ATO under scrutiny over audits and tax dispute with private equity sector heats up

The man charged with keeping a leash on the Australian Taxation Office, Inspector General of Taxation Ali Noroozi, has launched a wide ranging review of the way the ATO conducts audits of large companies after allegations the tax office is “forcing taxpayers into a corner”.

Noroozi’s review will primarily focus on the way audits and risk reviews are conducted. He says that while businesses report that the ATO is managing to complete reviews in the specified time frame, “the way they are being handled is not achieving the aim of trying to resolve issues and disputes as early as possible”.

The review will also examine the ATO’s use of its information-gathering and access powers and its application and remission of penalties and interest.

“Large business and their advisers have expressed strong concerns about how the ATO exercises its powers in the course of an audit and the resulting financial and reputational impacts on them,” Noroozi said in a statement.

“Some have gone so far as to allege that these ATO practices can be tantamount to forcing taxpayers into a corner.”

“All these aspects have the potential to cause unnecessary disputes and increased compliance costs. I intend to review these allegations, and any other related issues, to determine if the concerns are justified and whether the system could be improved.”

Noroozi has called for submissions to the review to be submitted by 31 December.

The launch of the review comes as the ATO’s battle with the private equity sector heats up.

Last week the ATO revealed it was perusing private equity firm Texas Pacific Group (TPG) over tax payable on the proceeds from the float of the Myer department store chain. According to media reports, the ATO is seeking around $678 million in tax.

TPG says it has met its tax obligations from the Myer deal, but will continue to cooperate with the ATO.
However, the wrangle has taken a new turn this morning with reports that the ATO believes that TPG’s gain on the Myer float – which was reportedly as high as $1.5 billion – should be treated as profit rather than a capital gain.

This is a crucial distinction for overseas investors such as TPG, as foreign investors are not required to pay tax on capital gains but are required to pay tax on profits.

The Australian Private Equity and Venture Capital Association is concerned the ATO’s stance will act as a disincentive for foreign private equity investors to come to Australia.

It plans to seek a meeting with Assistant Treasurer Nick Sherry to discuss the issue.