Assistant Deputy Commissioner George Hitti Speech to the Institute of Public Accountants 2014 National Congress

Transcription

1 Assistant Deputy Commissioner George Hitti Speech to the Institute of Public Accountants 2014 National Congress Introduction Lovedale, Hunter Valley, 28 November :50pm to 3:45pm (speech, followed by Q&A) Good afternoon everyone and thank you Andrew (Colrain) for the introduction. It s a pleasure to be here today. I hope you re enjoying the magnificent surrounds and gaining useful insights from the panel of expert speakers. Second Commissioner Neil Olesen was originally scheduled to speak to you today but because of commitments with an international tax conference that we are hosting in Sydney this week, he is unable to be here. Our Commissioners have been working with their counterparts from other tax administrations from the Asian region on International tax matters and so today, as one of the senior executive leaders in the ATO, I am here to share with you our thinking about the changing world and tax administration. The ATO, like most businesses, must keep pace with change if it is to stay relevant and valuable. The Australian Public Service conglomerate and the international community of practice of revenue administrations to which we belong, are all dealing with complex social systems in a fast-paced world. I am sure you can relate to some of the pressures; achieving more with less, keeping pace with latest technology and communication advances, meeting customer service demands, needing to be green, understanding and dealing with globalisation, and changing demographics. For the ATO, we can also add the need to work with a variety of stakeholders, including the tax and accounting profession, work across government, respond to scrutineers, and of course, keep our workforce productive and engaged. In these times of rapid change, we need clear directions to stake ourselves to certain principles but remain adaptable and responsive so we can continue to deliver on our mandate to the government, taxpayers and our stakeholders. So, our strategy is to reinvent ourselves and transform how we go about our business we call it Reinventing the ATO. This is not just a tag line it s a purposeful and long-term program of work to change the culture of the ATO, to improve the client experience and to increase the trust and confidence in Australia s tax administration. Reinventing the ATO Our new directions are driving everything we do and our mission is our centrepiece: Page 1 of 10

2 To contribute to the economic and social wellbeing of Australians by fostering willing participation in the tax and superannuation systems. I am going to zero-in on fostering willing participation. Levels of willing participation in Australia are high. We know this from analysis of our revenue collection which shows that more than 95% of revenue received comes in voluntarily with relatively little assistance or intervention from us. Less than 5% comes in from compliance enforcement measures. We also know that 90% of revenue is paid on time and over 80% of income tax returns are lodged on time further evidence of people doing the right thing. Studies by the Centre of Tax System Integrity at the ANU and other academics over the last decade have also shown consistently that the vast majority of Australians are willing to comply with their tax obligations. There are many levers that influence people s attitudes to the tax system; fairness, complexity, social norms, personal beliefs, economic conditions, advice and relationship with their tax practitioner, the experience they have when dealing with the ATO, and the trust and confidence they have in us. Out of this list, about the only thing we can control is the experience we create for clients. Research also tells us, the better the experience, the more likely we are to build trust and confidence. Therefore, our efforts are going into improving the client experience to increase the levels of willing participation. Given that most people are willing to do the right thing, we are going to reward this behaviour with a lighter touch experience: easier, less complex, and less intrusive. In essence this means designing the system for the benefit of those who do the right thing year in year out, not for those who don t. We need to invert our thinking, respecting and valuing those who do the right thing and make their experience a whole lot better. This user, citizen-centric approach is one of the major developments in public administration over the last decade. While we ve had earnest attempts at it in the past, my assessment is that we are much more ready, willing and able to really do it. Knowing our directions and what we need to do is not enough to create sustainable change. Decrees, osmosis and hope are not reliable change management methods. Instead, we have to create a design, articulate a plan, establish useful measures and engage and bring people with us. It will be important for us to have the right discipline and rigour in our change management. Our approach to getting the design of the client experience right was to work with clients. We have been conducting focus groups and one-on-one interviews with various segments and stakeholders of the community, including business and Page 2 of 10

3 intermediaries, to understand their current experience and how they would like it to change. We hear that people want: to spend less time and effort on complying a range of channels that can be accessed when and how they want including more digital but not losing the option of talking to a real person to have more certainty and to be able to trust our advice communication that is better targeted to circumstances, in plain language in the right tone when people need it in the form they want early conversations to stop things going off the rails, and to identify the right issues needing attention security of data and protection of privacy better use of data we already have streamlined dealings with government use of natural systems to know that we deal with those who are not doing the right thing We are using this information to form a design blueprint that will help us build and implement the improved client experience. Not only will this mean new products and services, it will also mean a fresh approach to compliance with a stronger focus on fostering lasting willing participation, and smarter ways to address endemic risks. We will have to develop a full house of strategies that are targeted and tailored, based on risk, transparency and behaviour. They will need to address the numerous influencers of people s attitudes to participating in the tax system as I mentioned before, things like perceptions of fairness, ease of compliance, the quality of our engagements and relationships, and social norms. Transforming our culture A necessary and critical aspect of our change journey is transforming our culture. We will not be able to improve the client experience or make a big difference to willing participation unless we do this. American management consultant, Peter Drucker, is credited with the saying: Culture eats strategy for breakfast. And another management guru, former IBM CEO Louis V Gerstner Jr, is quoted as saying: The thing I have learned at IBM is that culture is everything. The ATO is a 104-year-old organisation and like any venerable institution of its kind, it has developed its own cultural traits traits that have helped it succeed in the past. Earlier in the year, we asked our staff: what aspects of our culture will help us become a leading tax administration into the future, and what traits will inhibit our intentions of being renowned for contemporary service, expertise and integrity? Page 3 of 10

4 Analysis of the responses showed that attributes in our favour included a focus on public service, ethics and the ATO s role. The things working against us included being buried in bureaucracy, measuring throughput and outputs not outcomes, working in silos, lacking long-term focus and operating with escalated decisionmaking. Our next question was what cultural traits are most important for improving the client experience and realising our vision? The five following traits emerged and have now been adopted formally for our culture change strategy: Client focused - We put clients, external and internal, at the centre of everything we do. United and connected - We work as one team to deliver the right outcomes for the community. Empowered and trusted - We are supported to take ownership, exercise judgment and make reasonable decisions. Future oriented - Our success depends on being flexible and adapting to meet immediate and future challenges. Passionate and committed - We are passionate about our role in serving the community. We bring professionalism, energy and determination to everything we do. We are now looking into the most effective ways to embed these traits into everything we do. Working with the tax and accounting profession and intermediaries As accountants and tax practitioners, you play a fundamental role in the tax system. Many of you are at the coal face, helping businesses manage their books and encouraging them to comply with their obligations. You are in a prime position to influence willing participation and to provide feedback to us about how things are working. The ATO s relationship with the tax profession is increasingly collaborative, with some excellent joint work on initiatives such as the External Compliance Assurance Process. The ECAP is a good example of leveraging external expertise and existing assurance processes. ECAP gives some companies (turnover of between $100 million-$5 billion) the option of using their existing statutory auditor to undertake assurance work on factual matters we have an interest in. The pilot ran from 1 July to 31 October and a full evaluation is planned for February/March, which will allow for the last of the pilot cases to be completed. The IPA s Lance Cunningham plays an important role on the ECAP Steering Group and we appreciate his contribution. Page 4 of 10

5 Consultation Our partnerships with your industry and other intermediaries are key to us moving forward together. We have been consulting on a range of technical views, active compliance processes, transitioning to the new digital environment, and taxation of trusts that s in addition to the ECAP pilot and design of the future client experience. In this context, we have recently formed the Future Industry Working Group with tax practitioners, professional associations (including of course the IPA), software developers and ATO representatives to focus on: creating a better experience for the tax industry dealing with immediate concerns of the industry anticipating issues just over the horizon in ; and what the industry will look like in 2020 Following on from the first meeting of this Working Group in late September, three sub-groups will now meet to: 1. Work on how we can resolve irritants in the current system focussing on the Tax Practitioner Lodgment Program, stability and other problems with the portal, the targeting and quality of compliance letters, and ceasing mailouts of paper BAS forms to those who have lodged electronically. 2. Consider how to successfully transition practitioners from the Electronic Lodgment Service to Standard Business Reporting and the current portal services to ATO Online in This is a four-way partnership between ATO, tax agents, professional associations and software providers. 3. Consider the future of the industry looking towards 2020 this is about longer term planning and to the extent we can future-proofing. It covers things like operating in the cloud, automation of lower-value tax returns and finding ways to keep up with service demands and expectations. Improving our advice and guidance We are currently reviewing the effectiveness of our advice and guidance, such as the mix and quality of products, their timeliness, and the effectiveness of the current consultation processes (including the Rulings Panel). In the course of this review, we re looking at a wide range of products from factsheets and ATO Interpretative Decisions to tax rulings. We ve appreciated the IPA s contribution to this review your Senior Tax Adviser, Tony Greco, has already provided us with valuable insights on what IPA members think of our current advice and guidance. Such feedback will ensure that Page 5 of 10

6 recommendations from this review are aimed at meeting the community s present and future needs and expectations. Going forward, we hope we will receive regular input from your membership to make our guidance more pragmatic and relevant. As tax practitioners, you are well placed to know what systemic issues the ATO should be producing guidance on. We need tax practitioners and taxpayers to come to the table early, in a transparent and proactive fashion, and share with us their insights and suggestions so that we can produce more pragmatic, useful and relevant guidance in the future. Our approach to dispute management Dispute management is rather topical given the Disputes Inquiry by the House of Representatives Standing Committee on Tax and Revenue, which has again been conducting hearings in Canberra this week. The Committee is examining how the ATO manages and resolves disputes with small business and individuals and has requested the Inspector General of Taxation to examine the ATO s approach in managing disputes with large businesses and high wealth individuals. The inquiries are due to report to the Government in March Disputes, while not desirable, are a feature of a complex system. They are sometimes useful in providing insight at case, administration and law design levels and may help us improve our services and keep the tax and superannuation systems relevant. To maintain trust and confidence in the ATO, we need to understand the drivers and number of disputes and manage them in a way that is efficient, respectful and fair and as early as possible. Early resolution not only saves time and money for the taxpayer and the ATO, it also provides certainty for taxpayers for future compliance and promotes productive relationships. Where systemic issues are identified, we need to escalate them to be part of a broader ATO strategy or provide advice to Treasury. Most interactions with the ATO do not end up in dispute. Of the 16.5 million returns lodged last year, there were 24,700 (around 0.1%) objections, of those, only 800 went on to court/tribunals and only 100 cases on to decision. While these numbers are small in the broader scheme of things, their significance is not they impact people s lives and the matters themselves need to be resolved for the individual case and potentially the broader system. We are pleased with the improvements to dispute prevention and management in the ATO in the last 18 months and have a number of strategies in place that are having a positive impact. Let me share some of these with you: Page 6 of 10

7 Early engagement across the board an emphasis on early engagement through conversations and dialogue, rather than drawn out paper wars. In the rulings space, this approach has already reduced the average cycle times from 129 days to 70 and even as little as 40 days in the case of smaller enterprises. Boosting tax technical support and legal discipline for front line compliance officers (auditors). Our people from our previous Centres of Expertise have been out-posted with Compliance teams and our senior dispute resolution people provide CPD sessions and clinics on legal processes like facts and evidence gathering as an example. We are increasing the use of Alternative Dispute Resolution (ADR), with use of independent parties some in-house facilitators and private practitioners, usually former Federal and High Court judges. The most common form of ADR used includes mediation and Early Neutral Evaluation, or a combination of both. We introduced the new Independent Review function for taxpayers with turnover of more than $250 million to review the technical merits of an audit case prior to finalisation of the ATO position. This process brings a fresh set of eyes someone who has had no prior involvement in the audit and who is outside of our Compliance group to look at the merits of the audit position. The reviewer offers recommendations to the original decision maker about the preferred view and the way forward. Interestingly, out of 20 cases so far 12 have gone in favour of ATO, eight for the taxpayer. Of the 12 found to be consistent with the ATO position, 11 have been or are in settlement discussions and only one has continued on to objection. We have expanded our Review and Dispute Resolution function to include objections for all large market audits (+$100 million), including Indirect Tax, Petroleum Resource Rent Tax and privately held group audits from 1 July Decision makers for these objections are independent from Compliance and have the authority to make decisions about the way forward whether that is arriving at the same position as the original decision maker, overturning the original decision, whether to settle, or whether to litigate. Page 7 of 10

8 Our revised Code of Settlement streamlined guidance, written clearly, concisely and in a way that supports settlement as a feasible option for resolving disputes and providing certainty for the future. It replaces the Code that had been in place since 1999 and it sets out the factors to be considered when deciding whether or not to settle. And I want to stress, of course, not at any cost, but where it is beneficial and practical to do so. We are settling more cases earlier. In , 77% of settlements occurred before litigation, an increase from 52% in While we are committed to early resolution of disputes, litigation remains an important component of our dispute management strategy. In keeping with the principles of being a model litigant, litigation is appropriate where: - there is a contentious or uncertain point of law which requires clarification, and it is in the public interest to seek law clarification through litigation. - the behaviour is such that we need to send a strong message to an individual or broadly to the community that we won t sit idly by. - there is a longstanding unresolvable debt. - the dispute is intractable, alternative means of resolution have been attempted but have not produced an acceptable outcome. As part of our litigation strategy we are reviewing our approach to the Test Case Litigation Funding Program which has been in place for almost 20 years. We want to make sure that access to the program is easier and that we identify potential cases earlier. Funding under the program is determined by a Panel, which comprises two ATO representatives and three external representatives. The ATO is firmly committed to our dispute management improvement strategies, which will over time, ensure that those in dispute find the experience with the ATO efficient, respectful and fair. When we get that feedback, we will know that cultural change has really happened. Managing risks to our revenue base and dealing with those who do not do the right thing You may be aware of recent media questioning the ATO s resolve and capability to deal with those involved in tax avoidance or evasion. The media around the Tax Justice Network s report and G20 actions have created perceptions around tax behaviour of large corporates. I want to assure you that we are, and will continue to, pursue those who fail to pay the right amount of tax be they individuals, small businesses or large corporations. We are acutely aware that taking action against those who do not do the right thing Page 8 of 10

9 is critical to maintaining community confidence in our fairness and integrity, and ultimately the sustainability of the system and willing participation in it. We are constantly assessing threats to our revenue base, including those posed by large corporations. Large public companies, in our experience, are generally highly compliant with our tax laws, and they certainly enjoy a lot of our attention. That attention includes regular risk assessments, a range of activity and conversations around education, assurance, reviews, and audit. We notice that the appetite for taking on tax risk i.e. the risk of the ATO taking a different view to them, is currently decreasing if anything. We know that the majority of large corporates pay the right amount of tax within the current laws. But we do look closely at the amount of tax they pay and what they report to us. If we find inconsistencies or have questions about what is reported, we review, and in some cases audit, a company s tax affairs. And when we find evidence of deliberate non-compliance, we are not soft we take the necessary enforcement actions knowing that a fair system and administration is critical we have to be taking action against those not doing the right thing or those aggressively testing the boundaries. We have good coverage over the ASX 200 and companies with turnover beyond $250 million and currently have some kind of activity or conversation going on with 70 per cent of them. This brings me to the international arena and to issues like Base Erosion and Profit Shifting (BEPS as we now call it) and efforts to reform the international tax system. BEPS, international tax reform and transparency In today s world, multinationals operate seamlessly across borders and take a global, top-down view to structure their operations across countries for maximum economic advantage. As tax administrators, we need to do the same. We will remain at a disadvantage unless we move from taking an isolated, single country view and replace it with a global, bigger picture view. We have stepped up our efforts to ensure that multinationals pay tax in Australia on the income they earn here. Working with the G20, OECD and other partner tax administrations, we have been mapping the global operations of some multinationals that operate in the digital economy. As a prototype for a new way of working together, Australia has led a project with five other countries to investigate global tax planning by multinationals and share intelligence on their activities. This unprecedented collaboration is allowing us to better understand and compare financial reporting by multinationals in Australia with what they report in other Page 9 of 10

10 countries. We are testing their assertions and arrangements as to how they fit with our existing laws. Our future efforts in the international tax arena are supported by: more than 100 information exchange treaty partners from whom we can collect information about individual taxpayers offshore activities. In this helped us collect around $480 million in extra tax revenue implementation of the OECD Common Reporting Standard for automatic exchange of information the tax transparency measure here in Australia from about September 2015, our publication of information about the tax affairs of large corporates. This information will relate to the income year and will include the entity s name, ABN, total income, taxable income and income tax payable. Legislation to bring this timeline forward has been introduced in Parliament this week. Policy and Law design Another important item on our agenda has been to lift the ATO s level of influence and quality of input into policy and law design. Quite clearly the ATO has the advantage of seeing what works and doesn t in practice, including from our disputes, and can use those insights to advise Treasury about potential policy and law changes. Our Integrated Tax Design Unit has been set up to make this happen and to ensure we give good advice based on our observations and input from the community. Given the complexity and time frame for law change, we are looking to use administrative solutions when we can. Some of you would have heard of Commissioner s remedial powers or Commissioner s discretion. If we had this, it would give us some additional flexibility in interpretation of the law consistent with policy intent. Conclusion I have shared with you our thinking about reinventing the ATO and what we are doing to transform the tax and super experience in Australia. This is not a fad but a long journey of change. I d be interested in your feedback so far. Thank you and I m happy to take some questions. Page 10 of 10