Inspector General of Taxation to investigate complaints about ATO penalties and risk assessment

The Inspector General of Taxation has announced a work program today to investigate complaints about the Australian Taxation Office’s use of penalties and assessment of risk amongst other things.

Ali Noroozi will review five areas of the ATO’s work: its use of compliance risk assessment tools, administration of penalties, management of transfer pricing matters, compliance approaches to individual taxpayers and interaction with the Australian Valuation Office.

Noroozi told SmartCompany an extensive consultation process raised a wide range of issues and concerns that the community would like him to review.

“While I cannot review every issue, I am confident that the topics selected reflect the greatest levels of community concern or significance in achieving a more efficient, fair and transparent tax administration,” he says.

Many submissions to the Inspector General raised concerns with the ATO’s risk assessment tools and their application in selecting taxpayers for audit or other compliance activities.

Stakeholders questioned whether a significant number of compliant taxpayers were inadvertently captured, resulting in the unnecessary imposition of higher compliance costs.

The Inspector General will also investigate whether the ATO’s processes place sufficient emphasis on appropriate evidentiary bases for penalty decisions to avoid unsustainable penalties being used as ‘bargaining chips’ in settlement negotiations.

Submissions also raised the “significant” compliance costs in disputing ATO penalty decisions.

Also of concern to the Inspector General is the ATO’s compliance approach to transfer pricing within the SME and large business market segments.

“They have cited considerable delays and compliance costs as key issues,” Noroozi says.

The ATO’s compliance approach to individual taxpayers including “micro businesses” is also part of the program.

“Such issues include delays, perceptions of ATO auditor aggressiveness and lack of capability, the clarity of ATO communications and the adequacy of available ATO guidance to assist individual taxpayers comply with their obligations,” Noroozi says.

In relation to the Australian Valuation Office, the Inspector General will investigate whether the AVO is sufficiently independent of the ATO and whether there is a revenue bias in determining its valuations or related advice.

Noroozi says in the next two weeks terms of reference will be announced and then time for submissions to be made so the review proper will start in the new year.

“I’m hoping the bulk of the program will be completed by the end of next year,” he says.