Trends in tax administration and risk in Australia 

My name is David Drummond. I'm the National Leader in Australia for our Tax Management Services Group. In regards to tax administration, there's been a trend over the last five or six years to focus on risk differentiation, to look at taxpayer populations and determine the level of compliance activity that you'll apply to particular sections of those populations by reference to how the revenue authority perceives their risk, and their consequence in terms of if they're noncompliant in some regard what does that do to the revenue collections of the jurisdiction. It's becoming increasingly obvious that if revenue authorities adopt a risk-based approach to tax administration they need to be able to cooperate, interact with and collaborate with all of the other jurisdictions in the region.

What we're moving to is a situation where more and more of those huge multinational companies operate their business on a global basis. Revenue authorities still are operating on a jurisdictional basis. There's a need for those revenue authorities to cooperate with each other, exchange information and interact with each other in ways that they've never done before. So we're now starting to see new ways of interacting in forms of cross-jurisdictional audits, joint audits, in order to the same taxpayer at the same time in two countries at once. It's even their regimen of multijurisdictional audits rather than just joint audits. That presents challenges for revenue authorities in terms of non-English and English-speaking revenue authorities, and how they make their way through those is going to be best evidenced by how they're able to undertake joint, firstly, and then multijurisdictional audits. But the point there is that when they have the opportunity to seek and engage with companies of that nature together, across jurisdictional boundaries, they'll encounter and deal with those organizations and see them in ways that they can never have been individually seen them before.

Australia's been a leader in relation to the OECD forum on tax administration, and has been for many years. The Australian OECD guidelines in relation to transfer pricing, for example, were originally conceived and put forward for international consideration by the Australian tax office in the 1990s. They were at the forefront of involving economists in relation to the contemplation of how international profits should be traded as between competing jurisdictions. The ATO has continued that all the way through the '90s into the 2000s. For example, the ATO's risk-based approach to administration is being picked up and used by a number of jurisdictions in the world. Canada in particular, but others as well. And there's constant dialogue between several of those jurisdictions whether it's through what we call ‘the coalition of the willing’, the four major English speaking revenue jurisdictions of Australia, the United States, Canada and the U.K., but also other broader frameworks of interaction. The Joint International Tax Shelter Committee is an organization that originally had it's membership confined to those English speaking jurisdictions, but now we find China, Korea, Germany, Japan, all participating in those international tax forums whereby they get the benefit of being able to observe what companies are doing across jurisdictional boundaries.

Other revenue authorities have different sized taxpayer populations. So their ability to operationalize some of the risk differentiation of the ATO applies in practice is not as easy because of the size of the taxpayer populations, but the principles are the same. You focus your attention on those taxpayers that you believe have a high risk appetite in relation to their tax affairs, and you spend a lot of time with them to the point where you offer them two choices. One, you go into a horizontal monitoring style arrangement whatever that might be, whether it's the Dutch style or the Australian, your compliance arrangement or the equivalent arrangement that are in place in the United States, the United Kingdom. They're all directed towards securing a voluntarily compliant taxpayer arrangement where the taxpayer in return for cooperating and providing information on a real-time basis is promised, prospect of certainty in relation to the tax affairs in real time by the revenue authority.

It's only a matter of time before other revenue authorities around the world pursue and follow the lead set by the Australian tax office in relation to their risk-based approach. In doing that, the emphasis is increasingly focusing on tax rate management and corporate governance frameworks. Organizations are being required to present those frameworks to revenue authorities increasingly around the world but particularly in Australia. The understanding of that tax risk management corporate governance framework, is enabling the revenue authority to further differentiate between those taxpayers who have sound tax risk management in corporate governance frameworks and those who don't. They will direct more compliance activity towards those that don't than those who do.