The Government today released the Inspector-General of Taxation’s report of his Review of Tax Office management of Part IVC litigation.
The report looked at the Australian Taxation Office’s (ATO) administration of tax litigation arising from the appeal procedures of Part IVC of the Taxation Administration Act 1953. Included within the report is an evaluation of the test case litigation programme requested by my predecessor, the Hon Mal Brough MP.
The Inspector-General has made recommendations to the ATO designed to improve both the operations and perceptions of administration of the tax litigation programme. The Inspector-General recommended that the ATO:
- develop a published policy or guidelines on tax litigation;
- give a single area of the ATO overall responsibility and authority for the management of all aspects of litigated cases;
- introduce risk management techniques to its management of litigation issues; and
- introduce a standard communication product to communicate the application of finished court and tribunal decisions.
The Commissioner of Taxation’s response to the Inspector-General’s recommendations is included in the Inspector-General of Taxation’s report released today.
The Inspector-General also made recommendations to the Government for improving the test case funding programme and the funding of taxpayers’ costs where the ATO appeals against a court or tribunal decision. In response, the Government will be establishing a new review body, to be headed by the Treasury, to review the submissions of unsuccessful applicants for test case funding.
The Government will develop guidelines about Commonwealth funding for taxpayers’ reasonable legal costs where the Commissioner appeals against an adverse decision.
The Government's response to the Inspector-General’s recommendations is attached.
The Inspector-General of Taxation’s report is available at www.igt.gov.au
Attachment
Government response to the Inspector-General of Taxation report entitled Review of Tax Office management of Part IVC litigation
Part 1: Recommendations to the government
Recommendation 4
The formal test case program (defined as the program under which a taxpayer makes a formal application for test case funding in accordance with funding criteria that have been publicised by the Tax Office) which is designed to fund cases which will clarify the law by establishing new legal principles should remain but new arrangements for the management of the test case program are needed. Precedents for an appropriate structure which deliver independence without being overly bureaucratic could be the existing Tax Agents’ Boards or the Board of Taxation.
The Government’s response: The Government will provide a right of review of decisions made by the Australian Taxation Office in relation to test case funding to unsuccessful applicants and will establish a review body, to be headed by the Treasury, for this purpose.
Recommendation 5
The Tax Office should fund taxpayers’ expenses in defending the case in all cases where the Tax Office has been unsuccessful at any stage of litigation, a decision is made to appeal the relevant decision and it is fair and in the public interest for the Tax Office to fund the taxpayer’s expenses. The Tax Office should develop and publicise appropriate guidelines for the funding of such cases.
The Government’s response: The Government has asked the Treasury to consult with the Attorney-General’s Department and the Australian Taxation Office in the development of guidelines for funding respondents’ costs in appeals against court and tribunal decisions adverse to the Commissioner.
Recommendation 6
The Tax Office should introduce a standard communication product to communicate the application of finalised court and tribunal decisions. The content of any Tax Office communication should be consistent with its role of administering the tax laws in a fair and objective manner and could include, for example:
- the issues to be decided by the tribunal or court;
- the implications of the decision on each of those issues;
- the implications of the decision on the Tax Office view;
- how the Tax Office will apply and follow the finalised decision;
- the reasons why the Tax Office will apply and follow the finalised decision in that manner; and
- whether the Tax Office will be seeking legislative amendments.
The Government’s response: The Government notes the Commissioner has already responded favourably to part of this recommendation. In relation to the final part of the recommendation, it would be inappropriate for the Australian Taxation Office to publicise any requests it might make to the Government for legislative amendments to the tax laws. Such action would create confusion and uncertainty about the tax laws. It cannot be assumed that the Government will accede to any request for legislative change made by the Australian Taxation Office following a court or tribunal decision adverse to the Commissioner.
Part 2: Key Recommendations to the tax office
Recommendation 1
The Tax Office should clearly articulate its corporate philosophy and approach to litigation in a formal and consolidated published policy or guidelines on tax litigation, such as a Litigation Charter.
The Inspector-General considers that this document should state that the primary aim of litigation for the Tax Office is to resolve disputes in a fair, timely and cost effective manner, consistent with the rule of law.
There should also be community consultation in the development of a published policy or guidelines on tax litigation.
In this document the Tax Office should also affirm its commitment to administer the tax laws as enacted by Parliament and interpreted by the courts in an impartial and transparent manner. The Tax Office should also affirm that it will follow the results of finalised court decisions in other similar cases.
There should be wide community consultation in the development of any policy by the Tax Office on whether it should challenge finalised court decisions in certain circumstances. If the result of this process is that the Tax Office still considers that it will challenge finalised court decisions in certain circumstances then the Tax Office should clearly and fully articulate those circumstances and its associated processes in its formal published policy or guidelines on litigation.
Pending the development of any such policy regarding challenging finalised court decisions, and its publication in a formal consolidated set of guidelines on litigation, the Tax Office should publicly affirm that it will follow the results of finalised court decisions in accordance with the criteria which have been formulated by the Commonwealth Solicitor-General and Chief General Counsel.
The Government’s response: The Government notes that the Commissioner has made a commitment to issue a practice statement on the Australian Taxation Office’s approach to, and conduct of, litigation.
Recommendation 2
The Tax Office should establish management arrangements which give a single area of the Tax Office overall responsibility and authority for the management of all aspects of litigated cases.
The Government’s response: The Government notes that the Commissioner has agreed to this recommendation.
Recommendation 3
The Tax Office should introduce risk management techniques to its management of tax litigation issues. It should start this process by defining the scope of the Commissioner’s and the Tax Office’s legal risk in collaboration with the Australian Government Solicitor (AGS) and counsel engaged by the Tax Office.
The Government’s response: The Government notes that the Commissioner will review current practices in tax litigation issues with this recommendation in mind.
Subsidiary Recommendations
The Inspector-General made 26 subsidiary recommendations to the Tax Office, to which the Commissioner has already responded favourably. The full text of the subsidiary recommendations and the Commissioner’s responses are published in the report at www.igt.gov.au.