Tax Adviser or Australian Taxation Office Informer? The Mandatory Disclosure Proposal

As part of the 2016-17 Federal Budget, the Government announced that it will introduce Mandatory Disclosure Rules to require tax advisers (and in certain circumstances taxpayers) to report ‘aggressive tax arrangements’ to the Australian Taxation Office ("ATO"). At the same time, Treasury released a discussion paper, OECD Proposals for Mandatory Disclosure of Tax Information.  This article outlines how the rules are anticipated to operate and raises some questions which will need to be addressed.

The proposal is based on the Final Report on Action Item 12 of the OECD’s BEPS Project which sets out a framework for mandatory reporting of “mass-marketed schemes” to the revenue authorities.  (The OECD Report also discusses “cross-border schemes” but Treasury’s Discussion Paper ignores this part of the Report.)

It is anticipated that the ATO will be given broad discretion to define “aggressive tax arrangements” which must be reported to it. At this stage it is not clear whether the obligation to report will arise only if the ATO identifies and publishes something akin to a Taxpayer Alert (i.e. a warning about tax arrangements in relation to which the ATO has concerns) or whether the obligation will be automatically triggered once certain listed generic characteristics are present.  Any tax adviser involved in the “design, distribution and management” of an “aggressive tax arrangement” as defined will be required to disclose certain information to the ATO. However, where a tax adviser is offshore, the taxpayer may be required to satisfy the disclosure requirements on their behalf. Non-compliance with the Rules will lead to monetary penalties.  Once the information is received, the ATO will presumably use this intelligence to start reviews and audits of taxpayers, and perhaps also to review whether any internal processes need to be modified.

There are still many areas where we have little indication about how the rules will operate. Some of the more pertinent issues include: 

• What is the position where Legal Professional Privilege attaches to the taxation advice being provided?
• Will the Commissioner’s administrative concession known as the Accountants’ Concession be maintained under the Rules?
• Will there be an obligation to disclose where a tax adviser is engaged to undertake a supplementary review of an arrangement where initial advice has already been sought by the taxpayer. Is there any obligation for the second adviser to disclose? What if the primary tax adviser is located offshore?
• Is the obligation to disclose on the tax adviser as an individual or that of the firm. If it is the latter, a further issue arises in circumstances where the relevant individual has since left the firm.
• How will the rules operate for in-house tax advisers?
• What is the position of a tax agent who is responsible for lodging an income tax return where advice has been sought from a separate tax adviser in relation to a relevant arrangement?
• Is the ATO planning to maintain a register that tracks specific tax advisers based on the number of aggressive tax arrangements they disclose for the purposes of creating a risk profile of tax advisers.

Treasury has invited submissions on the Discussion Paper. The deadline for submissions is 15 July 2016.