In what appears to be a first (I can’t find any other ATO document on the ATO website that calls itself an 'Administrative Solution') the ATO has offered foreign banks new benchmarks for AUD borrowings based on the Bank Bill Swap rate (BBSW). Whilst directly relevant to foreign banks, the interesting point is that the ATO has found a way to read references to 'LIBOR' in the 1936 Act as 'BBSW + margin' (ranging from 0 to 80bps depending on tenor).
This Administrative Solution is a result of an agreement between the industry, ably represented by Australian Financial Markets Association (AFMA), and the ATO. The Administrative Solution itself points out that it is not a public ruling and does not offer any protection under the tax law. Instead it states, 'taxpayers may rely on this administrative solution in assessing the extent to which their practices present any compliance risk'. In addition, taxpayers will be offered protection from any future change in the Commissioner’s view by PLSA2011/27.
There is also a stick: 'Where a taxpayer departs from this administrative solution, the ATO’s views of the taxpayer’s level of compliance risk may increase'.
This is an excellent initiative and a tangible example of the new ATO resolving issues at an industry level rather than through compliance. I expect that the ATO will honour its side of the bargain and that there will be general adoption of the proxy rates within the foreign banks who collectively pushed for the administrative certainty offered by this solution. It is just perhaps unfortunate that the solution does not have a more solid foundation?
The question it poses for others is what’s next for an administrative solution?