regime;
• profit shifting between Australia and offshore affiliates has been fertile ground for the ATO in recent years and it will continue to be so in the year ahead including non-arm's length pricing, excessive interest and other charges, restructuring Australian operations, the use of marketing hubs, the sale of IP etc;
• corporate restructures and mergers and acquisitions will continue to be of interest to the ATO – the TPG/Myer transaction being the most high profile recent example.  'Inappropriate outcomes' from the tax consolidation regime are also of interest to the ATO. Capital raisings by stapled groups have also been flagged;
• with the global economic downturn the ATO sees a 'heightened compliance risk' associated with tax losses;
• over claiming of GST credits in relation to financial supplies is identified as an area of uncertainty;
• for high net wealth individuals international transactions, shareholder loans and CGT are focus areas;
• Wickenby investigations - the ATO is proud of the Wickenby project and its deterrent effect;
• other focus areas include R&D claims, black-hole expenditure, general business tax breaks and 190 audits planned for large superannuation funds.

The odds are stacked against you

The likelihood of an ATO risk review or audit is increasing. Don't wait until you are under review before you assess your own risk and how you will manage enquiries by the ATO. 

The Maddocks Tax Controversy team has had many years experience in providing objective advice to large businesses and high net wealth individuals in the management of their tax risk and in the management of ATO compliance risk reviews and audits. This includes focus on relevant dialogue with the ATO, ensuring a robust tax governance framework at the outset and a methodology for handling emerging and potential tax disputes. Each of the partners and team members have many years experience in representing key clients in their dealings with the Commissioner and resolving major tax controversy. Our team marries deep tax technical knowledge with an unrivalled expertise in ATO processes and procedures.

If you have any queries about any of the matters in the update please click here to contact a member of the Tax Controversy team.