Despite close to $2 billion of tax revenue potentially forgone by the ATO in 2016-17, the Australian National Audit Office (ANAO) has declared the tax office’s use of settlements to resolve taxpayer disputes as effective.
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According to the ANAO, the ATO concluded 648 settlements in 2016-17, of which 89 per cent occurred in the pre-litigation stage. Cases had a pre-settlement amount of $4.6 billion, settled amount of $2.7 billion and variance of 41 per cent.
The settlement variance, which is the difference between the ATO’s pre-settlement and settled positions, is the amount of tax revenue potentially forgone by the ATO.
The ANAO believes that while the total amount of variance from settlements each year is considerable, that variance is small as a proportion of the total tax revenue collected by the ATO.
The ANAO also believes the tax office has been effective in its use of settlements, in accordance with its policies and procedures, including the code of settlement.
“The ATO has made many improvements to its approach to settlements in recent years, including refreshing the Code of Settlement and introducing the Independent Assurance of Settlement process that has found settlements with large businesses and multinational enterprises to have been fair and reasonable,” the ANAO said in its report.
“The ATO’s settlement practices are effective, in that settlements have been entered into, negotiated and followed up largely in line with its settlement policies and procedures, including the principles outlined in the Code of Settlement.”
In the ANAO’s analysis of ATO data, the proportion of settlement variance for large businesses was less than 50 per cent in the last three years, often lower than other market segments and in 2015-16 was the lowest (26 per cent) among all market segments.
ATO deputy commissioner Debbie Hastings said this would help counter criticisms that settlements favoured the large end of town.
“In 2016-17, less than 6 per cent of all ATO settlements were in the large market, but in total they accounted for over 52 per cent of the total value of settlements,” said Ms Hastings.
“To provide greater community confidence around settlements in the large market, the ATO implemented an Independent Assurance of Settlements (IAS) review program by engaging three retired Federal Court judges as independent assurers.
“Soon after a settlement takes place, an assurer reviews the case independently to provide the ATO with assurance that cases have been settled for the right reasons.
“We believe this assurance process strikes the right balance between the importance of maintaining confidentiality of taxpayer information and the community’s interest in the integrity of the tax system, including the appropriateness of settlements.”